[BSC Vietnam] New Kid On The Block (ACV, PC1) 16/11/2016 (REUP)

Dear Value clients and partners,

  • The energy sector (+2.03%) finished in the lead as crude oil futures rebounded, followed by Consumer staple (+0.95%) , with WTI crude closing 5.9% higher at $45.87/bbl. The other sectors look quite balance with 5 gains vs 3 loses in marginal percentage.
  • Today’s stock participation close to recent average of 154 M shares (USD 113 million) on the HSX & HNX floor. Foreigners trading was quite balance value at around USD 45 million.

Today’s Markets:

  • Indexes, Vn-index +0.05%, Hnx-index +0.01%, Upcom -0.23%
  • Active, HSX: ROS, VNM, HPG, FLC, ITA. HNX: SHB, DBC, VCG, PVS, CEO
  • Foreigner, Buy: VNM, CII, NT2, PC1, GAS.  Sell: VHC, VIC, LGC, BVH, DPM
  • Noticed stocks: HAG, HNG, PHR, DPM, ROS, VNM, KSB, PVS, ITA

Corporate update:                                                                                                             

  • New listing. ACV (Airport Corporation of Vietnam) Market cap 2.45 billion. ACV is exploiting entire civil airports system in Vietnam. Compared with other airport operators in the region, ACV is the only one that authorized to operate the whole civil airports system with 22 airports spreading across the country. Currently the total designed capacity of ACV is 77.51 million passengers (including 10 international airports and 11 domestic airports, Na San airport is not in exploitation).

o   Strong growth in core business. Besides, Rev from aeronautical activities is the 2nd largest growth in Southeast Asia (+ 37.95% yoy, just behind Malaysia), non-aeronautical activities is at the lowest level in terms of revenue and the ratio of Non-aeronautical Rev / aeronautical Rev was only 0.24 (regional average is 0.86). Thus, what we mean is that the potential for ACV growth is huge.

o   Improvement in 2016 Financial Results. Net profit margin from core operations was double, from 14% in 2015 to 28% in the six months (Apr 1 2016 to Sep 30 2016). Abundant cash, reaching VND 17 trillion at the end of quarter 3/2016, equivalent to the cost of investing in a mid-range airport.

BSC did the IPO for ACV last year offering over 77 million shares at average price of 14.344 VND/share. ACV will be listed on Upcom on 21st Nov 2016 with starting price of 25,000 VND/share. We will have our updated report very soon. In the meantime, check our report (Vietnamese | English)

  • PC1 (VND 43,000 per share / +19.4%/ Market Cap VND 3,236 bn/ PE trailing = 8.64x / PB = 1.68x.) On Nov 16th, PC1 was listed on HOSE for the first time. PC1 is the biggest player in power transmission line construction with about 38% market share.  Business results: the accumulated 9M2016 revenue of PC1 increased to VND 2,100 bn (+7.9% YoY), but the accumulated gross profit reached VND 413.6 bn (+47% YoY), GPM = 19.7%. This results was mainly contributed by the performance of 3 major segments:

o   Power transmission system construction (54.5%): Despite the 2010-2015 CAGR of 44%, this segment decreased by 17.7% to VND 1,141bn in 9M2016 due to the reduction in the disbursement of public investment.

o   Electric pole manufacturing (17%): PC1 has the largest capacity of galvanized steel for producing electric poles in Vietnam (50,000 tons per year), and this leads to the 40% market share for the firm. However, the revenue fell by 22% to 358bn in 9M2016.

o   Real estate (20.2%): In 9M2016, the revenue and gross profit surged to VND 426bn (there was no real estate sales last year) and 112bn of gross profit (GPM = 26%) respectively. This is resulted from the recognition of PCC1 Complex Project sales (total estimated revenue = VND 470bn).

The hydroelectric segment is expected to start contributing in 2017 with the revenue and gross profit of VND 230bn and 129bn respectively due to the operation of Trung Thu (30MW) and Bao Lam 1 (30 MW). We will have our report on PC1 soon.

Comments:

  • ROS-Faros from the top… The main index again was weighed down by ROS (rank 8th) and closed only marginal higher. We noticed that most stocks have positively trading today, especially rubber, energy, material and real estate sectors.
  • New Kid On The Block. We have mentioned before on our 4Q update that Vietnam stocks market will heavily depend on the new listing stocks. PCC1 (PC1), Vissan (VSN) and event Habeco (BHN) are just kids compare to the giants including textile (Vinatex), beverage (Sabeco), Airport (ACV), Airline (Vietnamairlines, vietjet), petroleum (Petrolimex, PVoil, Binh son Oil refinery), real estate (Novaland), Utilities (PV power) and Automobile (VEAM).

We find that most stock on top Blue-chips will very likely to be replaced by new comers in 12 months (about 30% of top 10, 40% of top 15 and about 50% of top 30). The market will have around USD 15 billion market cap more (21%) thanks to these stocks. What it mean for the market:

o   ETF and index tracking funds will be busy with rebalancing portfolios (sell current holding and buy new stocks)

o   Sectors weigh also will change in advance of consumer staple, real estate, energy, utilities and travel

In long term, these new stock can bring new growth and new industries for investors. In medium term, we think that investor should hurry up if you have not had a few new names in your portfolio.

We attacked our presentation slide about next year investment theme for your reference.

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