Vietnam Outlook Update Q3 2016

Long Tran Head of research

Please feel free to contact me at

E Longtt@bsc.com.vn

P +84 4 39352722 (118)

M +84 906 959 034

S rongbeo

BSC

Content List

• Investment themes 03

• Economy backdrop 04

• Global factors 06

• Domestic factors 09

• Stock market outlook 14

• Performance and liquidity 16

• Fearless forecast 2016 -2018 21

Investment themes

3

Real Estate

revenues

start to rise

in 2016 –

2017

Free trade

agreements

will have long

term effects

Rerate on

the rise

Upcom, Hnx,

low P/E

Largecap

Privatization

& Foreign

Ownership

limitation will

dominate in

2016 – 2017

Local grow

oriented.

Low Beta

and high

dividend

yield

1 2 3 4 5

Economy backdrop Challenging 30 years since “Doi Moi”

4

Key take away points

• USA lead the growth, EU trouble with Brexit, Japan remain weak growth with Abenomics, China growth and policy are a source of region volatility,

• Vietnam look like a turnaround country. 30 years since “Doi moi”, Communist Party and Congress new 5 years term,

• New PM want to support growth and push privatization,

• Vietnam GDP will rise faster compare to peers and more depending on FDI & FTA, Interest rate stable with high credit grow,

• Biggest challenging are State own enterprise restructuring, Banking system and fiscal policy,

You don’t want to be any where else

Source: BSC, Blackrock

Emerging economies

• China Slowdown

• BRIC slow down

• Devaluation of EM currencies

• Commodities price recovery

Developed economies

• US lead the growth

• EU & Japan started to grow

• FED hike

• Election year in US

•Brexit & EU

Geopolitical risks

• Conflict and violence

(Russia, East Sea, IS)

• Cyber Security

Vietnam

• USD/VND

• Fiscal Policies

• FTA & investment

• Party and Congress election

BSC’s relevant reports: Brexit before & after, Lanina, Oil, commodity

Fed dovish hike FED indicated it would be less aggressive in tightening monetary policy after the end of this year. The second hike is pushed as far as Dec 2016.

Most of commodities sink to 2008 level and bounce back. Oil export count for 6% of VN state’s budget.

What it mean for Vietnam:

• USD/VND is likely to be more stable than 2015, we expect devaluation less than 3%

• VND deposit and lending rate stable and slightly fall.

Source: Bloomberg

BSC’s relevant reports: FED hike & How long how low

China rebalancing not that bad China Economy is slowing down but it not as bad as people expect. This year’s policy action signaled that authorities will prevent any sharp slowdown.

• EM and all EM exchange will be more stable

• Commodities price (capex vs opex) not fall too deep

• What it mean for Vietnam

• VND/USD will be more stable than expected

• Vietnam net import from China will not be too worried

Source: Bloomberg

BSC’s relevant reports: China stock market & China’s RMB,

6,6 6,65

6

6,2

6,4

6,6

6,8

7

7,2

7,4

7,6

7,8

Q2 15 Q3 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17

CNY projections

Actual Historical Median High Low

Vietnam and 17 FTAs

• Vietnam will have the most ambitious and comprehensive 17 FTAs cover:

• 62.2% of world population 4.5/ 7.3 billions people

• 79.6% of world GDP 61.3/ 77 thousand billions USD

• What it mean for Vietnam

• Winners : textile, automobile, seaport, logistic, industry zone…

• Losers: steel, sugar, fertilizer…

Lead us to investment theme number 2 FTA and long term effects

Source: Bloomberg

BSC’s relevant reports: TPP and sectors

USD/VND jump in 2016 and 2017

• 2015: USD/VND devaluated 5%, much less than peer (THB 11%, MYR 17%), Interest rate flat and credit growth climb.

• 2016 : We expect both USD/VND and Interest rate jump. This issue relate directly to CNY/USD, Net import from China, public debt.

• USD/VND: up to +3% (-0.8% ytd)

• Credit growth: 18% - 20% (5.48% ytd)

• Interest rate: flat

• Net import: less than USD 1 billions

Source: Bloomberg

22335 22641

20500 21000 21500 22000 22500 23000 23500 24000 24500

19500 20000 20500 21000 21500 22000 22500 23000 23500

MUFG

Maybank Singapore

Mizuho Bank

Westpac Banking

ANZ

Standard Chartered

Rabobank

Thai Military Bank

Cinkciarz.pl

HSBC Holdings

NAB/BNZ

Rand Merchant Bank

Median

Mean

6,78

6,3 6,5

6,68

3

4

5

6

7

8

9

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Actual Historical Median Forward High Low

GDP grow in 2016 & 2017

• 2015: GDP 6.68% ranked 4th in EM, thanks to strong FDI and private sector recovery. Bad new is VN’s GDP always slowdown after election years (2000, 2005, 2010)

• 2016 : With stable interest rate, Strong FDI, FTAs, We expect GDP keep recovery speed.

• GDP: 6.3% - 6.4% (6 months 5.52%)

• FDI: USD 13.5 to 17 billion ( USD 7.3 billion ytd)

• CPI: 1.8 to 3.5 %

• Budget deficit: 6%

• Import and export grow 9 to 10% (net export USD 1,5 billion ytd)

Source: Bloomberg

Stock market Outlook Alpha seeking rather than Beta

14

Key take away points

• 2016 is not so exciting for global stock market, but Vietnam will be benefit from FTA and strong restructuring. Plus the countries is look a lot like a turnaround stock with new leaders, restructuring plan and receiving huge foreign investment.

• Valuation multiples is higher than 5 years average but still attractive compare to Asian peers.

• Market depend on earning growth which is expect to pick up around 8%, Valuation multiple is likely to flat toward year end.

• Stock market liquidity rise thank to (1) stable USD/VND and interest rate; (2) Privatization and divestment process is pushed, (3) listed market cap will rise (Upcom)

• What if Vnindex can grow at the same speed as Asean stock indexes 2009 - 2012

VN-Index,

8.3%

MXEF, 1.4%

MXFM, -3.7%

MXWO, -3.8%

(15,0)

(10,0)

(5,0)

-

5,0

10,0

15,0

12/31/15 1/31/16 2/29/16 3/31/16 4/30/16 5/31/16

MXWO Index MXFM Index MXEF Index VNINDEX

FM & EM suffer a hard year opening

• 2015: Vnindex in the greenzone while FM and EM close in dark red.

• First half 2016 : Vnindex (+8.3%) outperform the EM, FM and world index despite 2 major incidents:

• China slowdown

• Brexit

• Second half 2016: Vietnam stock market look like China 2014 when the stock market about to rocket. Few tests left: PCA 2016, USA election 2016

• Lead us to conclude “you don’t want to be any where else”.

Source: Bloomberg

0,00

200,00

400,00

600,00

800,00

1000,00

1200,00

0

1000

2000

3000

4000

5000

6000

7000

05/10/2007 05/10/2008 05/10/2009 05/10/2010 05/10/2011 05/10/2012 05/10/2013 05/10/2014 05/10/2015

China Việt Nam

Vietnam stock market look like China 2014

• Second half 2016: Vietnam stock market look like China 2014 when the stock market about to rocket. Few tests left: PCA 2016, USA election 2016

Source: Bloomberg

You survived so what ?

10,62

13,07

0

5

10

15

20

25

30

Source: Bloomberg, BSC Research

As of 31 May 2016

56,20

7,28

4,96

Index market cap (billion USD)

VN-Index (306members)

HNX-Index (383members)

UPCOM-Index(306 members)

P/E ratio of Asian stock Index

Lead us to investment theme number 3 Re-rate: buy bluechip in HNX, Upcom and wait for a retate when HNX joint HSX.

• HSX: 1/3 stocks have current P/E less than 10, P/B less than 1.0

• HNX: 2/3 stocks have current P/E less than 10, P/B less than 1.0

3.072

2.613

-

500

1.000

1.500

2.000

2.500

3.000

3.500

06/15 08/15 10/15 12/15 02/16 04/16 06/16

Average Turnover 3 per.Mov.Avg

Bil.VND

Daily Liquidity improved

• First half 2016 : Liquidity is slightly higher than in 2015 but number of stocks have more than USD 1 million daily turnover fall from 32 to 22.

• Stable interest rate and exchange rate,

• FOL rise in number of stocks,

• Stronger Pnote inflow net off ETF outflow

• T+2 applied

• Second half 2016: Liquidity climb

• VN start to allow day trading (buy and sell stock at the same time), T+0, index future (2017).

• High beta stocks have drier liquidity (FLC, KLF, TSC…)

• New investors mean new money

Source: Bloomberg

BSC’s relevant reports: Upcom Premium & Upcom Top 30

Privatization & divestment to be pushed

• Privatization process will be pushed due to fiscal budget.

• First half 2016 compare to first half 2015: IPO 46 companies (VND 5,629 billion) ~71%; state divestment (VND 2,710 billion) ~ 11.4%

• Number of state own companies to be IPO and divest is around 160-180 in 2016 and 1100 (2016 to 2020)

• Lead us to Investment themes number 4 “Privatization & FOL”. Big divestments and hidden gems are expected (Blue chips & mid cap), so be prepared. M&A and FOL will release huge amount of hard money to the market.

Source: Chinh Phu

109

180

0

100

200

300

400

500

600

700

800

900

DNNN CPH

Foreign Investors will turn net buy

• First half 2016: foreign investor net sell (mostly VIC). Inflow mostly from Pnote instead of ETF.

• Top buy: MBB, GAS, SSI, VCB, PVD

• Top Sell: VIC, HPG, VSH, CTD, HSG

• 2016 : we expect Foreigner turn net buyer in second half of 2016 thanks to:

• FOL lift up: SSI, EVE, TNG, ASP, BIC, CII, VHC, EVE, MBB, FID, GTN, KMR and VNM

• Listed market cap will rise (Decision No 51) upcom should not be overlooked.

Source: Bloomberg

Nations

Net trading value in June

(USD mil.)

Net trading value in

2rd Quater (USD mil.)

2016

India 531 1,501 2,715

Indonesia 532 537 853

Japan (3,739) 10,443 (51,649)

Phillipine 244 497 573

Korea 492 2,403 3,161

Sri Lanka (4) (29) (42)

Taiwan 2,299 945 5,926

Thailand 327 299 842

China (62,400) (105,410) (343,020)

Pakistan 71 56 (45)

Vietnam 3 (34) (82)

BSC’s relevant reports: Pnote 1 & Pnote 2

752,03 621,88

699,31

880,58

400

500

600

700

800

900

1000

1100

1200

01/15 07/15 01/16 07/16 01/17 07/17 01/18 07/18

Bear Bull Average

Fearless forecast 2016 -2018

• Vnindex is the biggest loser compare to Asean stock markets. June 2016, Vnindex broke 2009 top of 624 points.

• Since 2009, Asean stock market passed 2007’s top by a huge percentage.

• Indonesian index has increased the most, while Singapore performed the least.

• China the most underperform in Asia has extreme 1 year rocket from June 2014.

• What if Vnindex can recover at the same speed as Asean indexes 2009 - 2012

• Let your imagination go wild:

• Vnindex 699 at the end of 2016

• Vnindex 752 to 880 at the end of 2017

Source: BSC

Fearless forecast 2016 -2018: Valuation

• PE index broke the downtrend since 2014 and moving in the range of 5 year median 12.02 to +1 SD 13.72.

• Short term correction or accumulation are likely to happen when P/E index have strong resistance at + 1 SD.

• Longterm view, Vietnam market is still deeply discount compare to peers in Asean.

• Second half 2016 : The multiple is likely to be flat at 13.72 if USD/VND and VND interest rate stable.

• Bull case: P/E 13.72 (+1 Sdtv)

• Bear case: P/E 12.0 (5 years average)

Source: BSC

10,76

9,21

14,82

12,02

13,72

5

10

15

20

1/4/10 1/4/11 1/4/12 1/4/13 1/4/14 1/4/15 1/4/16

Vnindex P/E Avg -1.65Sdtv Avg +1.65Sdtv

Avg Avg -1Sdtv Avg +1Sdtv

Fearless forecast 2016 -2018: growth

• 2015: Market trailing EPS has been improving steadily in the last 4 years. Market is driven by earning more than multiples. EPS grow 9,7% in 2015

• 2016 : We expect EPS continue to climb 8% (less than previously prediction of 10%) due to:

• Lower GDP growth : 6.3% to 6.4%

• Lower Credit growth

• Commodities price recover sooner

• World economy is weaker than expected

• Vnindex can vary from :

• Bull case: 758

• Bear case: 614

Source: BSC

56,331

58,8915

51,21

53,7705

30

35

40

45

50

55

60

65

2010 2011 2012 2013 2014 2015 2016

Vnindex EPS

Trailing 12M Earnings per Share Best Worst

What make the market feeling hope and fear • ETF Foreigner inflow season (yes or no)

• Earning season and shareholder meeting and promising (3th Quarter)

• Foreign Ownership limitation list (more stocks to applied)

• State divest good companies

• More FTAs (we have more than enough)

• Market upgrade is long journey (Quatar need 7 years)

• New policies: buy and sell at the same time, T+0, Future (2017)

• Commodities fall again

• China tension in East sea

• ETF, P-note outflow season, Foreigner net sell

• FED, PBOC and exchange rate

• Rising interest rate

• State divest too fast and too many

Thanks for your supports and confidence in us

Long Tran Head of research

Please feel free to contact me at

E Longtt@bsc.com.vn

P +84 4 39352722 (118)

M +84 906 959 034

S rongbeo

BSC