Navigating Vietnam 2021 – Envisaging a new high

• Reiterate Hold at a higher TP of VND13,400, on a downward revision in risk free rate from 4% to 3% and roll forward of DCF valuation to 2021.
• We expect the VN-Index to reach 1,180 pts within 2021 based on 15.9x FY21F P/E and 23% yoy aggregate earnings growth.
• Our top stock picks are VHM, MWG, HPG, VPB, TCB, SCS, ACV and FPT.

Moving into 2021 with confidence

Successfully containing the Covid-19 outbreak has helped Vietnam to dodge an economic recession with a positive GDP growth in 2020. We expect the economy to grow 7.1% yoy in 2021F, underpinned by 8.8% yoy expansion in manufacturing and 7.1% yoy growth in service. We expect export to accelerate 12% yoy in FY21F, driven by the meaningful recovery of global demand post vaccine discovery. The Vietnam dong is likely to strengthen, facilitated by a trade surplus and strong FX reserve. We see no downward pressure on inflation amid the oil price hike as foodstuff price is cooling down.

Earnings growth is on the mend

As Covid-19 casted shadow over all aspects of our economy, aggregate earnings of VN-Index dipped 9.5% yoy in 9M20. However, 3Q20 aggregate earnings edged down 5.9%, much better than the sharp declines seen in 6M20. With macro momentum rebounding and 3Q20 earnings performing a V-shaped recovery, we estimate listed corporate earnings across the VN-Index will grow 23% yoy in FY21F.

We identify four investment themes beyond pandemic

First, growing domestic consumption alongside consumer confidence bounce-back will propel the retail and food & beverages sectors to recover faster than others. Second, robust state investment expansion, mainly in infrastructure, could buoy construction materials and aviation infra developers. Third, country manufacturing sectors are broad plays given the gradual recovery of global demand, led by the rebound of China economy. Last, benign interest rates will bode well for banks and residential property developers.

The time to act is now

We expect VN-Index to reach 1,180 pts within 2021, based on 15.9x FY21F P/E and 23% yoy aggregate earnings growth. Our top stock picks are VHM, MWG, HPG, VPB, TCB, SCS, ACV and FPT. Downside risks to the market include the uncertainty of Covid-19 outbreak and slower-than-expected recovery of listed companies’ FY21F earnings. Market catalysts include sooner-than-expected mass availability of Covid-19 vaccines and earlier-than-expected MSCI EM upgrade of Vietnam.

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