Fishery sector – Weak demand stills weigh on outlook

• Aggregated NP of listed fishery exporters recorded a decrease of 74% yoy in 1Q23 caused by weaker demand in main export market and 1Q22 high base.
• We expect the U.S market to be key driver for the Vietnam seafood export growth by 40-50% in 2H23F compared to 1H23, in our view.
• We added VHC and ANV to the watchlist.

1Q23 recap: Business results plummeted as expected

After a wonderful 2022 in which aggregate revenue/NP of listed fishery firms climbed dramatically by 29%/86% yoy thanks to pent-up demand in the U.S market, business performance of listed companies plunged in 1Q23. According to our estimates, 1Q23 aggregated revenue of listed fishery companies decrease strongly by 32% yoy following a drop in both export average selling price (ASP) and volume. Gross margin of the sector narrowed by 5.1% pts as ASP decrease while production cost lingers at high price. As a result, aggregate NP in 1Q23 slumped 74% you.

We expect the import demand from U.S market to recover from 2H23F

According to NOAA, seafood imports of U.S market recorded a decrease of 10%/18% yoy in import volume/value, respectively, following 1) high and prolonged inflation in U.S has led to the tightened household spending, indirectly affecting demand for seafood product in both Horeca (Hotel-Restaurant-Caf) and retail channel and 2) high inventory level from 2022. As a result, Vietnam’s seafood export to U.S slumped 51% yoy in 4M23. We believe the U.S market seafood demand will likely recover from 2H23 as 1) cool down inflation, 2) lower inventory level, 3) higher demand for the year-end holidays which assists seafood export turnover of Vietnam to U.S to increase by 40-50% in 2H23F compare to 1H23, per our estimate.

The China’s reopening effect is not strong as expected

After three years of following the “Zero Covid” approach, China has finally opened, resulting in a 13% yoy rise in seafood imports in 1Q23. However, Vietnam’s key export products such as pangasius and shrimp to China market fell sharply by 68% and 27% yoy in 4M23, respectively due to 1) sharp adjustment in pork price and the strong supply of tilapia which lower demand for pangasius, in our view, 2) the shrimp export value to China of Vietnam decreased due to competition from countries with cheap shrimp sources such as India, Ecuador,…Given the unpredictability of the Chinese economy’s macroeconomic fundamentals and the heavy competition from other countries, we anticipate a slight growth in seafood exports from Vietnam to China in 2H23F compared to 1H23F.

We put VHC and ANV on the watch list

We believe that at this point, the industry’s gloomy outlook for 2023 has already priced in when stock prices of listed companies have fallen about 40-60% since their peak in 2Q22. With the expected recovery demand from U.S market from 2H23F, we added VHC and ANV to the watchlist for long-term investments because they have the leading positions in the industry and have the most exposure to this market.

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