August 2018

— 05.09.2018

In August, PYN Elite gained 5.4% primarily supported by VND, HBC and HDB. VN Index advanced 3.5% on energy name GAS and banks. Trading volume remained subdued at $230m/day in August, cf. $350m/day in 1H2018. After all 720 Vietnamese companies finished results reporting, all companies’ net profit grew 29% YoY in 1H2018.

As the crisis in Argentina/Turkey put spotlights on emerging market’s foreign currency debt, we’d like to put Vietnam into perspective. Vietnam’s external debt is around 100 billion USD as of 2017 (48% of GDP). However, unlike many emerging countries whose external debt are mainly bonds and commercial bank loans, approximately half of Vietnam’s external debt
are preferential loans from multilateral/bilaterally institutions, such as World Bank, ADB, IMF and JICA, to finance its infrastructure projects. According to World Bank, on average, such loans have interest rate of only 1.2% and maturity of 30 years. Currency-wise, 50% of Vietnam’s external debt is denominated in US dollars, 27% in Japanese Yen, and the rest in SDR and Euro. In addition, the short-term external debt amounts to 17 billion, and is sufficiently covered by its foreign reserves which hit new high of $64 billion in May 2018. On the trade front, Vietnam runs a trade surplus of $2.8 billion YTD, supported by strong export growth of 14.5% YoY in 8M2018.

Domestically, the State Bank of Vietnam takes a slightly cautious stance on credit growth. In previous years, SBV usually grant credit growth quota for each banks at the beginning of the year, and extend quota to certain banks in the second half. This month, amid inflation concerns, SBV decided not to approve quota extension to any banks (except special case strong banks acquiring weak banks, e.g. HDB acquiring PGB). We consider SBV stance sensible. And we also think net interest margin expansion and fee income activities contribute to banks’ profit more than credit growth alone.

HDB expects to get regulatory approval of PGBANK merger by mid-September. We believe this provides a share price catalyst, as the merger meets the credit quota exception condition set out by SBV. Post-merger, HDB is able to grow credit by40%, in sharp contrasts with most peers who are capped at below 15%.

Macro: Retail sales +11.2% YoY. Industrial Production +11.2%. International Tourists +22.8%. Moody’s upgrade Vietnam’s sovereign ratings.

PYN Elite Review Aug 2018.pdf