[BSC Vietnam] Which Stocks Will Get Benefited From New VAT Draft? (HSG) 16.08.2017 (DELAYED)

Summary:

  • Indexes (16 Aug 2017), VN-Index +0.33%. Trading value 162.2 USD mil, Foreigner Net: 0.94 mil USD (Sell 9.33 USD million and Buy 10.27 USD million)
  •  HSG (VND 29,150, +1.6%, market cap USD 450 million). BSC noted that Iron ore 62% Fe uptrend, rising from USD 53.36 to USD 73.68 / ton. Target price of VND 35,800 per share (+ 24.75%).
  • VAT of fertilizers at National Assembly in Nov 2017. we expect the tax will be approved and benefit most of sector players, but don’t expect it too soon, the draft effective date2019
  • In case the law is approved, LAS, DPM, SFG will benefied. For the latest on fertilizers in our reports and updates below

Dear Value clients and partners,

·        The euro fell 0.3% to $1.1699 on a report that Mario Draghi will not deliver a fresh policy message next week, and sank the “Euro borrowers” recently (BCCHT1 and NT2). In a slight gain day, the only clear winnerswere Energy (+2.24%) thanks to GAS (+2.5%) and Material (+1.5%) which mostly thanks to the steel makers(again our analyst always bullish about the top 3 HPGHSG and NKG). The rest seems went nowhere.

 

Today’s Markets:

·        Indexes, VN-Index +0.33%, HNX-Index +0.44%, Upcom +0.49%

·        Active: HOSE: OGC, HAI, HQC, TSC, FLC.  HNX: SHB, KLF, PVX, VE9, CEO.

·        Foreigner, Buy: HPG, DXG, HSG, PLX, BMP. Sell: KBC, SSI, MSN, VIC, CTG

·        Notice stocks: HPG, HSG, NVL, DXG, VCS, CVT, DST

·        Trading volume: ~211.75 million shares

·         Trading value: VND 3641.7 ~ 162.2 USD mil

·         Foreigner transaction Net: 0.94 mil USD Sell 9.33 USD million and Buy10.27 USD million

Corporate update:

 

·         HSG (VND 29,150, +1.6%, market cap USD 450 million). From 01/01 – 30/06/2017, according to VSA, HSG steel pipe sales reached 174,713 tons, accounting for 16.98% market share; Consumption of coated steel sheet reached 604,680 tons, accounting for 37.64% market share. In the 9M of FY 2016/2017, total finished product consumption reached 1,166,402 tons (+ 32% yoy). About capacity, Q4 FY2016/2017, HSG’s cold rolled capacity will reach 1.33 million tons (an increase of 350,000 tons from July 2017) and a capacity of 2.2 million tons coated steel (up by 400,000 tons from July 2017 and 180,000 tons from September 2017). BSC noted that Iron ore 62% Fe prices are still in the uptrend, rising from USD 53.36 / ton to USD 73.68 / ton, thus it will lead to the increase of HRC price, a positive signal for the steel industry.

BSC estimates that HSG’s Revenue 2016/2017 will reach VND 26,410 billion, EAT of VND 1,671 billion, EPS 2016/2017 = VND 4,774. We maintain our BUY rating on medium and long term with HSG, a target price of VND 35,800 per share (+ 24.75%).

Comments:                                                         

·         The VAT of fertilizers. From 1/1/2015, the fertilizers were not subject to VAT instead of 5% VAT rate as before. The tax exemption has caused difficulties for enterprises producing and selling fertilizers because of non-deductible input VAT, for example, VAT on gas price (VAT of 10%), apatite (VAT of 5%), sulfur (VAT of 10%), …. In Q4 / 2016, the Vietnam fertilizer association and the Ministry of Industry and trade have proposed to the government to move the fertilizer from the VAT exemption to under tax rate of 0%.

·         VAT of fertilizers at National Assembly in Nov 2017. Vietnam Deputy PM have a meeting with Ministry of Industry and trade and agree to send the VAT of fertilizer to Congress Meeting in Nov 2017. The sector which is mostly hold by the state has been in a difficult situation with low profit for 2 years. Hence, we expect the tax will be approved and benefit most of sector players, but don’t expect it too soon, the draft effective date is Jan 2019.

·         Which stocks will get benefited?  In case the law is approved by National Assembly, the tax will be deducted by approximately VND300 billion, VND100 billion and VND 138 billion for DPM, LAS and DDV, respectively (compare to the expected current revenue). DCM’s profit is fixed by 12% of equity; therefore, VAT tax law is not likely to affect the company result till 2018. Then, increased EPS will be around VND521/share for DPM, VND 800/share for LAS and VND 756/share for DDV. For other combined fertilizer manufacturers (BFC, SFG), the impacts of this mechanism is much smaller.

For the latest on fertilizers in our reports and updates: DPMLASBFCSFGDDVQBS and the sector update Q3 in here

P/S: This is a friendly remind about The Asiamoney’s Brokers Poll 2017 which  will conclude in 2 days. If you have not voted yet, please vote for BSC here linkThanks for your support, it means a lot to me and our team at BSC.

Cheers

Long Tran

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