2nd quarter results

RNS Number : 5833U

Vietnam Enterprise Investments Ltd

02 August 2022

 

02 August 2022

Vietnam Enterprise Investments Limited

("VEIL" or the "Company")

Second Quarter 2022 Update

-20.5% in Q2 2022

Vietnam Enterprise Investments Limited is a closed-end fund investing primarily in listed equity in Vietnam, and a FTSE 250 constituent.  The Company's unaudited NAV performance for Q2 2022 is set out in this notice.

Company Highlights

· In Q2 2022, VEIL's NAV decreased 20.5% over the previous quarter against a fall of 20.9% for its reference index, the Vietnam Index, both in US dollar terms.

· The Company's total NAV was US$2.0bn (£1.7bn) at the end of Q2 2022.

· VEIL's NAV per share performance was -20.5% over three months, -17.2% over one year and +62.5% over three years. Over the same time periods, the performance of the Vietnam Index was -20.9%, -14.9% and +32.3%, respectively.

· The Company's share price decreased by 17.3% in Q2 2022 and 20.8% YTD, and its discount to NAV at the end of the quarter was 15.9%, compared with 19.1% at the end of Q1 2022 and 15.1% at the beginning of the year.

· The Company repurchased 2,121,468 shares in Q2 2022, representing 1.0% of shares outstanding at the beginning of the quarter. These shares will be held in treasury.

· The Company repurchased a total of 4,907,168 shares in H1 2022. As of 30 June 2022, 2.3% of issued shares have been repurchased since 1 January 2022.

Dien Vu, the Portfolio Manager of VEIL commented:

"Heightened risk aversion amongst domestic retail investors hampered market performance during the second quarter. Neither positive news on the domestic economic front nor robust results from individual companies flowed through to prices. Instead, domestic retail rotated liquidity out of equity and into money markets and bank deposits. We believe this market dynamic could persist until overseas volatility abates.

"Nevertheless, the Company benefitted from standout performance during Q2 by Phu Nhuan Jewelry (+14.6%) and Duc Giang Chemicals (+8.8%), the latter of which was an investment made in the first quarter of the year.

"The Company cut back on several sectors in Q2, notably banks, property, steel, and brokers, with the cash raised recycled into energy, fertilisers, and chemicals. Over the course of Q2, VEIL's concentration reduced, with its top ten holdings reducing from 71.6% of total NAV to 64.2%. VEIL has remained as good as fully invested and has not sought to take cash to a higher level; it currently stands at 0.6% of AUM, the same as at the start of the year. With equity markets as they currently are, attempting to time the market with substantial cash positions would be a risky strategy.

"Overall, VEIL remains overweight in the banking sector because of the compelling value for growth its investees offer based on the Investment Manager's current earnings forecasts; for 2022 it believes the sector could achieve over 30% net profit after tax growth and around 20% return on equity, the highest in the market, with valuations at just 8.0x PER on and 1.5x PBR. The Investment Manager anticipates that the 2023 outlook is even more attractive, this is despite its analysts revising down profits of certain banks by 3-5% to factor in the possibility of higher NPLs from corporate-bond issuers.  The drivers are healthy credit growth (even with loan quotas that are periodically imposed); steady net interest margins; flat or falling provisions; and higher fees, led by bancassurance deals. While we believe t he sector, like the market, may still be vulnerable to further market declines, the banks cheap ratings cannot be denied.

"VEIL retains its two retail names, Mobile World Group and Phu Nhuan Jewelry, as major overweight positions based on their solid fundamentals. Both delivered positive returns in H1 2022, with PNJ rising 32.3% and MWG up 3.8%, essentially based on the reopening of the economy and pent-up consumer that has not softened due to a benign domestic inflation environment."

Selected Active Returns (Bloomberg Basis)

TR$%	1Q21	2Q21	6-MO	1-YR	2-YR	3-YR	5-YR
NAV (net)	0.49	-20.46	-20.07	-17.22	66.84	48.33	74.91
Share Price	-4.19	-17.30	-20.77	-15.10	59.91	47.95	66.36
VNI	-0.33	-20.94	-21.20	-14.91	49.15	32.30	64.79
Active Return	0.82	0.48	1.13	-2.31	17.69	16.03	10.12
Active Share Ratio: 60.69

Macroeconomic Commentary

· Vietnam's GDP growth reached 7.72% in Q2 2022, the highest Q2 growth in over a decade, pushing H1 2022 GDP growth to a three-year high of 6.4%, compared with H1 growth of 5.7% and 2.0% in 2021 and 2020, respectively.

· Manufacturing remained the main growth driver, expanding 11.5% in Q2 2022 and for H1 2022 rose 9.7% year-on-year.

· The service sector rose +8.6% year-on-year in Q2 2022 and reached +6.6% in H1 2022.

· A trade surplus of US$1.2bn was recorded for H1 2022, a big increase from the trade deficit of US$1.9bn in H1 2021.

· Exports and imports in H1 2022 totalled US$186.1bn (+17.3% YoY) and US$184.8bn (+15.5% YoY).

· Disbursed FDI hit an H1 record high of US$10.1bn (+8.6% year-on-year) for the first six months of 2022.

· The Vietnam Purchasing Manager's Index has recorded an expansion for every month so far in 2022, recording 54.0, 54.7 and 51.7 in June, May, and April, respectively.

· Inflation has stayed under control, rising 0.7% quarter-on-quarter and 3.4% year-on-year.

· In Q2 2022, the Vietnamese Dong depreciated 0.4% against the US dollar, year-to-date depreciation is 2.1%.

· The tourism sector continues to recover, with domestic tourism reaching 61m passengers in H1 2022 compared to 85m passengers for the whole of 2019 and 40m in 2021.

Market Commentary

· The Q2 2022 fall of 20.9% in Vietnam's equity markets was caused by both investigations into market abuse, discussed in previous VEIL announcements, and well-established global pressures.

· Total market capitalisation for Vietnam's three exchanges was US$267bn at the end of Q2 2022, down from US$343bn at the beginning of the quarter and US$296.8bn at the end of Q2 2021.

· Average daily traded value across Vietnam's three stock exchanges increased 14.1% year-on-year in H1 2022 to US$1.1bn.

· Foreign investors bought net US$163m in Q2 2022, and US$124.9m in H1 2022.

· New retail investor account openings increased significantly in Q2 2022 despite the investigations into market abuse in March and April. A record 477k accounts were opened in May and 466k in June, far above 2021's average of 125k per month.

· In total for H1 2022, new retail trading accounts reached 1.9m; more than the cumulative amount for the first 18 years Vietnam's equity markets were in operation.

Q2 2022 Company Performances

Vietnam Prosperity Bank ("VPB") - 11.3 % of NAV

First invested in by VEIL in 1996, VPB is a commercial bank with an asset management division, and owns 50% of a large microfinance company, FE Credit (52% market share in Vietnam). VPB has put significant resources into digitalisation, using modern technologies to maximise customer acquisition and retention at a low cost.

· Consolidated results for H1 2022 showed profit before tax of US$ 655mn (+70% year-on-year).

· This contained one-off income from an upfront bancassurance fee from global insurance company AIA Group for more than US$ 200m as VPB extended its exclusive deal from 15 to 19 years.

· Strong H1 2022 credit growth was driven by retail banking customers and SMEs, these segments together increased 30% year-on-year even though credit growth itself was 14.3% against a quota of 15% growth. TCB has resilient net interest margin and high level & improving fee income.

· Q2 Performance: -23.5%; 1-Year Performance: -23.8%, and 3-Year Performance: 176.4%.

Hoa Phat Group ("HPG") - 6 .4% of NAV

Held by VEIL since 2009, HPG is a fully integrated steel producer and the largest private steel manufacturer in Vietnam. HPG's organically funded expansion has enabled it to continually gain market share and the Investment Manager anticipates the company can benefit from both the reopening of the economy and infrastructure projects generated by the government's fiscal spending programme.

· H1 2022 preliminary results announced revenue of US$3.5bn (+23% year-on-year) and profit after tax of US$524.9m (-27% year-on-year)

· Margin compression from rising input prices (mainly coking coal) and falling average selling prices meant Q2 2022 profit after tax recorded a sharp decrease both year-on-year and quarter-on quarter, although the former was due to a high base effect from Q2 2021, which had a profit after tax of US$418.2m, the second highest quarterly profit after tax in HPG's history (the highest being Q3 2021).

· A capacity expansion of HPG's main factory is in progress and is expected to boost the long-term growth outlook from 2024, and management are actively acquiring new coal and iron ore mines in Australia to boost the vertical integration of HPG's supply chain.

· Q2 Performance: -35.9%; 1-Year Performance: -43.4%, and 3-Year Performance: 108.7%

FPT Corporation ("FPT") - 4.8% of NAV

A portfolio holding since 2008, FPT is a technology and telecoms conglomerate with high levels of growth and ROE, stable dividends generated from strong cashflow. FPT's results are achieved from segments such as IT services, telecom services and education. With the surge of technology adoption & Cloud migration globally, the Investment Manager believes FPT is well positioned to benefit.

· H1 2022 results recorded revenue of US$862m and NPAT of US$108m, up +22% and +31% year-on-year, respectively. New software outsourcing contract value increased 40% to US$508m in H1 2022.

· Software Outsourcing revenue rose 29%, with profit before tax up 28% year-on-year as profit margins expanded by 10 bps year-on-year to 15.8% in H1 2022, mainly due to a larger revenue contribution from digital transformation services for which revenue increased 65% year-on-year.

· Telecom services look well-positioned to become a key business driver over the next few years due to subscriber acquisition and the capacity expansion of FPT's data centre, the Investment Manager expects solid annual subscription growth for fixed broadband and pay TV caused by rising demand for home entertainment and an expansion to FPT Telecom's coverage.

· Domestic digital transformation is expected to centre around strong demand for cloud computing and data localisation.

· Q2 Performance: -4.3%; 1-Year Performance: 18.6%, and 3-Year Performance: 228.4%.

Duc Giang Chemicals ("DGC") - 3.7% of NAV

A new portfolio holding in Q1 2022 following rigorous ESG screening by the Investment Manager, DGC is Vietnam's leading producer of phosphorus chemicals used in semiconductors, electronic applications, and agriculture, among other uses. DGC is also positioning itself to become Vietnam's leading firm in chlor-alkali-vinyl chemicals used in general manufacturing and construction.

· Preliminary H1 2022 results recorded revenue of US$332m and NPAT of US$136m, up +92% and +415% year-on-year, respectively.

· This increase in earnings is attributed to record selling prices and cost savings from a phosphate rock mine owned by DGC, this is the key input material in phosphorus.

· Phosphorus prices have proven to be stickier than many commodities, and the Investment Manager believes this trend should continue due to 1) China's strict control on exports of phosphorous and phosphorous derivatives; and 2) greater penetration of electronic devices.

· Q 2 Performance: 8.8%; 1-Year Performance: 208.2%, and 3-Year Performance: 1182.4%.

Techcombank ("TCB") - 3.4% of NAV

Held since IPO in 2018, TCB utilises technology effectively to penetrate market share as well as focusing on mortgages and debt capital markets. TCB uses digitalisation to keep customer acquisition and retention costs low, keeping cost of funds at a minimum.

· H1 2022 consolidated results showed pre-provision operating profit of US$641m and net profit of US$492m, +13.5% and +24.1% year-on-year, respectively.

· TCB is one of Vietnam's largest mortgage providers and has reaffirmed its commitment to its long-term strategy both mortgage and bond markets, the bank has reiterated its view that it supports the Government's investigations into bond market abuse and believes this will benefit the bank over the long run.

· TCB continues its focus on improving customer experience, recently launching a new mobile phone application that significantly reduces the number of clicks required per action, with an upgraded user interface very similar one of Singapore's largest banks. Additionally, TCB are assessing new financial products to introduce to their customers, including electronic certificates for gold (a popular asset class in Vietnam), and direct FX exchange for tourists.

· Q2 Performance: -29.6%; 1-Year Performance: -33.3%, and 3-Year Performance: 74.9%.

Top Ten Holdings (64.2% of NAV)

	Company	Sector	VNI %	NAV %	Q2 Perf.	3YR Perf.	Market Cap
1	Mobile World Group	Retail	1.1	11.9	-3.2%	+136.8%	US$ 4.5bn
2	Vietnam Prosperity Bank	Banks	2.9	11.3	-23.5%	+176.4%	US$ 5.5bn
3	Asia Commercial Bank	Banks	1.4	10.7	-11.0%	+119.5%	US$ 3.5bn
4	Hoa Phat Group	Materials/Resources	2.2	6.4	-35.9%	+108.7%	US$ 5.6bn
5	Vinhomes	Real Estate	5.9	5.3	-17.3%	+7.6%	US$ 11.6bn
6	FPT Corporation	Software/Services	1.7	4.8	-4.3%	+228.4%	US$4.1bn
7	Duc Giang Chemicals	Materials/Resources	0.4	3.7	+8.8%	+1182.4%	US$1.9bn
8	Techcombank	Banks	2.7	3.4	-29.6%	+74.9%	US$ 5.4bn
9	Vietcombank	Banks	7.8	3.4	-10.6%	+39.5%	US$ 15.2bn
10	PetroVietnam Gas	Energy	4.8	3.3	+4.6%	+31.2%	US$ 9.5bn

For further information, please contact:

Vietnam Enterprise Investments Limited

Rachel Hill

Phone: [phone]

Mobile: [phone]

[e-mail]  

Jefferies International Limited

Stuart Klein 

Phone: [phone]

[e-mail]  

Buchanan

Charles Ryland / Henry Wilson / George Beale

Phone: [phone]

[e-mail]

LEI: 213800SYT3T4AGEVW864

 

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