Asean Investor

VPBS Foreign Fund Flows

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Publish date: Mon, 17 Aug 2015, 12:15 PM
Marc Djandji, CFA is the Editor-in-Chief of The ASEAN Insider, a subscription-based monthly investment newsletter committed to finding compelling investments backed by powerful structural trends in Southeast Asia. He is also a co-Founder and Partner of ASEAN Strategy Group Ltd., an independent investment banking boutique focusing on cross-border M&A and corporate finance advisory for companies in the small to mid-market segment in Southeast Asia.

VPBS_logo ngang 2015

Here is our Weekly Foreign Fund Flows report. In it, you'll find comprehensive details on what foreigners are buying and selling in Vietnam. | Foreign Fund Flows Commentary | Foreigners continued to net buy the market, though they slowed their total trading activity. They net bought VND411.9bn (USD18.6m) worth of Vietnamese equities, up 46% compared to USD12.7m in the previous review period. Of this amount, the value traded in HOSE accounted for 88%.   The net buying came mainly from long-term foreign investors, as foreign ETFs sold for the second consecutive week. ETFs net sold USD1m worth of shares this week, after withdrawing USD863.9k in the previous week. The Van Eck Market Vector was accounted for the withdrawing total amount, while the DB x-Tracker ETF remain unchanged.   Last week, the foreign focused on buying SSI VND141.2bn (USD6.4m); NT2 VND54.6bn (USD2.5m); VIC VND42.7bn (USD1.9m) and selling VCB VND30.7bn (USD1.4m); VTF VND13.1bn (USD592,000).   Vietnam's stock derivatives market will start in the second half of 2016, as the government tries to boost the stock market to ease the burden weighing on the banking system. In the initial phase of the market, between 15 and 20 securities firms and nearly 20 banks will be eligible to serve derivatives transactions, said Mr. Long, Vice Chairman of the State Securities Commission.   Vietnam doubled its trading band for interbank dollar/dong transactions on Wednesday, aiming to protect its exports by countering the adverse effects of a strengthening dollar and yuan devaluation, the central bank said. Dollar/dong transactions can now move in a band of +/-2% around a mid-point.   | Fixed Income | Liquidity of VND in the banking system remained high, helping interbank rates to fall across all tenors. Trading volume of outright transactions in the secondary market was up 30 percent from a week earlier and the winning ratio in the primary market improved. Balanced demand and supply helped bond yields remain within a tight band, with slight falls for short tenors and marginal increases for the longer terms. Outlook: Next week, bond yields are expected to fluctuate in a tight band or move sideways. Please click HERE for the full report | In the News | Vietnam set to finalise policy on scrapping foreign ownership limits Source: Dealstreetasia Vietnam has decided to scrap the cap imposed on foreign holding in local firms across various sectors. A detailed drafted circular, for implementing the removal of foreign ownership limit in Vietnamese companies, is likely to be passed sometime this week, the State Securities Commission (SSC) said on Thursday. The regulation, which is part of the decree 60/2015/ND-CP that guides the implementation of the securities law, will take effect from next month. Thus, the upcoming circular is expected to list out the industries in which the foreign investors are allowed full engagement, while defining sectors where the limit still remains. Currently, foreign companies are allowed to own up to 49 per cent equity in listed enterprises and only up to 30 per cent in banks. "Opening the room for foreign investors is an inevitable need that we have to deploy, as the 49 per cent limit has been maintained for quite long," said the SSC president Vu Bang, adding that there will be no limit for companies operating in the non-conditional business lines. Bang said the decree is a vital legal document that reflects the commission's efforts in building a more transparent and opened stock market. The decree also regulates the issues of private placement, public offer and selling securities abroad. Last month, the commission also drafted two other circulars to address these operations MobiFone Vietnam moves into retail Source: MergerMarket LifeBrandz Limited has agreed to acquire Eastlife Pte Ltd, Astique Clinicentral Ltd, 51% stake of Truong Giang Investment and Trading Joint Stock Company and 75% stake of Green Jade Limited from HealthTrends Medical Investments Pte Ltd. LifeBrandz Limited is a listed Singapore-based company engaged in developing and managing lifestyle, leisure and entertainment brands, contributing to a vibrant nightlife and tourism experience. Truong Giang Investment and Trading Joint Stock Company is a Vietnam-based company engaged in the business of medical aesthetics clinics. The objective of the acquisition is to facilitate the alteration of the business of the new company into healthcare services including medical aesthetics and wellness clinics in Singapore, Malaysia, Hong Kong, Vietnam and other Asian markets   VPBS Equity Research Summary   It was a busy week for our research team. They initiated on two companies (FPT and HUT), updated on SSI, and published a note on the impact of China's devaluation. Saigon Securities Inc. - The largest securities firm is seeking shareholders' approval by written consent for lifting FOL to 100%. (Update, BUY, VND29,500, SSI VN) Click HERE to download the Update Report At its current price of VND28,000 per share, SSI is trading at 11.3x our FY15E estimates EPS and 1.9x book. We recommend a BUY on SSI because (1) the stock would be most favourable from the Decree 60 and (2) once settlement time period reduced to T+1, SSI will benefit from the expected increase in liquidity. Investment Thesis:
  • Revision to Cir. 74 will improve liquidity: With the settlement period being reduced from three to one day (stocks within VN30 and HNX3), we predict total trading value in Vietnam will increase by 25% in 2016.
  • SSI is the largest brokerage firm in Vietnam: The company ranks number one in term of market capital and market share. We believe that SSI can leverage its existing reputation to raise its market shares in the future.
  • Market consolidation will solidify growth: To partake in T+0 trading and derivative markets, securities firm have to meet strict requirements with regard to size and profitability. We regard this as a sign of future market consolidation in this sector which should give more market shares toward larger firms such as SSI.
  • Foreign Ownership Limit to be opened up: Recently signed Decree 60/2015/ND-CP raised the FOL level in publicly traded securities company to 100% starting September 1, 2015. We believe that SSI's stock price will continue to benefit from this regulation in the short-term.
Technical analysis indicates neutral trend: SSI has retreated from the peak but managed to protect its support level at VND26,500 - 27,000, formed by the MA20 and its last October's peak. This level boosted demand, helping SSI bounce back to maintain its current uptrend and have a chance to retest its peak of VND28,700.   Our Research Department also initiated on FPT Corporation (HSX: FPT) with a BUY recommendation and a target price of VND55,500. FPT Corporation - Leading information technology conglomerates in Vietnam with expected high growth rate in revenues. (Initiation, BUY, VND55,500, FPT VN) Click HERE to download the Initiation Report At its current price of VND48,500 per share, FPT is trading at 10.4x our EPS and 2.2x our book FY15E estimates. We recommend a BUYon FPT as we believe the stock is trading quite, only 8.2 times 2016 EPS, given a strong growth expectation in upcoming years. Investment thesis:
  • Strong earnings growth in 2015. For 2015, we maintain our predictions that FPT's consolidated revenue will grow by 18.8% (2014: 20.8%) while net profit will grow by 13.6% (2014: 1.5%).
  • Key segments will still outperform in upcoming years. We believe that software outsourcing (revenue +43% in 1H2015), telecommunication (+28%), distribution (+23%) and retailing (+63%) segments will maintain growth momentum in the next three years thanks to favourable business conditions.
  • Net profit growth of 22% in 2016. Profit growth will come mainly from growths in the aforementioned segments and from lower depreciation expenses for the telecommunication segment in 2016. We noted that FPT is currently trading at 8.2 times 2016 EPS - quite cheap for a blue chip stock that has solid earning growths.
Technical analysis: In the short term, FPT is in a correction phase after hitting its six-month high at VND49,500. It is trading below the short term moving average curves, such as the MA5, MA10 and MA20. Thus, we expect that the FPT's stock price will continue to test its MA50 support level at VND46,000 and do not see a strong short-term trend.   The team also initiated on Tasco JSC (HNX: HUT) with a HOLD recommendation and a target price of VND12,800. TASCO JSC - A Leading Infrastructure Company with 44 years experiences favoured by the high growth rate of automobile usage. (Initiation, HOLD, VND12,800, HUT VN) Click HERE to download the Initiation Report At its current price of VND12,800 per share, HUT is trading at 11.2x our EPS and 0.9x our book FY15E estimates. We recommend aHOLD on HUT as we believe the stock good long-term upside potential, but are currently in a downward short-term trend. Investors who do not already own shares may want to wait for lower entry points. Investment thesis:
  • 2015 business results down significantly. We project 2015 net profit down 49% y-o-y. According to 2015's target, the company will mainly record BT39 project (booked a part of revenue and profit in 2011) with total investment of VND1,882 billion (USD86.7 million) while HUT recorded mainly BT21 project with total investment of VND 3,802 billion (VND175.2 million) in 2014.
  • Toll collection segment is growing strongly with higher toll rates and new gates. HUT doubled the toll rate at Tan De Station on Jan 1, 2015 and opened a new toll station (BOT Highway 1A - Quang Binh) on July 1, 2015. We expect another new tollgate to payback for BOT 39 project to come into operations as early as the first quarter next year.
  • Reduced focus on BOT will help lower leverage. From management we learnt that HUT will not focus on BOT projects due to their low profit margin and large investment capital. This will help the company lower its debt ratio level in the future.
  • Real estate projects will add long-term value. HUT expects to restart construction of the South Building Apartment in Q4/2015 and open about 380 units (Phase I) of Xuan Phuong Urban for sale by Q1/2016. Therefore, we have added the residual value of property projects to our valuation model.
  • High dilution risk in the next two years. Private placement for strategic investors and stock dividends increased HUT's outstanding shares by 36% in the first six months of 2015. HUT also plans to issue convertible bonds of VND500 billion (USD23 million) in Q3/2015 which can be converted in 2017.
  • Forward P/E is higher than peers. HUT's trailing P/E is well below its peers. However, we estimate HUT's 2015 EPS at VND1,007 due to a sizeable dilution and declining net profits. At our target price, the stock will trade at a 2015 P/E of 12.7x, higher than its peers' LTM P/E of 9.1x
Our macro team also published an update on the devaluation of the Chinese Yuan: China devaluation has wide impacts on Vietnam and the world: Please click HERE for the full report Over the past three days, China's central bank, the People's Bank of China (PBoC) has adjusted downward the value of the local currency (CNY) by a combined 4.6 percent, 1.9 percent on August 11, 1.6 percent on August 12, and 1.1 percent today Perhaps more significantly though, these changes were due to a change in policy as to how the PBoC will manage the currency There are several reasons for the PBoC to support a devaluation
  • Weakening exports
  • Falling F/X Reserves
  • IMF Special Drawing Rights
Impacts of CNY devaluation were felt across global market
  • The weakening of other local currencies
  • FED may be reluctant to lift interest rates in the coming September FOMC meeting
  • The US Dollar price of such commodities as metals will be lower
  • Support for the Trans Pacific Partnership (TPP) free trade agreement may be improved in the US
  • Credit default swap spreads and USD borrowing costs for emerging market companies and governments will be higher
Winners and Losers in Vietnam Immediately following the CNY devaluation, the State Bank of Vietnam (the SBV) extended the trading band of its currency (VND) from one percent to two percent. We think that the move of the SBV is timely reaction to ease the market with more fluctuation allowed, while maintaining official exchange rate.
  • The bilateral trade deficit with China may grow furthers
  • The exports value of Vietnam to other markets may deteriorate
  • Property owners and companies that import inputs and sell their products domestically may benefit
Stronger pressure for VND devaluation will make it more difficult for Vietnam's banking sector to implement the policy of the SBV to lower lending interest rates by additional 0.5-1 percent in the second half of this year.   Please feel free to contact me should you like to learn more about these investment opportunities

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