Sector Report

Sector Report
Vietnam Industrial Parks Sector Update: Conversion of Rubber Plantations to Industrial Parks

The supply of industrial parks in southern Vietnam during 2021-2030 likely will continue to come from converted rubber land. According to the industrial park (IP) master plan for Dong Nai province, industrial park area approved by the Prime Minister for rubber land conversion aggregates to 6,760 ha (accounting for 91% of the total area of IP) by 2025, and 2,000 ha between 2025- 2030 (accounting for 48% of the total area of IP). In addition, the total area of rubber land converted into industrial parks in 2025 in Binh Duong, Binh Phuoc, and Ba Ria Vung Tau is estimated at 3,084, 2,994, and 3,933 ha, respectively. We believe that conversion of rubber land into industrial park land has the following advantages: (i) large land tracts allow for a rapid land compensation process for land clearance; (ii) legal procedures for land valuation have clear guidance according to Decree 12/2024/NĐ-CP; and (iii) construction costs are low due to the firmness of the soil for land used by rubber tree plantations.

15/03/2024

Download
Vietnam Banking sector quick note: Reinforce financial guardrails for banks

As the Law on Credit Institutions was passed by the National Assembly in Jan 2024, there will be some guiding documents proposed, including 2 Decrees and 4 Circulars, in April. Recently, the SBV drafted some amendments to current circulars on operational safety ratios (Circular 22/2019 and Circular 23/2020) and on lending activities (Circular 39) to be consistent with the new law. Our key takeaway from the key revision: The amendments for Circular 39/2016 showed SBV’s determination in keeping a strict management perspective on the lending activities to borrowers whose purpose is to make deposits under land/project transferring contract. Accordingly, the clause on putting such disbursement into an escrow account was kept unchanged in this new draft, opposing to what has been protested by developers. There were also stricter requirements on disclosing related parties in the loan contract to address the issue of related lending activities. These are in line with our expectation that one of the key focus of the SBV in the coming time would be mitigating related lending activities to ensure the system’s safety with lesson learnt from the SCB – Van Thinh Phat case. Although the purpose of this clause is clear, effective enforcement essentially hinges on both the truthful statements of the borrowers, as well as the time & efforts from banks in verification processes.

14/03/2024

Download
Vietnam Aviation Sector 2024 Outlook: Full recovery in sight, valuation below pre-COVID level

2023 was the year that the global aviation industry returned to pre-pandemic activity. According to IATA, industry-wide passenger traffic measured in revenue passenger-kilometer (RPK, a measure of demand for air travel) grew +40% YoY during 9M 2023 and has reached 93% of pre-Covid levels.

Vietnam aviation has also witnessed a very impressive recovery during 2023, despite China international passenger slow recovery. According to ACV, total passenger throughput of Vietnam airports reached 114 mn passengers during 2023 (in line with our assumption of 117 mn passengers).

30/01/2024

Download
Vietnam Sea Port & Logistics Sector 2024 Outlook: Inventory restocking and geopolitical tension as key catalysts

2024 key theme for the seaport industry would be volume recovery due to improving external demand (especially from inventory restocking in the US/EU), while supply should be stable through 2025. 

Average 2024 forward P/E for stocks under coverage is 13.4x, which is on par with historical levels, corresponding with the average core earnings growth of 10% YoY for the industry. We think that the industry is correctly priced relative to our base case assumptions. This means that we can expect upside/downside if the actual economic activities and external demand perform better/worse than our expectations. We remain overweight the sector on the improving outlook, focusing on names with good core earnings growth (PVT) while watching names with potential to benefit from geopolitical tensions (HAH, VOS), waiting for correction (GMD) and the new listing of VTP for ecommerce logistics story.

26/01/2024

Download
Vietnam Banking Sector's Regulation Update: A missing piece

The revised Law on Credit Institutions (LCI) officially takes effect on July 1, 2024. The law addresses the thorny issue of cross-ownership and provides a more streamlined mechanism related to weak banks under governmental administration. While having been at the center of discussion, Resolution 42 was not codified into law with this final version therefore there is still a lack of mechanism to deal with bad debt in this cycle.         

25/01/2024

Download
Land Law 2024 update - Key impacts on listed RE developers

On 18 January 2024, the National Assembly completed the ratification of the revised Land Law. The ratification ushers in a more market-based & transparent legal environment and maintaining a good balance between being conducive to business while protecting landowners.

22/01/2024

Download
Vietnam Cement Sector 2024 Outlook: Valuations ahead business rebound

A turnaround is approaching for cement sales volume: During 1Q24, we anticipate that domestic cement consumption will be at the lowest level since 3Q21 (COVID lockdown period), due to seasonal factors (the Tet holiday) and weak demand. However, from 2Q24, we expect that cement sales volume will improve YoY with a minor recovery due to a recovery in construction activity. In addition, major public investments could offset weak demand during 2024. We believe that cement sales volume will bottom out during 1Q24 and will gradually recover throughout 2024.

19/01/2024

Download
Vietnam Technology & Telecom Sector 2024 Outlook: Continuing solid growth for IT & eyes on 5G auction plan

Global IT spending is expected to post higher growth during 2024. According to US technological research and consulting firm Gartner, the sluggishness in IT spending for 2023 implies that IT spending will rebound during 2024. Gartner claims that the spending for cloud and AI were two key drivers for 2023 global IT spending growth, and will continue into 2024, which should support growth for FPT, as these two segments account for over 40% (in total) of the company’s DX revenue. We also believe that the need of automation in automotive industry will continue to be solid during 2024. Over the next ten years, Precedence Research forecasts double-digit CAGRs for automotive software, global cloud services, and AI.

18/01/2024

Download
Vietnam Textile & Garment 2024 Outlook: Uncertainty

Global economic growth is expected to remain gloomy for 2024, which should hamper consumer spending and make savings replenishment difficult. "Uncertainty" is the most common theme amongst brands and suppliers for 2024. Fashion retailers are confronting different challenges, including high inventory levels, low consumer demand, and intense competition. As a result, fashion brands likely will boost contingency planning, and suppliers may experience even greater repercussions from this diminished demand as it ripples through the supply chain. Additionally, inventory management and cost-control will continue to be the primary focus. This results in shortened lead times and reduced ASP for textiles & garment manufacturers. 

16/01/2024

Download
Vietnam Automobile Sector 2024 Outlook: The worst in the rearview mirror

The overall market should recover, albeit at a slow pace. We saw a smaller drop in volume in 4Q23 compared to the beginning of the year as companies throughout the sector engaged in price cutting promotions to reduce inventory. We are conservative in our view for 1H24 due to subdued consumer demand and people may hold out for new products, but overall 2024 should see a rebound in terms of both volume and value (thanks to economic recovery towards the end of year, new car models rolling out, the semiconductor shortage resolved, and car financing rates are more attractive). Our forecast for 2024 new car and motorbike volume YoY growth are 9% and 4%, respectively.  

16/01/2024

Download
Vietnam Retail Sector 2024 Outlook: Emerging from the trough

Discretionary spend for 2023 was pressured by: (1) weak macroeconomic conditions (high borrowing costs, high inflation, sluggish exports) and (2) tiny amounts of credit offered by consumer finance companies. The macroeconomic environment may still be challenged during 2024, but some difficulties should ease relative to 2023 (lower borrowing rates, export recovery, higher credit by consumer finance companies), hence aiding consumption recovery.

16/01/2024

Download
Vietnam Oil&Gas Sector 2024 Outlook: Divergence may continue through 2024

Average oil prices may be flat or decline slightly from their 2023 average. Demand growth can slow during 2024 coupled with a production ramp: According to the latest update by EIA in Dec, global oil demand is expected to rise 2.3 mn bbl/d to 101.7 mn bbl/d during 2023, compared to a supply of 101.9 mn bbl/day with a slower increase of 1.8 mn bbl/day. During 2024, global demand growth is expected to slow to 1.1 mn bbl/day. On the other hand, despite the extension of OPEC+ output of 2.2 mn bbl cut through 1Q24, the supply side is expected to increase 1.2 mn bbl/day from the production from Non-OPEC+ countries, especially the United States, Brazil, and Iran. The supply from the US is estimated to increase 1.4 mn bbl/day for 2023, accounting for 2/3 of non-OPEC+ supply expansion, compared to a decline of 400k bbl/day by OPEC+.

12/01/2024

Download
Vietnam Fisheries sector 2024 outlook: Expect recovery in 2H24

We expect a moderate pace of recovery during 2024, with most of the recovery occurring during 2H24, given the continued downward trend of Vietnam fisheries’ exports during 2023. During 11M23, Vietnamese fishery exports reached USD 8.2 bn (-20% YoY), whereby shrimp and pangasius exports reached USD 3.1 bn (-23% YoY) and USD 1.7 bn (-27% YoY), respectively. We note that the rate of decline in fisheries exports has gradually subdued since 2Q23, although neither notable growth nor higher ASP YoY has been recorded. For pangasius, from the previous cycle, it takes between 1.5-2 years for ASP to bottom and about fou years for a full cycle. Therefore, we expect that pangasius ASP may rebound during 2H24 (two years from peak to trough). We expect that sales volume to the EU and China will partially offset the decline in US sales volume for 1H24, and that demand from the US will recover from 2H24 (high season). During December 2023, ASP to the US and China reached USD 2.5 /kg (-16% YoY) and USD 2.1/kg (-8% YoY), respectively, continuing the downtrend seen since Aug 2022.

11/01/2024

Download
Vietnam Steel Sector 2024 Outlook: Earnings to recover strongly in 2024, but valuation is tricky

2023 was a low base year for steel demand: Due to the cyclical nature of steel sector, the consumption of finished steel products in Vietnam declined during 2023 as expected, due to the slowdown in macro and property market conditions. The sales volume of construction steel, galvanized steel, and pipe declined 13.5%, 6%, and 0.9% 11M 2023 YoY,  respectively, to 9.73 mn, 3.81 mn, and 2.22 mn tons. The situation in 2023 is quite like that of 2012, a time when construction steel demand also declined around -7% YoY due to both GDP growth deceleration and the freezing of the property market.

10/01/2024

Download
Vietnam Banking Sector 2024 Outlook: Extend and Pretend

We believe that 2024 will be another challenging year for the banking sector in terms of asset quality. However, we do anticipate an improvement over 2023, largely due to a better position in funding costs and PPOP. Under our base case, GDP growth could recover to between 6.0% – 6.5%, interest rates stay around the current decade-low level for most of the year, and an accommodative approach to bad debt settlement by regulators. 2024PBT growth for banks under coverage is projected at 15.4% YoY, a huge leap over the 4.6% posted for 2023.

10/01/2024

Download
SSI