Vietnam Investments : Monthly Report

VIETNAM MONTHLY REPORT

31 August 2023

VIETNAM ENTERPRISE INVESTMENTS LIMITED - VEIL

VEIL's NAV per share decreased 1.4% in August, trailing the reference index VNI which declined 1.2% in TR$ terms.

VEIL sold nearly half of its top holding ACB in August in an off-market transaction. Prior to this, ACB accounted for 12.9% of VEIL's AUM, more than seven times overweight against the VNI. The transaction was oversubscribed, commanding a 7% premium, 3% higher than the stocks' all-time-high. A long-term holding of 27 years, ACB has grown from five branches at the time of investment to 384 branches and transaction offices today, with over $26bn in assets.

ACB remains a top-four holding at 7.2% in the portfolio, four times overweight. Our high conviction persists due to its loan book being less exposed to cyclical risk, conservative lending approach, strong asset quality, and large retail presence. These factors offer promising upside for ACB with a relatively low risk exposure. VEIL diversified its bank exposure by rotating into several other top-tier commercial banks offering attractive valuations, growth opportunities and risk management compared to their state-owned and tier two counterparts.

The brokerage sector stood out with all three of VEIL's holdings defying the overall market drift (SSI +10.8%, VND +11.1%, SHS +17.3%), with sentiment encouraged by the combined daily average market turnover surpassing $1bn.

FPT was the only top-ten holding to post a double-digit return. We anticipate a promising H2 for FPT, propelled by its burgeoning AI and data segments, which presently constitute c.10% of its digital transformation revenue. Furthermore, its AI services revenue saw a 50% surge YoY to $45m. This is driven by resilient global demand and aims to achieve a minimum 25% YoY revenue growth in H2 to $550m. This is fortified by prospective expansion in APAC markets, including Japan, from which FPT derives 38% of its Software outsourcing revenue.

VHM was a notable laggard, we believe due to a combination of foreign flow turning negative and local divestment from the stock after its YTD peak in July. However, the company remains financially robust and has a strong project pipeline offering promising earning potential, including an 870ha mega-project in Hai Phong.

PRICE AND NAV DATA

		Net							Cash				Price				NAV change (%)				Price Change (%)						Sharpe
					NAV/share			Std. Dev.
	Assets				(%	of AUM)			EOD			Monthly			YTD			Monthly			YTD						Ratio
1,914.28	9.37		1.89			-			-1.4%		19.4%	-8.8%		9.4%		23.7		0.49
1,510.70	7.39				6.05			0.1%		13.2%	-7.5%		3.8%		-		-

60.0

50.0

40.0

30.0

20.0

10.0

0.0

-10.0

-20.0

			NAV PERFORMANCE (in $ terms)
			50.1
		VEIL (NAV)	46.6
40.4
		VNI (reference index)				36.6	30.031.4
		VN30 (comp)

19.420.622.3

13.711.814.0

-1.4-1.2-1.1 -8.5-5.3-6.1

1M

3M

YTD

1Y

3Y

5Y

	TOP TEN HOLDINGS (60.3% of NAV)		DISCOUNT TO NAV
	COMPANY	SECTOR	VNI %	NAV %	CH %	20
	%
1	VP Bank	Banks	2.9	10.4	-7.0	10
2	Hoa Phat	Mat's/Res	3.3	8.6	-3.7	0
3	Vietcombank	Banks	10.2	7.3	-4.3
4	ACB	Banks	1.8	7.2	-3.1	(10)
5	Mobile World	Retail	1.6	6.0	-1.5	(20)
6	FPT Corporation	Software/Svc's	2.5	5.7	12.3
(30)
7	Vinhomes	Real Estate	4.9	4.5	-14.6
8	PV Gas	Energy	3.9	3.5	-1.1	(40)
9	Vinamilk	F&B	3.3	3.5	1.4	(50)
10	Khang Dien House Real Estate	0.5	3.5	-3.0
Jan-05May-07Sep-09Jan-12May-14Sep-16Dec-18Apr-21Aug-23

1

VIETNAM MONTHLY REPORT

31 August 2023

ECONOMY REVIEW AND OUTLOOK

A prelude to recovery

Vietnam's monetary metrics outshine

Don't worry, be CPI happy

Biden fires the starting pistol on Vietnam's new technological epoch

August data showed a modest improvement in Vietnam's economic activities with the manufacturing sector venturing into positive territory, increasing 2.6% YoY, and PMI tip-toed back into expansion territory at 50.5, indicating that businesses are slowly restocking for the anticipated year-end export orders. The 8M trade balance continued to grow to an all time high of $19.9bn (fig. 4), with exports of $228.2bn, down 9.8% YoY, outpacing imports of $208.3bn, down 15.9% YoY. In the service sector, total retail sales were up 7.6% YoY and 10% YTD, while Vietnam welcomed 1.2 million visitors, nearly reaching 80% of the pre-Covid levels.

Despite regional currencies depreciating by an average of 4-7% in August, noteworthy is the resilience of the VND, declining by a comparatively modest 1.8% (fig. 3). The currency remains structurally sound, fortified by continual inflows of foreign capital from a $20bn YTD trade surplus (fig. 4) and a resurgence in the tourism sector. The marginal fluctuation in exchange rates and slight escalation of inflation were not at a level to give cause for concern, however. CPI inched up by 0.9% MoM, or 3.0% YoY, propelled by increases in local gasoline and rice prices, the latter reaching a multi-year pinnacle following export prohibitions by several nations.

In spite of this marginal MoM increase, we believe that inflation will anchor around the 3.5%- 4.0% mark for the year. Ripples from the global markets may instigate short-term vacillations in the VND exchange rate, but we believe the implications on the SBV's monetary policy will be limited in the context its overarching strategy, inclined as it is towards reducing financial burdens on enterprises and supporting the economy. Deposit rates continued to decrease by an average of 0.3-0.4% in August and we expect will be easily maintained at affordable levels in the coming months.

Following much speculation in August, September crafted the framework for Vietnam's geopolitical canvas. US President Joe Biden visited Hanoi to announce the elevation of diplomatic relations to Vietnam's highest level of 'Comprehensive Strategic Partnership', aligning Vietnam with the ranks of China, India, South Korea, and Russia. This historic upgrade, reaffirming sentiments shared by US Treasury Secretary Yellen during her visit in July, underscores Vietnam's potential in its role within the global semiconductor supply chain, and ushers in a new phase opportunity for further sophistication and expertise within its economy. This collaborative enrichment, signifies a promising step forward, which we believe can project Vietnam as an important high-tech player within the global value chain.

Fig. 1	ECONOMIC FORECASTS
31	-Aug-	23	Unit	2021	2022E	2023E	2024F
Real GDP Growth	%	2.6	8.0	5.5	6.5
Nominal GDP	$bn	366.1	408.8	448.5	494.4
CPI (average)	%	1.8	3.2	4.0	4.0
Export Growth (cif)	%	19.0	10.6	-5.5	12.0
Import Growth (cif)	%	26.7	8.4	-9.9	11.8
Trade Bal (cif)	$bn	3.3	12.4	26.4	30.2
FX Reserves	$bn	106.5	85.0	95.0	110.0
FDI Disbursed	$bn	19.8	22.4	20.9	22.0
VND:$	1	22,800	23,550	23,450	23,300

Fig. 2

IIP MARGINALLY INCREASED IN AUG

15

%

10

5

0

-5

-10

-15

-20

Aug-22

Oct-22

Dec-22

Feb-23

Apr-23

Jun-23

Aug-23

Fig. 3 VND DECLINED IN LINE WITH OTHER ASIA CURRENCIES	Fig. 4 TRADE BALANCE AT RECORD HIGH SURPLUS
							24
						TWD	$bn
% YoY					20
						CNY

																				SGD	16
																				VND
																				12
																				THB
																				JPY	8
																				MYR
																				4
																				PHP
																				KRW	0
																					Jan-23Feb-23Mar-23Apr-23May-23Jun-23Jul-23Aug-23
(4.0)	(3.5)	(3.0)	(2.5)	(2.0)	(1.5)	(1.0)	(0.5)	0.0

UCITS HAVE NO GUARANTEED RETURN AND PAST PERFORMANCE DOES NOT GUARANTEE FUTURE PERFORMANCE

2

VIETNAM MONTHLY REPORT

31 August 2023

MARKET REVIEW AND OUTLOOK

VNI closes down in line with VND

Spooky transactions at a distance

The VNI rope-a-dope:retail-selling lacked stamina

Solid foundations: Vietnam's stance in the property sector

Target fixation: a clear roadmap required for market pathway

The VNI declined by 1.2% MoM (TR$) in August, despite a marginal 0.1% appreciation in local currency terms, shadowing the VND's depreciation against the USD of 1.8%.

VIC subsidiary Vinfast (VFS) became the first Vietnamese company to list overseas on 15 August with a free float of 1%, trading with extreme volatility. This spilled into VIC's family of stocks in the VNI, creating a transpacific riptide as domestic investors navigated the market undercurrents. VIC itself rallied 10.9% in August and contributed 10.6 points to the VNI.

Soon after the VFS listing, increased volatility in the VNI prompted a major broker to cut margin lending as the market overheated. This initiated a knee-jerksell-off of 4.3%, the largest one-day drop YTD. The market quickly found solid footing, however, with combined average daily liquidity climbing above $1bn, the first time since April 2022. This was underpinned by the announcement of US President Joe Biden's visit, with speculation of a US trade upgrade buoying sentiment.

Foreigners, however, net sold $107m. This can be attributed to overall EM outflows and growing apprehensions surrounding China's real estate conundrum and economic concerns. In juxtaposition to China, the Government has strongly committed to supporting the real estate sector since February 2023, with ongoing policy changes and monetary stimulus packages to revive the property market. Only major developers can access international financing, with the majority of listed property companies having a net debt to equity ratio of 0.7x or below. Issued on 23 August, Circular 10 eliminates restriction clauses introduced by Circular 06 and reinstates the prevailing lending criteria, thereby guaranteeing accessible credit for both real estate and M&A operations.

The SSC chaired a meeting jointly organised with the Asia Securities Industry & Financial Markets Association (ASIFMA) with the support by the World Bank in Hong Kong to discuss solutions aimed at upgrading the Vietnam stock market to EM. The Government is committed to resolving the pre-funding issue by revising select MoF Circulars, with brokerages potentially able to guarantee trades. We welcome the short-term proposed solution. With brokers capable of bridging the financing gap between T0 and T2, foreign investors can enjoy significantly more convenient transactions. For a long-term solution, the implementation of a central counterparty (CCP) mechanism is essential. Nonetheless, these measures must come with a clearly defined implementation timeline. Additionally, avenues must be created for foreign investors to gain access to FOL stocks. In alignment with the World Bank, we believe that the NVDR (Non-Voting Depository Receipts) solution is the most practical approach to pursue.

Fig. 1	DC TOP-80 FORECASTS				Fig. 2				MARKET PERFORMANCE
										2,000								1600
31-Aug-23	Unit		2021	2022	2023E	2024F			$m			VNI
		1,800				1500
PER	x	14.5	9.1	11.5	9.3		1,600					Volume (LHS)		1400
														Index (RHS)
EPS Growth	%		37.1	-1.4	2.6	24.0		1,400						1300
PEG	x	0.4	Neg	4.5	0.4		1,200							1200
Sales Growth	%		22.0	12.3	2.6	13.8		1,000							1100
EBIT Growth	%	50.8	2.5	9.2	23.7		800							1000
PBT Growth	%		38.0	1.5	2.1	24.7		600							900
NPAT Growth	%	41.9	0.0	3.0	24.0		400							800
									200							700
Net DER	x		0.2	0.3	0.3	0.2
Yield	%	1.0	1.9	1.1	1.2		-								600
	Jan-20May-20Oct-20Mar-21Aug-21Jan-22Jun-22Nov-22Mar-23Aug-23
Fig. 3		VNI TRAILING 5Y PE				Fig. 4				VNI MONTHLY VOLUME
28										24.00
											Bn USD
26										21.00
24										18.00
22										15.00
20
									12.00
18
									9.00
16
									6.00
14
									3.00
12
									-
10
												Jan-23Feb-23Mar-23Apr-23May-23Jun-23Jul-23Aug-23
Jan-17Sep-17May-18Jan-19Sep-19May-20Dec-20Aug-21May-22Dec-22Aug-23

Sources: DC, Bloomberg, Credit Suisse / Refinitiv - all adjusted for free float

3

VIETNAM MONTHLY REPORT

31 August 2023

APPENDIX 1: MACRO

Key Indicators

Item	Unit	2017	2018	2019	2020	2021	2022E	2023F	2024F
GDP	$bn	281.4	310.1	334.4	346.6	366.1	408.8	448.5	494.4
Real GDP Growth	%	6.9	7.5	7.4	2.9	2.6	8.0	5.5	6.5
Services Growth	%	7.4	7.0	7.3	2.5	1.2	10.0	7.5	8.2
Agriculture Growth	%	2.9	3.8	2.0	2.8	2.9	3.4	2.6	3.0
Ind'l and Const'n Growth	%	8.0	8.9	8.9	3.3	4.1	7.8	4.1	6.1
Retail Sales Growth	%	10.9	11.7	11.8	2.6	-3.8	10.2	8.9	9.0
				Prices
CPI (Average YoY)	%	3.5	3.5	2.8	3.2	1.8	3.2	4.0	4.0
			Money, FX & Interest Rates
Money Supply M2	%	15.0	12.4	14.8	14.5	8.9	6.2	7.8	10.5
Average Lending Rate	%	9.3	9.5	9.7	8.6	8.5	13.7	10.5	9.2
5-yr VGB	%	4.3	4.5	1.9	1.1	0.9	4.7	2.2	2.5
VND : $	$1	22,750	23,235	23,150	23,085	22,800	23,550	23,450	23,300
				External Sector
Trade Balance	$bn	2.1	6.8	10.8	19.9	3.3	12.4	26.4	30.2
Current Account	$bn	-1.6	5.8	12.2	15.1	-7.8	-1.5	17.4	20.7
Current Account / GDP	%	-0.6	1.9	3.6	4.3	-2.1	-0.4	3.9	4.2
FDI Registered	$bn	35.9	35.5	36.0	28.5	38.5	27.7	25.2	28.0
FDI Disbursement	$bn	17.5	19.1	20.4	20.0	19.8	22.4	20.9	22.0
FX Reserves	$bn	52.0	61.0	80.0	98.0	106.5	85.0	95.0	110.0
			Public Debt & Fiscal Balance
External Debt	$bn	109.2	112.1	122.8	130.1	138.8	141.2	147.0	151.3
Government	$bn	46.3	47.0	47.7	49.0	47.9	48.8	52.4	56.7
Enterprises (incl. FDI)	$bn	62.9	65.1	75.0	81.1	90.9	92.4	94.6	94.6
External Debt (% GDP)	%	38.8	36.2	36.7	37.5	37.9	34.5	32.6	30.6
Fiscal Balance (% GDP)	%	-2.6	-2.9	-2.6	-3.4	-4.0	-4.3	-6.0	-4.5

4

VIETNAM MONTHLY REPORT

31 August 2023

APPENDIX 2: MARKET

Key Stock Market Data

	HSX		HNX		UPCoM		Total
	31-Aug-22	31-Aug-23	31-Aug-22	31-Aug-23	31-Aug-22	31-Aug-23	31-Aug-22	31-Aug-23
Market Cap ($m)	217,254		203,136	14,610		13,015	53,823		45,796	285,687		261,947
Number of Stocks	401		394	341		331	858		860	1,600		1,585
Number of Large Cap Stocks (> $400m)	70		69	10		9	22		12	102		90
Stocks with No Room for Foreigners	50		61	61		92	165		222	276		375
Market Cap of Stocks with No Room ($m)	38,466		24,142	3,043		1,963	12,770		13,803	54,279		39,908
Share of Market Cap with No Room (%)	17.7		11.9	20.8		15.1	23.7		30.1	19.0		15.2

Top 25 Companies

						31-Aug			Price			Mkt			Wt								PER												PBV												Yield
	No		Company			Price			YTD			Cap		in VNI			2022		2023E			2024F			2022		2023E			2024F			2022			2023E			2024F
						(VND)			(%)			($m)			(%)					(x)				(x)				(x)				(x)				(x)				(x)			(%)			(%)				(%)
1	Vietcombank	89,100		31.5		20,663	10.19		14.4		16.0		13.8		2.8	2.9		2.4		0.9		-		-
2	Vinhomes	54,700		14.0		9,883	4.87		7.2		7.8		7.4		1.4	1.4		1.2		4.5		-		-
3	BIDV	46,950		21.6		9,855	4.86		14.1		14.4		11.7		2.0	2.1		1.8		0.2		-		-
4	Vingroup	62,100		15.4		9,828	4.85		23.4		37.2		32.2		1.9	2.0		1.9		1.7		-		-
5	PV Gas	98,600		0.7		7,831	3.86		12.9		16.8		17.2		3.1	2.9		2.7		3.0		3.6		3.6
6	Airports Corporation VN	75,000		-11.3		6,775	-		29.0		26.4		20.6		4.2	3.2		2.7		-		-		-
7	Vinamilk	77,800		5.6		6,747	3.33		20.3		21.0		19.0		5.2	5.0		4.9		5.1		3.2		5.0
8	Hoa Phat	27,600		53.3		6,659	3.28		12.6		19.4		11.7		1.1	1.6		1.4		2.2		1.1		1.1
9	Vietinbank	32,450		19.1		6,471	3.19		9.2		9.7		8.0		1.2	1.3		1.1		2.9		-		-
10	VP Bank	20,950		17.0		5,836	2.89		6.6		11.4		8.2		1.2	1.0		0.9		-		-		-
11	FPT Corporation	96,700		48.0		5,096	2.51		17.0		21.0		16.8		3.9	4.7		4.1		2.6		2.7		3.2
12	Techcombank	34,500		33.5		5,035	2.48		4.7		7.2		5.8		0.8	0.9		0.8		0.1		-		-
13	Masan Group	81,500		-12.4		4,839	2.39		37.1		111.4		50.0		5.1	4.2		3.8		1.0		1.1		1.1
14	Sabeco	158,000		-3.9		4,204	2.07		20.6		23.6		20.3		4.6	4.1		3.7		2.3		2.4		2.4
15	MB Bank	18,500		27.6		4,003	1.97		4.5		4.9		4.1		1.0	1.0		0.8		-		-		-
16	ACB	22,600		23.5		3,642	1.80		5.3		5.4		4.6		1.2	1.2		1.0		-		-		-
17	Mobile World	53,800		26.6		3,265	1.61		15.2		59.1		16.7		2.6	3.1		2.7		1.2		-		1.0
18	Becamex IDC	72,200		-10.4		3,101	1.53		49.5		18.8		17.3		4.9	3.7		3.2		0.9		1.1		1.1
19	Vincom Retail	30,300		15.2		2,857	1.44		21.5		15.0		14.5		1.8	1.8		1.6		-		-		-
20	Sacombank	32,650		45.1		2,554	1.26		8.4		7.7		5.2		1.1	1.3		1.1		-		-		-
21	Binh Son Refining	19,600		52.9		2,522	-		2.7		10.5		21.4		0.8	1.1		1.1		3.3		5.1		5.1
22	Vietjet Air	98,000		-10.5		2,202	1.09			neg	38.1		32.2		4.0	3.2		2.8		-		-		-
23	VIB	20,350		37.4		2,142	1.06		4.5		5.4		4.4		1.1	1.3		1.0		-		-		-
24	SSI	33,400		96.1		2,078	1.03		15.4		22.3		18.6		1.1	2.1		2.0		3.8		2.5		-
25	VEAM Corp	37,500		-8.1		2,068	-		7.2		7.5		6.8		2.2	1.9		2.0		11.1		11.7		15.3

5