VCBS Báo cáo chiến lược TTCK 2022 (english)

Vietnam Strategy 2022 Alastair Macdonald, CFA Head of Research 18 March 2011 alastair.macdonald@vcsc.com.vn +84 28 3914 3588 ext 105 From pandemic to endemic Vietnam’s GDP growth of 2.6% in 2021 fell well short of our and consensus expectations at the start of the year, primarily due to the ‘lost quarter’ in Q3 2021 caused by substantial restrictions to combat Vietnam’s fourth wave of COVID-19 In contrast, the VN-Index surprised on the upside with a gain of 36% as domestic retail investors drove trading volumes and the index to new record highs While global markets face headwinds in 2022 from slowing growth and monetary tightening to combat inflation, the outlook for Vietnam is relatively bright We expect a strong recovery in GDP growth combined with relatively modest increases in interest rates to support a 13% gain in the VN-Index to our unchanged end-2022 target of 1,700 Long Ngo Associate Director long.ngo@vcsc.com.vn +84 28 3914 3588 ext 123 Phap Dang, CFA Associate Director phap.dang@vcsc.com.vn +84 28 3914 3588 ext 143 Duong Dinh Senior Manager duong.dinh@vcsc.com.vn +84 28 3914 3588 ext 140 Macro: FDI attractions endure, policy to remain supportive in 2022 We forecast above-trend GDP growth of 7.8% in 2022 as disruptions from the COVID19 pandemic progressively fade While the pandemic has had a material negative impact on GDP, employment and household income, the manufacturing sector has shown remarkable resilience, achieving growth of 5.8% in 2020 and 6.4% in 2021 We believe Vietnam’s attractions as a destination for foreign direct investment (FDI) have endured the pandemic well and the FDI/export-led growth model will continue to support premium GDP growth over the next five to 10 years Although we expect average CPI inflation to increase from a six-year low of 1.8% in 2021, we believe it will remain manageable within the Government’s target cap of 4.0% and there should not be undue pressure for substantial hikes in interest rates Meanwhile, the Government has proposed a USD15bn package for 2022-2023 to support socioeconomic recovery and we expect fiscal policy to be more supportive than it was in 2021 Hong Luu Senior Manager hong.luu@vcsc.com.vn +84 28 3914 3588 ext 120 Duc Vu Senior Manager duc.vu@vcsc.com.vn +84 24 6262 6999 ext 363 Nam Hoang Manager nam.hoang@vcsc.com.vn +84 28 3914 3588 ext 124 Luong Hoang Manager luong.hoang@vcsc.com.vn +84 24 6262 6999 ext 364 Market outlook: Earnings growth to trump interest rate headwind Selected forecasts VCSC Macro Forecasts for 2022 GDP (nominal): USD402 bn GDP growth (real): 7.8% Inflation (average): 3.0% Credit growth: 14.2% VND vs USD: 0.0% VCSC Market Forecasts VN-Index target year-end 2022: VN-Index target year-end 2023: VN-Index expected TSR, 2022F: VN-Index EPS growth, 2022F: 1,700 1,900 15% 23% We maintain our year-end 2022 target for the VN-Index of 1,700 — 13% above the index’s 2021 closing level of 1,498 — and set a provisional 2023 target of 1,900 Based on our VN-Index EPS growth forecasts of 36%/23%/21% for 2021/22/23F, respectively, these targets imply end-2022 trailing/12-month forward P/Es of 15.9x/13.1x, respectively The key downside risks to our forecast scenario are: 1) a renewed healthcare crisis that results in disruption to production, trade and FDI; 2) higher-thanexpected domestic inflation and interest rates pressuring equity valuations as well as retail investor participation; 3) tighter conditions in global markets that limit offshore funding options for Vietnamese companies; 4) escalation in geopolitical tensions between the US and China that disrupts Vietnam’s trade; and 5) domestic policy disappointments Potential upside risks are stronger than expected: 1) recovery in global mobility; 2) new FDI registrations; 3) fiscal stimulus; 4) infrastructure investment; and 5) market developments such as reforms that accelerate potential upgrade to emerging market classification and sizeable new IPOs at reasonable prices Stock baskets for 2022 After lukewarm performance relative the VN-Index in H1 2021, our ‘bull basket’ and Bull basket: TCB, VPB, MBB, STB, MSN, ‘bear basket’ selections from our analysts’ top picks showed substantial MWG, PNJ, CTR, FPT, VHC, VHM, DXS, outperformance on an equal weighted basis in H2 2021 Our refreshed baskets for H1 HPG, DGC, STK, VEA, LHG, PHR, KBC, 2022 are illustrated in the left-hand column and discussed in more detail inside this VTP, PLX, BWE, TDM report To recap, our bull basket contains stocks that we believe should outperform in Bear basket: ACB, VCB, SAB, VNM, IMP, a rising market, while our bear basket contains stocks with defensive characteristics that should support relative outperformance if the market declines VRE, SCS, DPM, DCM, NT2 See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | Contents HOLD From pandemic to endemic Vietnam Macro: FDI attractions endure, policy to remain supportive in 2022 22 Market data 43 Banking Sector: Spotlight on December 2021 and Q1 2022 credit growth as well as Q4 2021 restructured loans 61 Other Financials: Outlook is bright, but valuation looks full 78 Consumer Sector: The big get bigger 100 Export-oriented companies: Positive momentum continues 117 Real Estate: Dynamic pre-sales, M&A and capital raising activities to support development pipeline 130 Construction Materials: Domestic demand to recover, input prices to stabilize at high levels 148 Industrials & Transportation: Major beneficiaries of Vietnam’s easing travel restrictions 166 Oil & Gas Sector: Capitalizing on strong urea, resilient oil prices 191 Power & Water Sector: Ready for industrial recovery 216 VCSC Rating System 244 See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | From pandemic to endemic HOLD Vietnam’s GDP growth of 2.6% in 2021 fell well short of our and consensus expectations at the start of the year, primarily due to the ‘lost quarter’ in Q3 2021 caused by substantial lockdowns to combat Vietnam’s fourth wave of COVID-19 In contrast, the VN-Index surprised on the upside with a gain of 36% as domestic retail investors drove trading volumes and the index to new record highs As a result, the VN-Index outperformed both global markets and neighboring ‘TIPS’ markets over the past two years since the end of 2019 Google mobility indicators show an encouraging recovery in October 2021 following a rapid rollout of vaccinations and the lifting of lockdown restrictions in HCMC and neighboring provinces However, the pace of recovery appears to have slowed substantially since early November 2021 New virus case numbers nationwide have increased substantially following the economic reopening and although new deaths attributed to COVID-19 have remained lower than during the fourth wave in Q3 2021, they have been increasing since mid-November 2021 We believe the more modest trajectory of recovery in mobility can be attributed to continuing risk-aversion that is limiting a full return to normal activities in addition to the fact that certain restrictions have remained on higher risk businesses such as bars and nightclubs We note that Google’s mobility indicator for ‘workplaces’ in Vietnam has not been updated beyond October 19, 2021 Figure 1: Google mobility indicators, Vietnam (7DMA) 40 20 Figure 2: Mobility indicators (7DMA) & GDP growth 20 (%) 8% (%) 6% 0 -20 4% 2% -20 0% -40 -60 -80 Second Social wave distancing -100 Jan-20 Jul-20 -40 Third wave, Tet holiday Jan-21 Fourth wave Jul-21 Jan-22 Retail & recreation Grocery & pharmacy Transit stations Workplaces -2% -4% -60 -6% -80 Jan-20 Jul-20 GDP YoY, RS Jan-21 Jul-21 Retail & recreation -8% Jan-22 Workplaces Source: Google, VCSC (data to December 22, 2021) Source: Google, General Statistics Office of Vietnam (GSO), VCSC (Google data to December 22, 2021) Figure 3: VN-Index Figure 4: VN-Index & ADTV 1,600 (Index) (index) (USD mn) 1,600 1,600 1,400 1,400 1,400 1,200 1,200 1,000 1,200 800 1,000 1,000 600 400 800 800 600 Dec-19 600 Dec-19 Jun-20 Dec-20 VN Index Source: Bloomberg, VCSC See important disclosure at the end of this document Jun-21 Dec-21 200 Jun-20 Dec-20 Jun-21 Value traded via order matching 7DMA, RS Dec-21 VN-Index Source: Bloomberg, VCSC www.vcsc.com.vn | VCSC January 7, 2022 | Figure 5: VN-Index & MSCI global index performance, USD Figure 6: VN-Index & ‘TIPs’ index performance, USD 180 180 (index) 160 160 140 140 HOLD (index) 120 120 100 100 80 80 60 60 Dec-19 Jun-20 Dec-20 VN Index, USD MSCI Emerging Jun-21 Dec-21 MSCI Developed MSCI Frontier Source: Bloomberg, VCSC 40 Dec-19 Jun-20 Dec-20 VN Index Indonesia Jun-21 Thailand Philippines Dec-21 Source: Bloomberg, VCSC Accelerating growth with manageable inflation in 2022 While global equity markets face headwinds in 2022 from slowing growth and monetary tightening to combat inflation, the outlook for Vietnam is relatively bright We expect a strong recovery in GDP growth combined with relatively modest increases in interest rates to support a 13% gain in the VN-Index to our unchanged end-2022 target of 1,700 We forecast GDP growth of 7.8% and CPI inflation of 3.0% for Vietnam in 2022F, while Bloomberg consensus forecasts 7.2% and 3.5%, respectively Meanwhile, Bloomberg consensus forecasts global growth to decelerate from 5.8% in 2021 to 4.4% in 2022 Vietnam is thus expected to enjoy a strong recovery in growth in 2022, in contrast to slowing global growth as the initial bounce back from global recession in 2020 starts to fade Bloomberg consensus forecasts global CPI inflation to remain elevated relative to recent years at 3.9% in 2022, unchanged from 2021 Whereas CPI inflation in Vietnam is expected to increase in 2022, this is from a very low base in 2021 and should not be viewed as alarming in the context of Vietnam’s growth and current stage of development, in our view This relatively sanguine view of an expected increase in inflation in Vietnam is reflected in our — and consensus — forecasts for only modest increases in interest rates in Vietnam in 2022 and 2023, in contrast to larger forecast increases in some Western economies, most notably in the United States Figure 7: Consensus GDP growth Figure 8: Consensus CPI inflation (%) (%) 7.1 7.2 7.0 6.8 5.8 3.6 4.4 2.8 2.9 2.6 3.6 5.0 4.0 3.6 3.5 3.5 2.8 3.0 3.9 3.3 2.9 1.8 2.0 3.9 3.5 3.2 3.2 1.0 -2 -4 2018 2019 -3.1 2020 2021F World Vietnam 0.0 2022F 2023F Source: Bloomberg, VCSC (data as of December 22, 2021) See important disclosure at the end of this document 2018 2019 2020 World 2021F 2022F 2023F Vietnam Source: Bloomberg, VCSC (data as of December 22, 2021) www.vcsc.com.vn | VCSC January 7, 2022 | Figure 9: Consensus GDP growth, selected regions Figure 10: Consensus CPI inflation, selected regions HOLD (%) (%) 7.2 7.1 7.0 6.8 5.8 4.4 3.6 3.6 2.9 2.8 2.6 -2 -4 -3.1 -6 -8 2018 2019 2020 2021F 2022F 2023F 3.6 3.5 3.5 2.8 3.2 3.9 3.2 3.9 3.5 2.9 1.8 -1 World North America Western Europe 2018 World Japan Asia Ex-Japan Vietnam Japan 2019 2020 2021F 2022F 2023F North America Western Europe Asia Ex-Japan Vietnam Source: Bloomberg, VCSC (data as of December 22, 2021) Source: Bloomberg, VCSC (data as of December 22, 2021) Figure 11: Consensus GDP growth, ASEAN Figure 12: Consensus CPI inflation, ASEAN (%) 10 (%) 7.1 7.2 7.0 2.9 6.8 2.6 -5 -10 2018 2019 Indonesia Malaysia 2020 2021F Philippines 2022F Thailand -1 -2 3.5 3.3 1.8 2023F 2018 Vietnam 3.5 3.2 2.8 2019 Indonesia 2020 Malaysia 2021F Philippines 2022F Thailand 2023F Vietnam Source: Bloomberg, VCSC (data as of December 22, 2021) Source: Bloomberg, VCSC (data as of December 22, 2021) Figure 13: Consensus central bank policy rates Figure 14: Change in consensus policy rates YoY (ppts) (%) 7.00 6.25 6.00 6.00 5.00 4.00 4.00 4.60 4.20 4.00 3.00 3.3 2.50 1.75 2.00 1.00 1.55 0.25 0.25 2020 2021E 0.75 0.00 2018 Eurozone Australia 2019 United Kingdom Asia Ex-Japan 2022F 2023F United States Vietnam Source: Bloomberg, VCSC (data as of December 22, 2021) See important disclosure at the end of this document 1.50 1.00 0.50 0.00 -0.50 -1.00 -1.50 -2.00 -2.50 1.00 0.00 0.00 0.00 0.80 0.40 0.50 0.20 -0.25 -0.75 2018 Eurozone Australia 2019 -1.50 -2.00 2020 2021E United Kingdom Asia Ex-Japan 2022F 2023F United States Vietnam Source: Bloomberg, VCSC (data as of December 22, 2021) www.vcsc.com.vn | VCSC January 7, 2022 | Macro: FDI attractions endure, policy to remain supportive in 2022 HOLD FDI/export-led growth model remains intact We forecast above-trend and higher than consensus GDP growth of 7.8% in 2022 as disruptions from the COVID-19 pandemic progressively fade While the pandemic has had a material impact on GDP, employment and household income, the manufacturing sector has showed remarkable resilience, achieving growth of 5.8% in 2020 and 6.4% in 2021 We believe Vietnam’s attractions as a destination for foreign direct investment (FDI) have endured the pandemic well and the FDI/export-led growth model will continue to support premium GDP growth over the next five to 10 years While FDI disbursements did not grow during 2020 and 2021, they remained broadly stable at around USD20bn per annum Although new FDI registrations declined in 2020 and did not fully recover to the 2019 level in 2021, we believe this was primarily due to travel restrictions and general uncertainty caused by the pandemic and we are encouraged by the fact that the ratio of new registrations to disbursements remained within the broad range of 1.3x to 2.3x that we have seen in Vietnam over the past eight years During the pandemic, manufacturing remained the largest single category of new FDI registrations at just over 50% of the total in 2020 and 2021 — in line with the average of the past five years Figure 15: Vietnam’s GDP growth Figure 16: Google mobility indicators, Vietnam (7DMA) 9.0% 7.8% 8.0% 7.0% 6.8% 7.1% 7.0% 6.7% 6.2% 7.0% 6.0% 6.0% 5.0% 4.0% 2.9% 2.6% 3.0% 2.0% 1.0% 0.0% GDP growth 40 20 (%) -20 Activity to recover further in 2022 -40 -60 -80 -100 Jan-20 Average 2014 - 2019 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Retail & recreation Grocery & pharmacy Transit stations Workplaces Source: GSO, VCSC Source: Google, VCSC (data to December 22, 2021) Figure 17: Growth in GDP and manufacturing Figure 18: Registered FDI (12M rolling sum) 16% 14% 12% 10% 8% 6% 4% 2% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 GDP Manufacturing Source: GSO, VCSC See important disclosure at the end of this document (USD bn) 45 40 35 30 25 20 15 10 Dec-16 Jan-23 Dec-17 Manufacturing Dec-18 Utilities Dec-19 Dec-20 Real estate Dec-21 Others Source: Foreign Investment Agency (FIA), VCSC www.vcsc.com.vn | VCSC January 7, 2022 | Figure 19: Registered and disbursed FDI (rolling 12M sum) (x) (USD bn) 50 45 40 35 30 25 20 15 10 2.5 2.0 1.5 1.0 0.5 0.0 Dec-13 Dec-15 Dec-17 Reg/Disbursed (RS) Dec-19 Disbursed Dec-21 Figure 20: Growth in FDI (rolling 12M sum) HOLD (YoY, %) 60 50 40 30 20 10 -10 -20 -30 -40 Dec-13 Registered Dec-15 Dec-17 Registered FDI Dec-19 Dec-21 Disbursed FDI Source: FIA, VCSC Source: FIA, VCSC Figure 21: Net FDI inflows as % GDP Figure 22: Exports of goods & services as % GDP 12 120 10 100 80 60 40 20 0 1990 1994 1998 2002 2006 2010 2014 2018 2022 Vietnam Thailand China 1990 1994 1998 2002 2006 2010 2014 2018 2022 World Vietnam Thailand China World Source: World Bank, VCSC (VN data to 2021, others to 2019) Source: World Bank, VCSC (data to 2020) Figure 23: Manufacturing value-added, indexed Figure 24: Share of global manufacturing value added, % 550 500 450 400 350 300 250 200 150 100 50 China 28.6% 2.0 Index, 2000 = 100 30 25 1.5 20 1.0 15 10 0.5 Vietnam 0.34% 0.0 2000 2004 2008 2012 2016 2020 2000 2004 2008 2012 2016 2020 Vietnam World Indonesia Vietnam Indonesia Malaysia Malaysia Philippines Thailand Philippines Thailand China (RS) Source: World Bank, VCSC (data to 2020) See important disclosure at the end of this document Source: World Bank, VCSC (data to 2020) www.vcsc.com.vn | VCSC January 7, 2022 | Policy to remain supportive in 2022 HOLD Although we expect average CPI inflation to rise from a six-year low of 1.8% in 2021 to 3.0% in 2022, we believe it will remain manageable within the Government’s target cap of 4.0% and there should not be undue pressure for substantial hikes in interest rates Consensus forecasts policy rates to increase by only 20 bps/40 bps in 2022/23F, respectively, and our banking team expects a similar cumulative increase in the deposit cap (on term deposits of less than six months maturity) of 70 bps over the next two years We expect recovering growth and demand for funding to drive a modest upturn in deposit rates while we expect rising US interest rates will also push Vietnam’s Government bond yields higher in 2022 However, we expect the interest rate headwind to be relatively mild in Vietnam, which has maintained positive real deposit rates throughout the pandemic, in contrast to negative real rates in the US and other parts of the world Meanwhile, the Government has proposed a USD15bn package for 2022-2023 to support socioeconomic recovery and we expect fiscal policy to be more supportive than it was in 2021 Vietnam’s budget deficit has expanded by considerably less than in many other parts of the world during the pandemic, leaving considerable ‘fiscal room’ for incremental support and stimulus measures over the next couple of years Figure 26: 10Y Gov’t bond yields and VN-US spread Figure 25: US & Vietnam inflation, BCOM Index* (index) (%) -1 -2 Dec-14 120 110 100 90 80 70 60 50 Dec-15 Dec-16 Dec-17 BCOM Index, RS Dec-18 Dec-19 VN CPI YoY Dec-20 (ppts/%) Dec-21 Dec-14 Dec-15 Dec-16 Dec-17 VN-US 10Y US CPI YoY Dec-18 VN 10Y Source: Bloomberg, VCSC (* a diversified commodity price index) Source: Bloomberg, VCSC Figure 27: 10Y Gov’t, BIDV deposit rates & inflation (%) Figure 28: Fiscal budget as % GDP -2 -4 -6 -8 -10 -12 -14 Dec-18 -2.1 -2.2 Dec-19 -3.2 Dec-20 Dec-21 US 10Y -3.8 -4.9 -5.1 -16 Dec-19 Dec-20 Dec-21 2018 2019 2020 2021E 2022F 2023F CPI inflation 3MMA VN 10Y Gov't Latin America North America Western Europe 3M depo 12M depo Japan Asia ex-Japan Vietnam* Source: Bloomberg, BIDV, VCSC See important disclosure at the end of this document Source: Bloomberg, VCSC (* VCSC f’casts, ex-principal repayment) www.vcsc.com.vn | VCSC January 7, 2022 | Market Outlook: Earnings growth to trump interest rate headwind HOLD We maintain our year-end 2022 target for the VN-Index of 1,700 — 13% above the index’s 2021 closing level of 1,498 — and set a provisional 2023 target of 1,900 Our 2022 index target is consistent with a market-cap weighted average upside to our target prices for stocks under our coverage Based on our VN-Index EPS growth forecasts of 36%/23%/21% for 2021/22/23F, respectively, these targets imply end-2022 trailing/12-month forward P/Es of 15.9x/13.1x, respectively Our VN-Index EPS forecasts are broadly in line with consensus, which forecasts EPS growth of 34%/27%/23% for 2021/22/23F, respectively Figure 29: EPS growth forecasts, VN-Index targets and implied P/Es at targets 2018 2019 2020 2021 2022F 2023F VN-Index* 893 961 1,104 1,498 1,700 1,900 Change, % -9 15 36 13 12 Index EPS 59.2 63.6 64.0 86.9 107.1 129.5 Change, % 10 -1 36 23 21 TTM P/E at targets, x 15.1 15.1 17.3 17.2 15.9 14.7 12M Fwd P/E at targets, x 14.1 15.0 12.7 14.0 13.1 N/A P/E at 31-Dec-21 index, x 1,498 17.2 14.0 11.6 13 27 Upside to targets, % Source: Bloomberg, VCSC (* VCSC target for 2022 and illustrative target for 2023; VCSC index EPS forecasts derived from applying aggregate growth rates for our HSX coverage to actual 2021 index EPS) The combination of interest rate cuts in response to the pandemic in 2020 and positive revisions to earnings forecasts since Q3 2020 has resulted in a surge in retail investor participation and a spectacular bull run for the VN-Index since its recent low in Q2 2020 during peak uncertainty over COVID-19 We believe interest rates have now bottomed, dampening one of these drivers Figure 30: VN-Index consensus* EPS forecasts (EPS) 150 130 110 Figure 31: VN-Index consensus* 12M forward EPS (Index) VN-Index, RS 2017 2019 2021F 2023F 2016 2018 2020 2022F 1,700 1,500 1,300 90 1,100 70 900 50 700 30 Dec-15 Dec-17 Dec-19 Source: Bloomberg, VCSC (* Bloomberg consensus) 500 Dec-21 1,700 (EPS) (Index) 1,500 120 110 100 1,300 90 1,100 80 70 900 60 700 50 500 Dec-15 Dec-17 VN-Index Dec-19 40 Dec-21 Consensus 12M fwd EPS, RS Source: Bloomberg, VCSC (* Bloomberg consensus) We believe earnings growth should trump modest increases in interest rates in 2022, supporting further upside for the market However, with consensus earnings growth forecasts above 20% for both 2022F and 2023F and ADTV and velocity of turnover (ADTV/market cap) already at very high levels relative to the market’s history, delivery against consensus expectations for earnings growth could become increasingly critical to sustain retail investor participation and the bull market See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | Figure 32: Changes in consensus EPS forecasts, deposit rates and sentiment QoQ change Q4 2021 HOLD Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Earnings revisions Flat Negative Stabilizing Positive Positive Positive Flat Positive Deposit rates Flat Falling Falling Falling Flat Flat Flat Flat Negative Positive Flat Positive Positive Positive Flat Positive VN-Index (EOP value) 663 825 905 1,104 1,191 1,409 1,342 1,498 VN-Index change QoQ -31% 25% 10% 22% 8% 18% -5% 12% Investor sentiment* Source: Bloomberg, Fiinpro, VCSC (*Based on QoQ changes in ADTV, brokerage accounts & margin loans) Figure 33: VN-Index, ADTV & velocity of turnover (index, ADTV) 1,600 Figure 34: VN-Index, brokerage accounts, margin loans (%) 1,400 (index) 120 1,000 800 600 1,600 100 1,400 80 1,200 60 1,000 1,200 40 VN-Index Brokerage accounts, k RS Margin loans, USD mn RS (accounts, loans) 8,000 6,000 800 4,000 600 400 20 200 Dec-13 Dec-15 VN-Index Dec-17 ADTV USD mn Dec-19 Dec-21 400 200 Dec-13 Velocity of turnover, RS Source: Bloomberg, VCSC 2,000 Dec-15 Dec-17 Dec-19 Dec-21 Source: Bloomberg, Fiinpro, VSD, VCSC Whereas the TTM P/E for the VN-Index of 17.5x looks moderately expensive vs the average since end-2014 of 15.7x, the consensus 12-month forward P/E of 13.9x is in line with the average since end-2014 of 14.2x This does not look like a demanding valuation, in our view, given our expectations for double-digit earnings growth and for interest rates to remain close to historical lows We believe there is scope for P/E multiples to hold around current levels even if interest rates increase modestly in line with our and consensus forecasts and that earnings growth can drive further upside in the market Figure 35: VN-Index TTM P/E since Dec-2014 Figure 36: VN-Index 12M forward P/E* since Dec-2014 22 22 20 (x) 18 18 16 16 14 14 12 12 10 10 Dec-14 (x) 20 Dec-15 Dec-16 TTM P/E +2SD Dec-17 Dec-18 Mean -1SD Source: Bloomberg, VCSC See important disclosure at the end of this document Dec-19 Dec-20 +1SD -2SD Dec-21 Dec-14 Dec-15 Dec-16 12M Fwd P/E +2SD Dec-17 Dec-18 Dec-19 Mean -1SD Dec-20 Dec-21 +1SD -2SD Source: Bloomberg, VCSC (* Bloomberg consensus) www.vcsc.com.vn | VCSC January 7, 2022 | 10 Figure 488: Gas price outlook for Vietnam’s southeast region (USD/MMBTU) (*) 11 10 70 70 65 64 8.3 43 7.5 10.0 65 HOLD 80 10.3 65 60 7.9 40 6.1 20 5.8 2019 2020 2021F 2022F 2023F 2024F 2025F Average Brent crude price assumption - RHS (USD/bbl) Southeast Vietnam's gas price - LHS (USD/MMBTU) Source: GAS, industry players, VCSC estimates (*) Excluding gas supply from private player Hai Linh LNG Nominal risk for a coal shortage while coal prices should increase ~11% YoY in 2022 We maintained our forecast for the benchmark 5a domestic coal and its mixed coal equivalent in our Energy Sector Report, dated October 21, 2021 We reiterate our key assumptions and forecasts below We assume that annual average mixed coal prices will remain flat in 2021 We believe this is due to several reasons, including: • Vinacomin did not significantly reduce coal prices for power plants when international coal prices decreased in 2020, thus creating an earnings buffer to sustain the current prices amid the international price hike • Vinacomin’s exposure to international thermal coal prices was significantly lower in 9M 2021 vs 2020 thanks to lower demand for thermal coal (-5% YoY) and resilient local production (+ 2% YoY) In fact, Vietnam’s coal imports in 9M 2021 totaled 29.5 million tonnes — down 33% from 44.3 million tonnes in 9M 2020, according to Vietnam Customs • Vietnam’s local thermal coal prices are regulated by the MoIT on a cost-plus basis Therefore, without a significant uptick in cost, Vinacomin could not seek approval to raise thermal coal selling prices in 9M 2021 We forecast Vinacomin’s 5a-equivalent mixed coal price to jump 10.7% YoY to ~VND2.036mn/tonne in 2022 This higher coal price is mainly due to (1) Vietnam’s electricity consumption (and therefore electricity production) recovering in 2022F as Vietnam transitions to a “new normal” state as COVID-19 subsides and (2) coal-fired power remaining as one of the main drivers for Vietnam’s 2022F electricity production given the relatively high cost of gas-fired sources and the possibly lower volume of hydropower plants in northern Vietnam We believe that higher demand for coal-fired power will lead to higher demand for thermal coal importation as local coal production is already near its maximum capacity In other words, our expectation for 2022F means that Vinacomin would need to ramp up thermal coal importation at relatively higher selling prices vs locally produced coal to fulfill its contracts with existing coal-fired power plants With approval from the MoIT, we believe that Vinacomin should be able to pass through the increases in costs via raising thermal coal prices See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | 232 Figure 489: Forecast of average prices of 5a domestic coal and its mixed coal equivalent 2025F HOLD VND mn/tonne 2020 2021F 2022F 2023F 2024F Domestic coal, 5a (5,500 kcal/kg) 1,845 1,845 1,937 2,034 2,136 2,243 YoY growth 2.1% 0.0% 5.0% 5.0% 5.0% 5.0% Mixed coal, 5a equivalent 1,874 1,838 2,036 1,980 2,043 2,086 YoY growth -1.7% -1.9% 10.7% -2.7% 3.2% 2.1% Mixed coal, 5a equivalent 80.7 79.6 88.1 85.7 88.5 90.3 (USD/tonne) Source: MoIT, Bloomberg consensus, VCSC forecasts (delivery price includes import transportation tariffs, logistics costs and VAT for imported coal that is used to mix with domestic coal) Gas-fired power is competitive with imported coal-fired power plants Currently, imported coal-fired power plants hold 9% of Vietnam’s total power capacity — nearly the same as the share of gas-fired power We estimate that feedstock costs of gas-fired power plants under our coverage range from VND1,350-VND1,400/kWh (based on our Brent oil price assumption of USD70/bbl), which is competitive vs feedstock costs of imported coal-fired power plants that range from VND1,000-VND2,000/kWh (based on Newcastle thermal coal price assumption of USD100-USD150/tonne) Figure 490: Newcastle thermal coal 6,000 kcal/kg FOB (USD/tonne) 250 200 Newcastle thermal Coal 6000 kCAl/kg FOB (USD/mt) 150 100 50 Source: Bloomberg, VCSC Figure 491: Imported coal-fired power plants comprise 9% of Vietnam’s power capacity in 2020 3% Hydropower Coal-fired power (use domestic coal) 24% 30% Coal-fired power (use imported coal) Oil-fired power 1% Gas-fired power 10% 20% 3% Wind power 9% Solar farm Others Source: EVN & MoIT based on 2020 breakdown See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | 233 Forecast drop in La Niña probability to support utilization rates of thermal power plants in 2022 HOLD The weather forecast illustrated below predicts that the probability of La Niña (heavy rainfall in Vietnam) will drop from 100% in December 2021 to 22% in August 2022 In mid-October 2021, EVN issued a warning about potential water shortages in the North (which is the center of Vietnam’s hydropower capacity) in the upcoming dry season in H1 2022 As of late October, water levels at major reservoirs were very low with total water storage at only 30%-65% compared to the multiyear average levels Figure 492: Probability of La Niña as of December 2021 100% 25% 34% 80% 22% 22% 58% 52% 20% 26% Jul-22 Aug-22 50% 65% 60% 100% 81% 95% 63% 40% 62% 49% 20% 35% 5% 0% Dec-21 Jan-22 19% 1% Feb-22 Mar-22 Apr-22 El Niño Neutral 4% May-22 La Niña 12% Jun-22 Source: International Research Institute for Climate and Society, VCSC Coal-fired plants to benefit from potential electricity shortage in northern Vietnam In northern Vietnam, hydropower is the second biggest power generator (31% of total production volume) There has been a nominal increase in thermal power capacity over the past three years — which coupled with a potentially lower contribution from hydropower plants (due to lower rainfall) in 2022 — should result in more volume from coal-fired power plants Figure 493: Electricity production volume across types northern Vietnam in 2020 3% Coal-fired power 31% Hydropower 66% Others Source: Draft PDP VIII (February 2021), VCSC Vietnam has strong demand for clean water Water demand outlook From 2013-2019, total residential and industrial water demand in Vietnam grew at a CAGR of 5.9%, which was slightly slower than the real GDP CAGR of 6.5% Strong water demand was thanks to economic development and strong FDI inflows to manufacturing sector — in addition to favorable demographics amid rapid urbanization and strong population growth In 2020-2021, water demand was hit by manufacturing activities being disrupted by COVID-19 Therefore, we expect growth in water demand will recover 7% YoY in 2022 vs a low base in 2021 and will normalize to 6% YoY in 2023F-2025F based on our real GDP growth assumption of ~ 6.5% YoY See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | 234 Figure 494: Water demand vs GDP growth (%) in 2014-2025F HOLD 16% 14 15% 14% 12 12% 10 10% 6.0% 6.7% 6.2% 6.8% 7.0% 7.0% 6.5% 6.5% 4.8% 7.8% 7.0% 6.5% 6.5% 6% 6.8% 6.0% 2.9% 2.6% 2.5% 2.3% 8% 6.0% 6.0% 4% 2% 3.1% 0.0% 0% 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022F 2023F 2024F 2025F Water demand (million cbm/day) Water demand growth (%) - RHS Real GDP growth (%) - RHS Source: General Statistics Office of Vietnam (GSO), VCSC compilation Currently, there are more than 100 water supply companies in Vietnam’s 63 provinces/municipalities Equitization of water companies has been carried out as planned with 70 companies successfully becoming equitized However, there are two big supply and distribution companies in Vietnam that have not yet been equitized Hanoi Water Limited Company (HAWACOM; designed capacity of 636,000 cbm/day) had a plan to equitize with the Government’s stake declining to 50%-65% Meanwhile, the Ho Chi Minh City People’s Committee plans to maintain a 100% stake in Saigon Water Supply Company (SAWACO; designed capacity of one million cbm/day) Figure 495: Distribution capacity of Vietnam’s water companies in 2021 (‘000 cbm/day) 1,200,000 1,000,000 1,000,000 800,000 750,000 636,000 600,000 450,000 400,000 260,000259,000 200,000 213,000 173,132 74,600 67,500 65,550 Source: VCSC compilations Solid water demand in Binh Duong Province Per Decision 3613/QĐ-UBND of the People's Committee of Binh Duong Province, dated December 26, 2016, Binh Duong’s processed water supply is expected to have a strong 2020-2025 CAGR of 12.2% and reach 294 million cbm in 2025 This guidance suggests a daily water supply capacity of 807,000 cbm/day in 2025 compared to See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | 235 Binh Duong’s current designed capacity of 750,000 cbm/day (2020) Clearly, this level of capacity would benefit BWE’s future capacity expansion HOLD Figure 496: Water demand in Binh Duong Province (‘000 cbm/day) 369 400 350 300 250 200 150 100 50 294 132 2018 155 165 2019 2020 2025G 2035G Source: Decision 3613/QĐ-UBND, VCSC compilation Strong FDI inflows in Binh Duong Province to boost industrial water demand Binh Duong has one of the largest industrial zones in Vietnam and is among Vietnam’s top five provinces for attracting newly registered FDI over the past five years Binh Duong received total registered FDI in 2021 of USD2bn (+13% YoY) and was Vietnam’s fourth most popular location (after Hai Phong, Long An and HCMC) for attracting registered FDI, which implies robust industrial and manufacturing growth for the province in coming years This growth will ultimately lead to higher water consumption Recent news of LEGO’s sizeable investment in Binh Duong Province will support water demand over the long term LEGO guides invest USD1bn to build a factory at the VSIP Industrial Park The company targets to break ground in H2 2022 and bring the factory into operation by 2024 As such, we believe BWE will benefit from higher residential water demand when new workers migrate to Binh Duong Province to work for LEGO Even with the negative impact from COVID-19, registered FDI into Binh Duong Province reached USD2bn in 2021 (+13% YoY) vs Vietnam’s total registered FDI in 2021 of USD31bn (+9% YoY) Figure 497: Newly registered FDI in Binh Duong Province (USD mn) 3,500 3,129 3,000 2,798 2,536 2,367 2,500 2,133 1,884 2,000 1,547 1,468 1,500 1,217 989 1,000 500 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Ministry of Planning and Investment, VCSC See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | 236 Rising population and a high urbanization rate will act as drivers to increase Binh Duong’s residential water demand Binh Duong’s population growth posted a CAGR of 3.9% p.a from 2011-2018, which is equivalent to more than triple Vietnam’s population growth rate over the same period Notably, the province’s growth rate has picked up over the last five years mainly due to the migration of workers from surrounding provinces In addition, Binh Duong has a high urbanization rate with approximately 78.2% of its population residing in urban areas in 2019 This large urban population leads to higher total water demand because urban areas use more water than rural areas In addition, the province’s population will grow at a CAGR of 4.8% from 2018-2025G while its urbanization rate will reach 85% in 2025G, according to provincial authorities HOLD Figure 498: Population and urbanization rate in Binh Duong Province 3,500 2018-2025G population CAGR: 4.8% 2011-2018 population CAGR: 3.9% 3,000 1,659 1,731 1,803 1,500 95% 90% 2,500 2,000 100% 3,000 1,874 1,947 1,996 77% 77% 77% 2,071 76% 85% 2,164 85% 80% 75% 78% 70% 65% 1,000 64% 65% 65% 60% 500 55% 50% 2011 2012 2013 2014 2015F 2016 Population ('000 (mn people) people) LHS LHS 2017 2018 2025G Urbanization rate (%) - RHS Source: Binh Duong Statistical Office, VCSC Stock Recommendations for 2022 BUY – BIWASE (HSX: BWE): Resilient industrial volume underpins growth outlook BWE is the second largest water distribution company in Vietnam and had a capacity of 750,000 cbm per day as of 2021 The company claimed to have a water loss ratio — or non-revenue water ratio (NRW) — of 5.05% in 11M 2021, making it have the third-most efficient water plant in the Asia-Pacific region We are optimistic about BWE’s growth outlook as a leading player in Vietnam’s water sector due to the following reasons: (1) the company is poised to benefit from robust water demand growth in Binh Duong Province (a top three FDI-attracting destination in Vietnam) with the highest guided residential and industrial water demand at a CAGR of 12.2% in 2020-2025F; (2) BWE has a favorable water tariff in Binh Duong Province with a 5% increase per year; and (3) the company has a strong financial capacity and an ample land bank The company’s strong financial capacity should support BWE’s capacity expansion and M&A For the potential capacity expansion, BWE secured land bank to increase its Tan Hiep plant’s capacity from 220,000 cbm/day to 500,000 cbm/day while sister company TDM secured land bank to increase its generation capacity from 200,000 cbm/day to 500,000 cbm/day, which should help BWE’s distribution capacity to double over the longer term BWE is expanding its water business to Dong Nai Province and aiming to achieve a 20%-30% market share in this province over the long term Upside catalysts: Higher-than-expected volume growth after LEGO’s investment; higher-thanexpected water tariff increase after 2022 Downside risks: Lower-than-expected volume recovery in 2022 See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | 237 OUTPERFORM – Thu Dau Mot Water (HSX: TDM): Expecting strong volume rebound in 2022 HOLD TDM is a private water supply company in Binh Duong Province with a designed capacity of 260,000 cbm/day We like TDM mainly due to it being poised to benefit from robust water demand growth in Binh Duong Province along with a favorable water tariff that increases 5% per year We expect TDM to deliver robust growth and rising yield with a 2020-2025F CAGR of 23% for parent company EPS on the back of strong water demand growth, economic normalization, improvement in the utilization rates of new water plants and a rising dividend income contribution from BWE TDM’s valuation looks compelling at our estimated 2022F P/E of 12.4x, which is 19% lower than the historical four-year regional peer median TTM P/E of 15.3x In addition, TDM has a 37% stake in BWE — Vietnam’s second biggest water player TDM also possesses an ample land bank and strong financial capacity to expand its capacity and support future M&A To prepare for the potential capacity expansion, TDM has secured land bank to increase its Di An plant’s capacity from 200,000 cbm/day to 500,000 cbm/day over the long term The company also has the opportunity to increase its Bau Bang plant’s capacity from 60,000 cbm/day to 160,000 cbm/day over the long term A low gearing ratio of 0.2x as of September 30, 2021, should allow TDM to make additional investments without raising capital TDM is expanding into Dong Nai Province through acquiring 20% stake in Gia Tan Water Company (with a long-term capacity of 200,000 cbm/day) in Q3 2021 Downside risks: Worse-than-expected COVID-19 impact on TDM in H1 2022 BUY – REE Corp (HSX: REE): Looking forward to M&E recovery, further power capacity REE remains one of our favorite stocks as it is a leader in Vietnam’s green energy sector due to its profitable projects that are driven by its cost control in a capital-intensive sector and low financing costs We see a bright earnings outlook for REE with a forecast 15% EPS CAGR for 2020-2025F that is driven by contributions from 100 MW of existing wind power capacity (potential to increase 5x), 500 MWp of rooftop solar capacity, 500 MW of hydropower capacity, and the commercial operation of the Etown building in 2023F Furthermore, there will be a potential surge in M&E contract value from the upcoming construction of Tan Son Nhat International Airport’s Terminal and the new Long Thanh International Airport REE’s valuation is attractive at a 2022F PER of 9.7x, implying a PEG of 0.6 and a ~20% discount compared to its peers REE’s 2022F P/B of 1.3x is also compelling, based on our forecasts REE targets massive amount of new power capacity, including ~400 MW of new wind power projects (Vinh Hao, Ea H’Leo and Kong Chro projects) under 61%-stake Thuan Binh Wind Power JSC and 400 MW of floating solar projects under 42%-stake associate company TMP REE also targets to develop/M&A 100-200 MW of wind power projects p.a along with a giant 2,000 MW offshore wind project We have not incorporated this capacity into our valuation and are awaiting further details Upside catalyst: One-off profit from divesting 51%-stake real estate subsidiary VIID Downside risk: Lower-than-expected M&E profit; higher-than-expected curtailment risk BUY – HADO GROUP (HSX: HDG): Land bank acquisition to accelerate HDG is one of the most attractive plays on Vietnam’s real estate and green energy sectors due to its VND6tn (USD260mn) of projected NPAT-MI from real estate handovers and potential 1,000 MW of total power capacity by 2025F HDG is small reputable real estate developer in Vietnam with a 121-ha land bank and is actively looking for a substantial new land bank In an analyst meeting on December 21, 2021, HDG shared that it is working on multiple land bank acquisitions, including 150 for three new projects in western Hanoi, 10 of residential real estate in Hau Giang Province and several residential projects in Ninh Thuan Province In addition, the company has communicated with Dong Nai, Tay Ninh and Thai Binh provincial authorities regarding industrial park land bank acquisition HDG possesses a highly profitable renewable energy portfolio with an equity IRR of ~20% thanks to good locations, modern technology, capex control and reasonable financing costs In 2021, its NPAT contribution doubled HDG also targets to double its See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | 238 power capacity over the next five years We find HDG’s valuation compelling at a 2022F PER of 7.9x — a 58% discount vs our selected peer group’s TTM PER We argue for a re-rating given a projected EPS CAGR of 23% in 2020-2025F HOLD Upside catalysts: Higher-than-expected selling prices for Charm Villas in Ha Noi and Hado Minh Long real estate project in Ho Chi Minh city; further landbank acquisitions (320 hectares); higherthan-expected valuation for Hado Energy IPO and real estate spin-off Downside risk: Slower-than-expected progress of future real estate projects OUTPERFORM - Gia Lai Electricity (HSX: GEG): Looking forward to strong earnings growth in 2022 GEG is a pioneer in Vietnam’s green energy sector with a current portfolio of 446 MW and targets to reach 2,000 MW over the long term GEG received a favorable tariff for wind power plants and has relatively low-cost solar power plants with high-quality solar panels and reasonable financing costs We forecast 2022 NPAT-MI to grow 60% YoY with the contribution of three wind farms (130 MW) that came online October 2021 and a 14% recovery in solar power sales volume GEG is also planning to bring two more wind farms online in 2022-2023 Despite a ~15% lower tariff vs the previous subsidized tariff, GEG is preparing to break ground on two nearshore wind farms in southwest Vietnam in 2022-2023 — Tan Phu Dong (100 MW) and VPL (30 MW) We estimate unleveraged IRRs of 10%-12% for these two new wind farms, which are still reasonable We forecast a 24% EPS CAGR in 2020-2025F that is driven by two more wind farms (130 MW) coming online after 2021, the stable operation of five solar farms and 14 hydropower plants, and declining interest expenses GEG is attractive at a 2022F P/E of 17.1x (based on our forecast), which implies a PEG of 0.7 Upside catalyst: Profit contribution from 25%-stake in Truong Phu Hydropower JSC Downside risks: Higher-than-expected curtailment risk; interest rates rise faster than expected BUY – Nhon Trach Thermal Power (HSX: NT2): Attractive sustainable dividend yield NT2 is one of the most efficient gas-fired power plants in Vietnam as its gas consumption per unit of power produced is ~10% lower than other plants We like NT2 mainly due to (1) its ideal location that should benefit from strong electricity consumption in Vietnam (NT2 is located in the economic hub of the South — the region that lacks electricity the most in Vietnam); (2) the company offering an attractive and sustainable dividend yield of 9%-13% (based on our forecast); and (3) a cheap valuation based on our forecast — NT2 is trading at a 2022F projected EV/EBITDA of 5.7x vs a regional peer TTM median EV/EBITDA of 11.0x for single power plants As of Q3 2021, NT2’s estimated free cashflow of VND1.3tn p.a would easily cover our 2023F DPS of VND3,000 while VND1.0tn of retained earnings could support a payout ratio of over 100% Key upside risks: Higher-than-expected dividends (we believe POW will need more cash to finance the imminent capex for its gas-fired Nhon Trach & plants and the recently approved Quang Ninh LNG-fired project in 2022-2023 and thus may ask NT2 to pay a higher dividend) Downside risks: Lower-than-expected booking of compensation for forex losses BUY – PV Power (HSX: POW): Vung Ang technical issue hinders 2022F EPS recovery POW is the largest non-EVN electricity producer in Vietnam and has high-quality assets that should benefit from strong electricity demand growth POW operates a diversified power generation capacity of 4,200 MW, including Ca Mau & (gas-fired; x 750 MW), Nhon Trach (gas-fired; 450 MW), Nhon Trach (gas-fired; 750 MW), Vung Ang (coal-fired; 1,200 MW) and two hydropower plants — Hua Na (180 MW) and Dakdrinh (125 MW) In December 2021, Ca Mau’s new PPA was signed, removing the uncertainties about the plant’s earnings outlook and helping POW to revert a VND780bn bad debt provision related to the plant We assume the new PPA contract will be retrospectively applied from July 1, 2021 to the official See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | 239 contract signing date, meaning that Ca Mau will be required to rebate some of its 9M 2021 earnings to EVN; however, the company can also reverse VND780bn of bad debt HOLD We also see POW as an attractive play on Vietnam’s transition into LNG-fired power with its extensive capacity expansion pipeline, including its Nhon Trach & (2 x 750 MW) LNG-fired power plants commencing operation in 2023-2024, which will increase POW’s capacity by 35% POW also plans to bring the Mien Trung & gas-fired power plants online (1,500 MW) in 2025 and the Quang Ninh LNG-fired power plants online after 2026 Upside catalyst: Higher-than-expected insurance compensation for Vung Ang and the booking of compensation for fx loss in previous years MARKET PERFORM – Power Construction Company (HSX: PC1): Awaiting significant new updates on project pipeline While we still view PC1 as a play on Vietnam’s move into renewable energy due to the company’s three major wind power projects that came online at end-November 2021, we downgraded PC1 from OUTPERFORM to MARKET PERFORM despite raising our target by 18% in our Q3 2021 PC1 Update Report, dated November 30, 2021, as the company’s share price has rallied 27% over the last three months PC1’s valuation looks fair based on its publicly announced project pipeline that includes two medium-sized real estate projects in 2023F, a nickel mine and an additional 300 MW of new wind power capacity in 2023F-2024F Apart from the mine (which was announced in Q2 2021), PC1 has been relatively silent regarding any major updates for its power investment pipeline in 2021, which we believe is critical for a further valuation upgrade at this point Our 2022F PER is 16.5x vs a four-year average TTM PER of 13.5x for our selected peer group Upside catalyst: Contribution from a new real estate project in Hanoi MARKET PERFORM – Pha Lai Thermal Power (HSX: PPC): Prolonged technical issue to dampen 2022F recovery PPC and its two major investee companies — HND and QTP — are ideally located to capture the North’s fast-growing and manufacturing-driven electricity demand We forecast that PPC will continue to pay robust cash dividends, implying a double-digit dividend yield at the current price PPC is trading at a 2022F PER of 15.7x (based on our forecast), which is higher than the four-year average of our selected peer group median TTM PER of 13.5x In the short term, PPC is facing headwinds as the company was not able to complete the repair of the S6 generator (300 MW) at the Pha Lai power plant in September 2021 per the company’s previous guidance; as such, this generator will likely remain nonoperational until mid-2022F In the longer term, we believe the Pha Lai plant (600 MW), which will come online in 2026, will double PPC’s earnings potential as Pha Lai (600 MW) is currently PPC’s main earnings contributor (90%-95% of total EBIT), while Pha Lai 1’s earnings contribution is minimal due to its advanced age We have yet to factor Pha Lai into our model Key upside risks: Operation of the S6 generator resuming faster than expected See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | 240 UNDERPERFORM – GELEX (HSX: GEX): Expecting strong earnings growth; valuation expensive HOLD We view GEX as a play on Vietnam’s robust electricity consumption outlook and green energy as the Government aims to more than double the national power capacity over the next 10 years to support robust projected growth in electricity consumption of 8%-10% p.a GEX has also become one of the leading industrial park developers in Vietnam after the company gained controlling stake in Viglacera JSC (HSX: VGC) in Q2 2021 We are still optimistic about VGC capturing strong leasing demand amid expected strong FDI inflows starting in 2022 We downgraded GEX from MARKET PERFORM to UNDERPERFORM in our Q3 2021 GEX Update Report, dated November 22, 2021 GEX looks expensive at a 2022F P/E of 23.6x, based on our forecasts Upside risks: Higher-than-expected valuation for GEX Infrastructure IPO; one-off profit from 100% stake divestment in Huong Phung Wind Power; more successful land bank acquisition from VGC Downside risks: Lower-than-expected industrial park selling prices; higher-than-expected wind power curtailment risk Appendix: company names and codes Code PPC REE NT2 POW PC1 GEX GEG TDM BWE HDG See important disclosure at the end of this document Company name Pha Lai Thermal Power JSC Refrigeration Electrical Engineering Corporation JSC PetroVietnam Nhon Trach JSC PetroVietnam Power JSC Power Construction No.1 JSC Vietnam Electrical Equipment JSC Gia Lai Electricity Thu Dau Mot Water Binh Duong Water Environment JSC Ha Do Group www.vcsc.com.vn | VCSC January 7, 2022 | 241 Figure 499: VCSC’s factor scores for POW Figure 500: VCSC’s factor scores for NT2 HOLD Domestic demand Low rates beneficiary Domestic demand Pricing power 3 Commodity consumer Premium growth Low rates beneficiary4 Commodity consumer Positive FCF 3 High FinLev High OpLev Figure 502: VCSC’s factor scores for PPC Domestic demand Low rates beneficiary4 Domestic demand Low rates beneficiary4 Pricing power 3 3 Premium growth Positive FCF Pricing power Commodity consumer High FinLev High OpLev See important disclosure at the end of this document Positive FCF High OpLev Figure 501: VCSC’s factor scores for REE High FinLev Premium growth 3 High FinLev Commodity consumer Pricing power 3 Premium growth Positive FCF High OpLev www.vcsc.com.vn | VCSC January 7, 2022 | 242 Figure 503: VCSC’s factor scores for PC1 Figure 504: VCSC’s factor scores for GEX Domestic demand Low rates beneficiary4 Commodity consumer Low rates beneficiary4 Pricing power Premium growth High FinLev4 Premium growth High FinLev Positive FCF Figure 505: VCSC’s factor scores for HDG Domestic demand Pricing power Commodity consumer Premium growth Positive FCF High FinLev Low rates beneficiary Commodity consumer High FinLev Premium growth Positive FCF Figure 508: VCSC’s factor scores for BWE Premium growth Low rates beneficiary Commodity consumer Pricing power Premium growth 3 Positive FCF Positive FCF High FinLev High OpLev See important disclosure at the end of this document Domestic demand High FinLev Pricing power High OpLev Pricing power Low rates beneficiary 3 High OpLev Figure 507: VCSC’s factor scores for TDM Commodity consumer Positive FCF Figure 506: VCSC’s factor scores for GEG Domestic demand Domestic demand High OpLev High OpLev Pricing power Commodity consumer Low rates beneficiary HOLD Domestic demand High OpLev www.vcsc.com.vn | VCSC January 7, 2022 | 243 VCSC Rating System HOLD Stock ratings are set based on projected total shareholder return (TSR), defined as (target price – current price)/current price + dividend yield, and are not related to market performance Equity rating key Definition BUY If the projected TSR is 20% or higher OUTPERFORM If the projected TSR is between 10% and 20% MARKET PERFORM If the projected TSR is between -10% and 10% UNDERPERFORM If the projected TSR is between -10% and -20% SELL If the projected TSR is -20% or lower NOT RATED The company is or may be covered by the Research Department but no rating or target price is assigned either voluntarily or to comply with applicable regulation and/or firm policies in certain circumstances, including when VCSC is acting in an advisory capacity in a merger or strategic transaction involving the company RATING SUSPENDED, COVERAGE TERMINATED A rating may be suspended, or coverage terminated, if fundamental information is deemed insufficient to determine a target price or investment rating or due to a reallocation of research resources Any previous investment rating and target price are no longer in effect Unless otherwise specified, these performance parameters are set with a 12-month horizon Movement in share prices may cause a temporary mismatch between the latest published rating and projected TSR for a stock based on its market price and the latest published target price Target prices are generally based on the analyst's assessment of the stock’s fair value over a 12-month horizon However, the target price may differ from the analyst’s fair value if the analyst believes that the market will not price the stock in line with assessed fair value over the specified time horizon Risks: Past performance is not necessarily indicative of future results Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report For investment advice, trade execution or other enquiries, clients should contact their local sales representative See important disclosure at the end of this document www.vcsc.com.vn | VCSC January 7, 2022 | 244 Disclaimer HOLD The authors of this report certify that the views expressed herein accurately reflect their personal views about the subject securities or issuers They also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking VCSC and its officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment).VCSC may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment Copyright 2013 Viet Capital Securities Company “VCSC” All rights reserved This report has been prepared on the basis of information believed to be reliable at the time of publication VCSC makes no representation or warranty regarding the completeness and accuracy of such information Opinions, estimates and projection expressed in this report represent the current views of the 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VCSC January 7, 2022 | 38 2020) and Regional Comprehensive Economic Partnership (CEP; effective January 2022) , which should further enhance Vietnam’s trade with member countries in 2022 and beyond