20171031_BSC_Vietnam Sector Outlook_EN_4Q2017

The world economic situation is generally stable, stocks market continue to be an effective investment channel. Global composite PMI is consistently above 50 and the rate of countries with PMI above 50 are not only trending upward but also maintaining above 60%. This fact reflects the improving world economy. The economies of the Eurozone grew for the first time in the post-crisis period, and the Chinese economy continued to maintain an impressive momentum ahead of the 19th Communist Party Congress opening on October 18, 2017. (Q2’s GDP growth was 6.9% and Q3 was estimated to be 6.8%). In addition, the US economy achieved a GDP growth rate of 3% in Q2, a very high level, unemployment rate continued to fall to 4.2% in September, this is the lowest rate since February 2001, the annual growth rate is at 2.4%, much lower than the 4% common rate occuring at the start of  economic crisises in history. Thus,  the current global situation is considerably optimistic and the stock market continues to be a suitable investment channel.

Domestic macroeconomic continues to be stable with a targeted GDP growth of 6.7%. In Q3/2017, GDP growth reached an impressive rate of 7.46%, 9M inflation was 1.83%, to reach the targeted GDP growth rate of 6.7% as set by the Government, Q4 GDP growth is expected to be in the range 7.5%-7.7%. BSC believes that some factors that will help boost economic growth in Q4 are the reduction of  lending interest rates and credit growth of 21-22% instead of 18% as planned. By the end of September 2017, credit growth was about 12%, with an outstanding loans of VND 5.5 trillion at the end of 2016, the economy is expected to inject an addition of VND 550 trillion to achieve credit growth rate of  22%. BSC forcasted that Vietnam macro-economy would continue to be stable in Q42017.

Notable investment topics in Q4.
Investment topics related to "listing OTC stocks" (Viettel Post, Viettel Global, Viettel Construction,...), and "Equitized state-owned enterprise” (Binh Son refinery, PV Oil, PV Power, VRG, Idico, TCT Song Da, …) will continue to be the  main driver of this market by the end of 2017. Morover, in 2018, according to Official Letter 991 / TTg- DMDN (10/07/2017) a number of prestige corporation will undergo equitization namely Mobifone, VTC, Vicem, HUD, Genco 1, Genco 2, Sai Gon Jewelry Company - SJC, Sai Gon Water Supply Corporation and thus, attract a great interest of both domestic and foreign investors.

Investment theme related to " divested stocks or no room stocks". In Q42017, the opportunity may arise from SCIC divestment of BMP and NTP, in which we expect NTP's net profit to improve sharply due to the change in its distribution policy as mentioned in previous reports. In addition, the state capital withdrawal in SAB and BHN will be the highlight of the stock market by year-end, price fluctuation of SAB shares will have a great impact on the VNIndex, VN 30 and the derivative market .

In addition, according to the Decision No. 1232 / QĐ-TTg (17/08/2017), in 2017, the State will proceed with the divestment of Vietnam Mechanism and Agricultural Machinery Corporation (VEAM), TCT Vietnam Pharmaceutical Corporation , TCT Construction material No. 1 - FICO, TCT Construction No. 1, TCT Licogi Corporation. In October 2017, SCIC is expected to sell 3.3% stake in VNM (SCIC's reduction of its ownership to 36%), which is expected to earn in between VND 6 - 7 trillion. In total, large divestment transactions are not only opportunities for domestic and foreign investors but  also a source of foreign exchange income for the State, contributing to stabilization of the exchange rate policy.

We also note FPT in the this divestment theme. Currently, the company is reducing the ownership ratio in Distribution segment and Retail segment. In Q4, FPT will conduct step 2 of Retail segment capital sale (about 10%) to individual investors via securities companies. Therefore, the pricing of enterprises will also be adjusted to fit the core of its business segments composing of  IT and Telecommunication.

The topic of "basic stocks, leading stocks, high dividends", When Q3 results are released, stocks that demonstrate good growth, will continue to reach higher prices. We note the banking stocks, business results of banks are positively expected due to economic and credit growth, and stimulation of non-interest activities. The resolution on the processing of bad debts was approved, expecting to accelerate the process of resolving bad debt, collateral, putting the capital into economic circulation and creating additional profits for banks. In general, notable leaders stocks are DXG, KBC, CTD, FPT, NT2, BFC, NTP, RAL, GAS, HPG, NKG, CVT, VGC, TNG, SAB, VNM.

Investment theme "Free Trade Agreements and Exportation", Foreign direct investment (FDI) rose to a record high of $ 25.48 billion, increasing by 34.3% yoy in 9M2017. FDI disbursement also increased significantly to $ 12.5 billion, up 13.4% yoy. Therefore, the prospect will come to the export/import industry, Industrial infrastructure, Logistics. In spite of the TPP impass, Vietnam's textile and garment industry is regaining its footprint with an export growth rate of over 8.6% in 9M2017, stocks related to free trade agreements are Industrial infrastructure, logistics are worth considering in Q4.