[Long’s View] Protectionism Vs EVFTA (DRC) 19.03.2018 (DELAYED)

Summary

The coin plummeted last week due to restriction for online ad, while in Vietnam Vnindex has been approaching all time high (despite a heavy sell from ETF review last.

DRC – (Target price of 29.939 VND/share, market cap of USD 135 million). Our analyst have update on DRC, the biggest Vietnam tire maker. Catalyst: Vinachem intends to divest.

Protectionism vs EVFTA. Protectionism remains a key risk, especially for a heavily import export economy like Vietnam. EVFTA the FTA between Vietnam and EU is in final stage.

Covered warrant, The Ho Chi Minh Stock Exchange (HoSE) will soon officially launch covered warrants to expand investment choice and attract more foreign capital to the market (no ownership limitation for foreigners).

Dear Value Clients and partners;

· The coin plummeted last week due to restriction for online ad, while in Vietnam Vnindex has been approaching all time high (despite a heavy sell from ETF review last week). 2/10 sector declined which were finance (-0.65%) and Consumer staple (-0.51%). Among today winners, the real estate increased the most by +3.74%, followed by energy (+3.15%) thanks to recent hike in WTI oil and material (+2.88%) thanks to steel stocks.

Today’s Markets

· Indexes : VN-Index 0.79%, HNX-Index 0.75%, Upcom -1.12%

· Active : HOSE: CTG, MBB, HPG, DXG, SSI. HNX: SHB, PVS, ACB, PVI.

· Index movers : Leader: VIC, HPG, PLX, ROS, NVL Laggard: BID, VNM, SAB, CTG, VCB

· Foreigner, Buy : HDB, HPG, DXG, MSN, AST. Sell: VNM, DIG, VJC, VCB, CTD

· Notice stocks : MBB, CTG, DXG, HDB, IDI, HAG, PVS, CEO, TV2, TVN

· Trading volume : ~ 387 million shares

· Trading value : VND 9989.8 bil ~ 440.1 USD mil

· Foreigner transaction Net: 3.8 mil USD Sell 61.7 USD million and Buy 65.5 USD million

· Derivative market Total contracts: 15,432 contracts; Trading value ~ USD 76.9 million;

VN30F1803@ 1,131.1; VN30F1804@ 1,140.1; VN30F1806@ 1,144.4;VN30F1809@ 1,166.4

Corporate update:

· DRC – (Target price of 29.939 VND/share, market cap of USD 135 million). Our analyst have update on DRC, the biggest Vietnam tire maker.

The business results of DRC in 2017 reduced sharply in 2017. Although DRC increased the price of all products to 7%-10% in 2017, however, this wasn’t enough to compensate for the rising price of raw materials. Bias tires consumption decreased 5.04% while that of radial tires increased 34.2% to 333,479 tires. This thing contributes to improve the gross profit margin of Radial tires from -9% in 2016 to -2% in 2017.

In addition, the selling prices of tires products were increased 5% in 1Q2018 which helps improve the profit margin of DRC’s products. Besides, DRC is planning to put the second phase of Radial factory into operation in 3Q2018, raising the Radial tire production capacity to double.

DRC expects to produce 480.000 radial tires this year. With investment capital equal to 1/2 of the first phase, the depreciation cost per radial tire product is expected to decrease. This will contribute to improving the profit margins of Radial tires and then improve the business performance of the company.

Catalyst: Vinachem intends to divest from DRC to 36% in 2018 which raise the attention of many investors, natural rubber price come down

Comments:

· Protectionism vs EVFTA. The threat of increased protectionism remains a key risk, especially for a heavily import export economy like Vietnam. (1) Last month, US impose a tariff on steel imports (including Vietnam). (2) Last week, there is a rumor that US consider higher tariff on Pangasius (catfish) from few Vietnam’s Aquaculture companies. This trend of increased protectionism will have negative effect to import/export sectors such as textile, aquaculture… Meanwhile, EVFTA the FTA between Vietnam and EU is in its final stage to be signed which is opposite news.

· Covered warrant, The Ho Chi Minh Stock Exchange (HoSE) will soon officially launch covered warrants to expand investment choice and attract more foreign capital to the market (no ownership limitation for foreigners). Covered warrant is expected to become a new investment tool for investors, new products for Securities Company, which reduce the chance of risks, and to provide more options at a lower cost, as compared to common stocks and fund certificates. Moreover during the first phrase, only Buy Cover warrant and tickers in VN30 are qualified. There are 23 stocks in the list this time which investors show keep their eyes on.

Table of the day 19th March 2018: Stocks qualified for covered warrant

Source: BSC

Cheers

Long Tran

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