Vietnam Strategy – 3Q20 earnings review: Resilient

• As at 2 Nov 2020, 709 listed companies on three bourses, representing 41% of the total stocks and 87% of market capitalisation, had released 3Q20 results.
• 3Q20 aggregate earnings edged down 2.7% yoy, much better than the declines of 27.7% and 13.4% yoy seen in 1Q20 and 2Q20, respectively.
• Our VN index target is 900-960pts for end-2020.

On track for recovery

Based on our estimates, aggregate earnings of listed companies on three bourses (HOSE, HNX, UPCOM) dipped 2.7% yoy in 3Q20. This reaffirms our expectations for a V-share recovery, in our view, despite a 2nd wave of the Covid-19 outbreak in July. 9M20 aggregate earnings slid 6.2% yoy while revenue fell 12.1% yoy. Out of the 43 companies under our coverage that have reported their 3Q20 results, 54% companies were in line with our expectations while 23% beat forecasts and 23% missed our estimates.

A stellar quarter for construction material and property sectors

After a 31% yoy decline in earnings in 2Q20, the property sector made a strong comeback in 3Q20 with a 34% yoy increase, thanks to better delivery and presales. With state investment ramping up in recent months, mostly focusing on infrastructure development, construction materials enjoyed higher prices and better sales volume, leading to a 47% yoy hike in the sector’s net profit. Industrial metals (mostly steel manufacturers) posted a 144% yoy surge in 3Q20 net profit on the back of higher steel export volumes (+44.4% yoy) and 31.9% yoy lower coke prices.

Vibrant stock market boosted financial services’ 3Q20 earnings

3Q20 net profit of financial services providers (mostly securities brokerages) grew 60% yoy, thanks to the recent market rally in both indexes and liquidity. In 3Q20, the VN index accelerated 15.2% from end-Jun 20 while average liquidity increased 0.3% qoq and 33.6% yoy. The vibrant stock market also helped insurance companies’ financial revenue surge 31.6% yoy. Meanwhile, the slowdown in insurance premium revenue growth resulted in lower provisioning and operating costs, lifting 3Q20 NP of the insurance sector by 25% yoy. On the other hand, banks’ net profit growth decelerated to 4% yoy in 3Q20 (vs. 23% yoy in 2Q20) as heavy provisioning weighed on bottomlines.

Travel & leisure, oil & gas not out of the woods yet

A second wave of Covid-19 infections in Danang city in late-Jul disrupted the recovery momentum for domestic travel and tourism. Additionally, international flights have been halted since Mar 20, damaging the bottomlines of airlines and airport operators. Consequently, travel & leisure (including airlines) recorded huge losses in 3Q20 (274% yoy plunge in net profit) while 3Q20 net profit of the transportation sector slumped 68% yoy. Oil & gas 3Q20 net profit tumbled 37% yoy due to lower oil price, albeit better than the drop of 116% yoy seen in 2Q20. Among the sectors hit hard by the pandemic, retail bounced back strongly with 9% yoy growth in 3Q20 net profit, thanks to MWG (+16% yoy) and DGW (+44% yoy), riding the recovery in domestic consumption in 3Q20.

VN index target is 900-960pts for end-2020

3Q20 corporate earnings performance reaffirms our expectations for a V-shaped recovery and has been fully reflected in valuations following the recent market rally. The VN index rallied to 925.7pts on 30 Oct 2020, equivalent to trailing P/E of 14.5x, up 42% from its bottom of 650pts in Mar. We think the VN index will move sideways in 4Q20 to end the year within our target of 900-960pts. In our base-case scenario, we forecast VN index earnings to drop 5-6% yoy in FY20F (vs. +7.1% yoy in FY19) before rebounding to grow 21% in FY21F. The decent earnings outlook bodes well for a broad-based economic recovery in 2021.

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