HSC - Strategy-Report - 2020-hsc PDF

Vietnam Strategy 2020
Strategy Report 13 January 2020
“Patience is bitter, but its fruit is sweet”

Figure 1: HSC top stock picks
Target Upside / Mkt Cap For stock investors, Vietnam in 2019 was a struggle. However, we may do well to
Ticker
Price Downside USDmn remember the wisdom of Aristotle as we look forward into 2020 and beyond.
Financials: Banks Fundamentally, Vietnam has the potential to be an excellent multi-year story.
MBB 33,300 59% 2,111
TCB 35,000 52% 3,496 Sound Foundations…
VPB 25,800 29% 2,107
Real Estate: Developers At just over 7% GDP growth, Vietnam in 2019 was one of the fastest growing
DXG 25,400 85% 308 economies in the world. Strongly underpinned by a sound external position,
KBC 17,500 16% 307
burgeoning trade and a stable currency, we can expect to see a similarly strong
KDH 30,100 14% 625
economy in 2020.
NLG 39,700 49% 289
VRE 42,800 27% 3,313
Transportation
Demographics are key: Vietnam features a young, highly educated, upwardly
ACV 95,000 28% 6,978 mobile population that is spurring consumer demand. Tourism is booming.
GMD 28,372 28% 286
VSC 33,099 20% 66 Vietnam has also become a beneficiary of the Trade war between the US and
Agriculture and Agri-Chemicals China while at the same time factor costs of production are cheap relative to
LTG 27,024 33% 71 peers in the region; FDI is proving to be a great spur to growth.
Consumer
VHC 45,100 16% 307 …largely tempered by the pace of change
SAB 314,579 41% 6,218
QNS 34,400 27% 420 Rapidity of regulatory change, especially around capital markets liberalisation, is
Retail
challenging – inefficient access to capital caps growth and corporate earnings.
MWG 164,400 43% 2,200
MSCI inclusion isn’t likely until 2022 or later.
PNJ 94,700 10% 837
Technology & Internet
FPT 78,100 37% 1,675
Private investment participation needs facilitating; as FDI accelerates, there will
Manufacturing be more and more demand for first class logistics while power shortages need to
BMP 63,096 41% 159 be overcome.
HPG 28,288 18% 2,871
VEA 60,929 37% 2,561 External risks could include slowing global growth; as an export economy.
DRC 30,074 24% 125 Vietnam would be affected, but not as much as others
Oil & Gas
PVS 22,818 20% 393 Liquidity x confidence = a rising stock market
PVT 22,000 33% 202
Utilities Domestic liquidity is available but we need the return of animal spirits. This will
POW 16,200 43% 1,152 come as we see positive regulatory change over the next year or two. Our index
Textiles
target is for the first six months of the year is 1,200, or approximately 25%
TCM 24,274 24% 49
upside.
Source: HSC, Bloomberg
Chris Hunt While any index target remains speculative, there is no doubt stock selection will
Head of Research remain key.
chris.hunt@hsc.com.vn
Figure 2: What happens next and why?

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Please refer to the disclosures of potential conflict of interest and the disclaimer at the end of this report
Table of Contents
Investment Summary: a great long term story .................................................................................................................. 3
The macro outlook: Reasons to be cheerful ..................................................................................................................... 8
Politics: Stability, resilience & positive change ............................................................................................................... 33
Demographics: Underpins everything ............................................................................................................................. 35
ESG: The start of positive change .................................................................................................................................. 40
Financial market restructuring & MSCI EM inclusion – the great stimulus to come? ..................................................... 45
Future stock market performance: The devil remains in the detail ................................................................................. 54
Sector Reviews – Stock selection is key ......................................................................................................................... 64

Banks: Forecast solid growth largely priced in ................................................................................................................ 65
Brokerage sector: Dealing with multiple challenges ....................................................................................................... 72
Real estate: Aligning with a new development cycle ...................................................................................................... 76
Consumer sector: ‘Noise’ expected to offset demographics in 2020 .............................................................................. 87
Retail sector: Modern retail leading the way ................................................................................................................... 91
Agriculture: Dragged down by global trends ................................................................................................................... 94
Manufacturing: An improving outlook for 2020 ............................................................................................................... 97
Transportation & Logistics: Building a base for long-term growth ................................................................................ 106
Energy: Challenges abound, but big players remain well-positioned ........................................................................... 111
Technology: Everything is becoming digital .................................................................................................................. 118
HSC Institutional Research
Research Financial Institutions Consumer
Chris Hunt - Head of Research Do Minh Trang - Sector Head Tran Huong My - Sector Head
chris.hunt@hsc.com.vn my.th@hsc.com.vn
+84 28 3823-3299 x350 trang.dminh@hsc.com.vn
+84 28 3823-3299 x168 +84 28 3823-3299 x362
Industrials
Pham Lien Ha Truong Hong Kim
Vo Thi Ngoc Han - Sector Head ha.plien@hsc.com.vn kim.thong@hsc.com.vn
+84 24 3933-4693 x4850
han.vtn@hsc.com.vn +84 24 3933-4693 x4847
+84 28 3823-3299 x314 Bui Nguyen Cam Giang
Nguyen Manh Dung
giang.bnc@hsc.com.vn
Che Thi Mai Trang dung.nmanh@hsc.com.vn +84 28 3823-3299 x369
trang.ctmai@hsc.com.vn +84 24 3933-4693 x4842
+84 24 3933-4693 x4848 Fixed Income
Energy and Utilities
Real Estate Luu Cong Thanh - Head of Fixed Income
Truong Thu My - Sector Head Research
Ho Thi Kieu Trang - Sector Head my.tt@hsc.com.vn thanh.luucong@hsc.com.vn
trang.htk@hsc.com.vn +84 24 3933-4693 x4806 +84 24 3933-4693 x4845
+84 28 3823-3299 x129
Vu Hoai Linh Market Data
Pham Anh Thu linh.vhoai@hsc.com.vn
thu.pa@hsc.com.vn +84 24 3933-4693 x4844 Vo Thi Nhat Minh - Sector Head
minh.vtn@hsc.com.vn
+84 28 3823-3299 x172
Economics/Macro +84 28 3823-3299 x365
Nguyen Duy Nam
Pham Vu Thang Long - Chief Economist Hoang Mai Xuan Lan
nam.nd@hsc.com.vn
+84 28 3823-3299 x156 long.pvthang@hsc.com.vn lan.hmx@hsc.com.vn
+84 24 3933-4693 x4805 +84 28 3823-3299 x160
Huynh Thi Kim Khue

khue.htk@hsc.com.vn
+84 28 3823-3299 x999
www.hsc.com.vn Page 2
Investment Summary: a great long term story

We remain positive on the prospects for Vietnam. Our expectation, which we view as
conservative, is that we will see the VN Index hit 1,200 by the middle of the year; thereafter it
becomes a little more difficult to predict, and we will be updating our views consistently over
coming quarters.
We anticipate an index Broadly speaking, we are positive on the market due to a number of overarching themes, many
level of 1,200 by mid- based on HSC economics and equities research views, all of which we will go through in some
year detail in this report:
• We have a supportive macro environment with a stable currency outlook.
• GDP per capita is rising, the population is young and the middle class is growing. A
population experiencing increased growth is the key to future success.
• Inflation is, and should continue to remain, below 3.5% on an annualised basis. Interest rates
remain low which means short term liquidity remains abundant.
• The external position is on sound ground and trade is burgeoning. Currently total trade is two
times GDP.
• The US/China trade war works in Vietnam’s favour, which further underpins increasing
foreign direct investment (FDI) flows.
• Vietnam’s geopolitical position is good, domestic politics are stable.
There are a whole host • The regulatory environment is improving steadily; rate of change may accelerate post the
of structural reasons to 14th National Assembly in June 2020 and the 13th National Party Congress in 2021.
invest in Vietnam
• Financial liberalization will continue to remain in focus – the economy needs money, the
banks need money and companies need money. Positive change is not just desirable, but a
necessity.
• The MSCI story will be with us a while longer – however, experience tells us the time to buy
is before, not after, inclusion.
• Corporate behavior is steadily improving – we introduce the first of a series of pieces

focused on Environment/Social/Governance (ESG) heat maps.
• Vietnam is favourably priced when compared to regional markets and attractively so when
future prospects are considered.
Notably, in a departure from the past, going forward we will be providing strategy updates as
events occur, rather than taking a single year long view from one static date – this document
hopes to set out our stall ahead of the release of more timely insights in the future.
The chart below is a depiction of why we consider Vietnam to be in a sweet spot. While some of
the positive trends we are currently experiencing will extend over a decade, we will see some of
the biggest changes having the most profound impact in the next three to five years.
Figure 3: Vietnam: A window of opportunity
Source: Bloomberg, HSC Research
The key to our It is important to note that the speed of positive change will be variable in various areas. We
investment story is would fully expect the rise of the middle class to grow quickly and without restraint or interruption
positive change which is over the next 5-10 year period, but inclusion in the MSCI may take longer than we expect,
both real and structural infrastructure investment generally could prove to be lumpy and the regulatory environment
generally may move in fits and starts.
It is important to note that when we talk about positive change, the key word is not “change” per
se, but “positive”. It is a truism that outsize returns over a prolonged period are best achieved
when there is positive change which is both real and structural and this is the point we are
now at in Vietnam, in our view.
Figure 4: Key structural changes will drive long term performance
Source: HSC Research
Like all positive market strategies on all markets, it remains easy to peel back the onion and find
reasons not to act, but in the case of Vietnam, the long term trends are powerful enough that
when the market corrects (and there will be pull backs over the coming months), we should see
those moments as excellent opportunities to buy.
Of course, there will be challenges, risks and road bumps along the way and throughout this
There are always strategy will be reviewing and discussing these issues. It should be noted though that these
challenges, but with factors, should they develop negatively, will only slow the long term trajectory of the country, not
them comes opportunity derail it.
The key challenges we see are highlighted below:
• US/China trade wars: Currently a direct beneficiary, could Vietnam be the next China? We
think not.
• Slowing global growth: Out of our control, but as an export economy Vietnam is of course
affected, but not as much as others.
• Rapidity of regulatory change, especially around capital markets liberalisation.
• Depth of the debt market: Access to capital remains an issue and a cap on growth.
• Government balance sheet: Strengthening for sure, but there is a need for a lot more private
investment participation.
• Infrastructure spending: As FDI accelerates, there will be more and more demand for first
class logistics.
• Power shortages: They are coming, what can and will be done?
• Domestic liquidity is here but we need the return of animal spirits. Money and confidence will
lead to a rising stock market.
2020 EPS growth of On a regional basis, Vietnam compares favorably when using Bloomberg consensus data. For
13.1% and a P/E of 2020, we are forecasting 13.1% EPS growth implying a PER of 12.56 x for our universe.
12.6x – Vietnam
compares favorably At the same we also consider ourselves to have been conservative in our own forecasting
relative to the market, especially so for the property and construction sectors where we see
upside risk to our numbers should difficulties with the HCMC market be resolved, and the retail
sector where stronger than anticipated demand could fuel better earnings growth than currently
forecast.
Our index target for the first six months of the year is 1,200, representing approximately 25%
upside. This would imply a market PER of 15.8x on 2020 forward earnings, which would then
place the market on approximately the same valuation multiples as Malaysia, Thailand and the
Philippines are trading at currently – Forecasted EPS growth for all four markets (Bloomberg
consensus) is similar.
While it may be argued that a liquidity discount could be applied to Vietnam, superior, unique
and long term, macro economic prospects must in turn be considered an offsetting factor.
If we accept that the macro picture justifies a rerating relative to regional peers, we can gain
further comfort from our target pricing. On the surface, we are forecasting total upside for our
universe of 11%.
However, if we remove the top five largest stocks we have under coverage (BIDV, VietCom
Bank, Vin Group, VinaMilk and PV Gas), our total universe performance rises to 25%. The
upside performance for our top picks is 35%. Of course, what this highlights is exactly how
important stock picking is in this market.
Figure 5: Regional markets – 2020 forward P/Es and EPS growth rates
25.0 50.0%
20.0 40.0%
30.0%
15.0
20.0%
10.0
10.0%
5.0 0.0%
0.0 -10.0%
PER (X, LHS) EPS Growth %
We believe stock selection is key. In a number of sectors, we see good opportunities…but also
Stock selection is key – bad choices. Earnings momentum, valuations and market positioning is always a factor in our
it is not about sector recommendations and target price setting, but equally important are corporate governance, an
allocation ability to execute and strategic vision.
We expect the index to reach 1,200 by the middle of 2020. In this context our key sector/stock
calls are:
• Transport: Airports and seaports primarily – ACV, GMD, VSC.

• Energy: Electricity power plants (including clean and renewable energy), pipelines – POW,
PVS, PVT.
• Industrial and technological zone development – KBC.
• Manufacturing: A wide range of industries (from steel to oil and gas, to machinery
equipment) – HPG, VEA, BMP, DRC.
• Technology: FPT.
• High quality banks: MBB, TCB, VPB.
• Consumer: Consumption stocks – VHC, SAB, QNS, MWG, PNJ, VRE.
• Select property companies with good land bank – KDH, NLG, DXG, VRE.
Getting the timing right is crucial and also difficult. However, at present, investor interest, liquidity
Are we about to see a conditions and investment timing are not unfavorable, especially if you have a long-term
multi-year bull-run? perspective. Couple this with a very solid macro outlook and we appear to be well positioned to
be benefit from a return in confidence from domestic buyers and renewed interest by foreign
investors alike.
We believe that a multi-year bull run could be in the offing.
Figure 6: … so what happens next, and why?
Figure 7: HSC’s top picks

HSC Closing Target Upside / Mkt Cap EPS Growth (%, YoY) P/E (x) Div Yield (%)
Ticker
Rating Price Price Downside US$m 18A 19F 20F 18A 19F 20F 18A 19F 20F
Financials: Banks
MBB Buy 20,950 33,300 59% 2,111 +75% +22% +17% 7.7 6.3 5.4 2.4% 2.9% 2.9%
TCB Buy 23,050 35,000 52% 3,496 -2% +8% +15% 9.1 8.4 7.3 0.0% 0.0% 0.0%
VPB Add 19,950 25,800 29% 2,107 -34% +3% +24% 6.6 6.4 5.1 0.0% 0.0% 0.0%
Real Estate: Developers
DXG Buy 13,700 25,400 85% 308 +38% -16% +9% 4.3 5.1 4.6 7.2% 3.6% 3.6%
KBC Add 15,100 17,500 16% 307 +28% +15% +8% 9.5 8.3 7.7 0.1% 6.7% 6.7%
KDH Add 26,500 30,100 14% 625 +5% +8% +19% 17.8 16.5 13.9 1.9% 3.8% 3.8%
NLG Buy 26,700 39,700 49% 289 +33% +10% +19% 8.2 7.4 6.3 3.1% 2.8% 2.7%
VRE Buy 33,650 42,800 27% 3,313 +57% +15% +20% 32.6 28.3 23.6 0.0% 0.0% 0.0%
Transportation
ACV Buy 73,982 95,000 28% 6,978 +55% +17% +9% 28.1 24.0 22.1 1.2% 1.2% 1.2%
GMD Add 22,250 28,372 28% 286 +216% -71% -6% 3.6 12.3 13.1 43.0% 6.7% 6.7%
VSC Buy 27,500 33,099 20% 66 +15% -33% +11% 4.9 7.4 6.7 7.3% 9.1% 10.9%
Agriculture and Agri-Chemicals
LTG Add 20,322 27,024 33% 71 -17% +27% -12% 4.7 3.7 4.2 9.8% 7.9% 7.9%
Consumer
VHC Add 39,000 45,100 16% 307 +24% -12% -0% 5.0 5.7 5.7 10.3% 0.0% 10.3%
SAB Buy 223,800 314,579 41% 6,218 -13% +28% +25% 36.2 28.3 22.6 2.7% 2.2% 2.7%
QNS Add 27,141 34,400 27% 420 +23% +1% +11% 6.5 6.4 5.8 5.5% 5.5% 5.5%
Retail
MWG Buy 114,700 164,400 43% 2,200 +17% +31% +23% 18.2 13.9 11.3 1.3% 1.3% 1.3%
PNJ Add 85,800 94,700 10% 837 +28% +22% +26% 20.7 17.0 13.5 1.9% 1.6% 2.1%
FPT Buy 57,000 78,100 37% 1,675 -24% +30% +25% 14.6 11.3 9.0 2.6% 3.5% 3.5%
Manufacturing
BMP Add 44,700 63,096 41% 159 -6% +1% +8% 9.3 9.2 8.6 8.9% 8.9% 10.1%
HPG Buy 24,000 28,288 18% 2,871 -33% -30% +20% 6.3 9.0 7.5 0.0% 8.3% 8.3%
VEA Add 44,479 60,929 37% 2,561 +38% +1% +9% 8.5 8.5 7.7 0.9% 8.5% 10.1%
DRC Buy 24,250 30,074 24% 125 -17% +55% +14% 22.5 14.5 12.7 4.5% 4.1% 6.2%
Oil & Gas
PVS Buy 19,000 22,818 20% 393 +29% +1% +7% 9.2 9.1 8.5 5.6% 5.3% 5.3%
PVT Buy 16,600 22,000 33% 202 +45% +9% +10% 7.6 7.0 6.4 6.0% 6.0% 6.0%
Utilities
POW Buy 11,350 16,200 43% 1,152 -20% +26% +12% 13.8 10.9 9.8 3.9% 0.0% 0.0%
Textiles
TCM Add 19,600 24,274 24% 49 +29% -25% +9% 4.8 6.4 5.9 2.5% 6.1% 6.1%
The macro outlook: Reasons to be cheerful

We are positive on the macroeconomic outlook for Vietnam. There are concerns for us to
Macro conditions are
consider, including the risk of a global slowdown, but Vietnam should be better positioned than
excellent
most in this context. Vietnam is currently a direct beneficiary of the US/China trade war, and
while possible, it is very improbable that it will be the next victim, after China, of Mr. Trump’s tariff
wars. Delays in infrastructure spending, especially for power projects, may cause difficulties but
also opportunities.
We anticipate strong GDP growth in coming quarters which will be driven by domestic
consumption as well as export demand resulting from increasing FDI. Vietnam’s economy
presently looks to be on a path of long-term sustainable economic growth. Government finances
are in good shape, the external picture looks good and the currency should remain stable.
We talk through our views on the economy in more detail below.
Figure 8: HSC’s economic forecasts

2016 2017 2018 2019F 2020F 2021F
Currency
Currency (VND:USD) (Bloomberg, HSC estimates) 22,159 22,425 22,825 23,155 23,622 24,098
Currency (VND:CNY) (Bloomberg, HSC estimates) 3,337 3,268 3,562 3,238 3,336 3,443
GDP
GDP Annual Growth Rate (%) (GSO, IMF, ADB and HSC estimates) 6.2 6.8 7.1 7.0 6.8 6.7
GDP (USD Billion) (WB, IMF estimates) 205.3 223.8 244.9 261.9 282.4 305.8
GDP per capita (USD) (GSO, IMF estimates) 2,215 2,389 2,590 2,728 2,929 3,142
Current Account to GDP (%) (IMF, SBV, WB) 0.3 -0.7 2.4 3.1 1.9 1.7
Government Debt to GDP (%) (MoF, IMF estimates) 59.7 58.2 57.5 49.7 46.5 46.1
Government Budget (% of GDP) (MoF, GSO, HSC estimates) -4.3 -3.5 -3.6 -3.6 -3.5 -3.5
Prices
12M average Inflation Rate (y/y%) (GSO, IMF and HSC estimates) 4.7 2.6 3.0 2.8 3.5 3.5
12M average food & foodstuffs inflation (%) (GSO, HSC estimates) 2.4 -1.1 3.2 4.1 3.8 3.5
Money
Policy Interest Rate (%) (SBV, HSC estimates) 6.5 6.5 6.25 6.00 5.75 5.50
3M Interbank Rate (%) (Bloomberg, VCB, HSC estimates) 5.3 4.7 5.5 3.8 3.5 3.3
Money Supply M2 (VND Billion) (SBV, HSC estimates) 7,126,194 8,192,986 9,212,193 10,271,595 11,452,829 12,741,272
Foreign Exchange Reserves (USD Million) (IMF, SBV) 36,167 48,693 55,453 79,000 96,933 115,485
12M Deposit Interest Rate (%) (Bloomberg, VCB, HSC estimates) 6.5 6.5 6.8 6.4 6.0 5.9
Government Bond 5Y (%) (Bloomberg) 5.5 4.3 4.5 3.5 3.6 3.8
Government Bond 10Y (%) (Bloomberg) 6.2 5.1 5.1 4.4 4.5 4.5
Trade
Balance of Trade (USD million) (GSO, IMF and HSC estimates) 2,680 2,674 7,211 9,900 16,500 17,400
Current Account (USD million) (IMF, HSC estimates) 625 (1,651) 5,899 8,000 5,400 5,199
Current Account to GDP (%) (IMF, SBV, WB, HSC estimates) 0.3 -0.7 2.4 2.7 1.9 1.7
Imports (USD Million) (GSO, IMF estimates) 173,262 211,096 237,512 254,401 290,800 329,958
Exports (USD Million) (GSO, IMF estimates) 175,942 213,770 244,723 263,512 307,300 347,389
External Debt (USD Billion) (MoF, IMF estimates) 107 115 110 122 133 148
FDI Disbursement (USD Billion) (FIA, ET and HSC estimates) 16 18 19 20 25 26
Business & Consumer
Manufacturing PMI (IHS Markit, ET and HSC estimates) 52.4 52.5 53.8 50.8 50.9 51.2
Industrial Production (y/y%) (GSO, HSC estimates) 8.3 11.2 11.4 1.6 8.5 8.5
Manufacturing Production (y/y%) (GSO, HSC estimates) 12.9 17.8 13.7 2.0 9.3 9.3
Source:GSO, SBV,CEIC, World Bank, HSC Research
Figure 9: Recent data trends

Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
CPI (y/y%) 2.6 2.6 2.7 2.9 2.9 2.2 2.4 2.3 2.0 2.2 3.5 5.2
Retail Sales (y/y%) 14.0 11.2 13.5 13.3 12.2 11.7 11.7 11.7 12.2 16.7 11.1 12.4
Export (y/y%) 9.4 -3.5 7.0 10.3 9.4 7.4 11.1 10.4 10.7 7.3 4.7 10.1
Import (y/y%) 6.8 4.6 11.1 19.3 9.7 0.8 7.5 5.9 11.8 2.9 -0.9 11.0
Indust. Prod. (y/y%) 5.7 6.5 6.3 7.6 7.7 5.4 9.2 10.3 10.6 9.7 2.5 1.6
Markit PMI Index 51.9 51.2 51.9 52.5 52 52.5 52.6 51.4 50.5 50.0 51.0 50.8
Interbank Rate (ON) 4.82 4.21 4.30 2.74 2.76 4.15 2.74 5.00 1.74 1.51 3.93 1.43
Currency (VND:USD) 22,868 22,915 22,980 23,028 23,065 23,066 23,073 23,133 23,161 23,145 23,162 23,155
VN-Index 910.65 965.47 980.76 979.64 959.88 949.94 991.66 984.06 996.56 998.82 970.75 960.99
Source:GSO, SBV,CEIC, World Bank, HSC Research
1) GDP growth looks solid and steady

GDP growth of 7.0% in 4Q19 GDP growth was reported at 6.97%. We have experienced a slight slowdown in the fourth
2019, 6.8% in 2020 and quarter in the face of a decline in global trade, but our full year GDP forecast for FY20 remains
6.7% in 2021 intact at 6.8%
As the charts below show, Vietnam is bucking the regional trend thanks to the impact of foreign
direct investment (FDI) and strong domestic demand relative to other regional economies.
Figure 10: GDP growth: ASEAN economic performance

8.0
7.0 6.97
6.0
y/y%
5.0
4.0
3.0
2.0
Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19
Vietnam Thailand Philippines Indonesia Malaysia
Source: CEIC, GSO, HSC Research
Manufacturing and We are forecasting that GDP growth will be between 6.5 to 7% over the next three years even
services are driving the in the face of a potential global slowdown and global geopolitical uncertainty; we think our
economy expectations are conservative. We expect the rising middle class to become increasingly
important as a driver and that the manufacturing sector will continue to move up the value
chain.
How the momentum of the economy has changed and will continue to change is evidenced in
the chart below. It is clear that the importance of manufacturing and services will be a major
driver and this is reflected in growth. At present, industry and construction, which captures
manufacturing, is growing at 7.9% per annum while the service sector is growing at 8.1%.
Figure 11: GDP growth by sector
12
10
8 8.09
7.92
6
y/y%
2
1.62
-2
Mar-16 Mar-17 Mar-18 Mar-19
Agriculture, Forestry and Fishing Industry and Construction Services
Source: CEIC, SBV, HSC Research
Currently urbanization is 37% but accelerating. Agriculture remains a significant employer in

Urban migration will Vietnam but, as the chart below shows, it is a small contributor to overall GDP. As urban
sustain momentum… migration continues apace, we can anticipate continued momentum in the services and
manufacturing sectors, thanks both to the increasing availably of a young, educated, mobile work
force, the increasing demand they generate as GDP per capita rises and rising tourism.
…. As will a young, well Figure 12: Vietnam: Components of GDP

educated workforce
9 9
7.4 7.7 7.5 7.5

8 7.3 8
6.7 6.8 6.8 6.7 7.0
6.6 6.7
contribution to gdp growth in %
7 6.4 7
5.8
6 5.5 5.2 6
5 5
4 4
3 3
2 2
1 1
0 0
-1 -1
Agriculture, Forestry and Fishing Industry and Construction Services
Products taxes less subsidies GDP growth (y/y%)
Source: CEIC, HSC Research
Figure 13: Industrial production

Industrial Production (% y/y change) Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
Overall 10.8 10.1 5.7 6.5 6.3 7.6 7.7 5.4 9.2 10.3 10.6 9.7 2.5 1.6
Mining and Quarrying (MQ) 2.9 3.9 -5.4 -3.2 3.3 1.4 2.1 -1.6 0.7 8.6 -0.3 3.0 -6.4 -5.3
MQ: Coal 1.6 11.2 1.6 11.4 11.6 17.8 4.1 -4.4 30.2 33.4 19.9 10.9 8.1 0.6
MQ: Crude Oil -12.7 -7.6 -13.5 -10.1 -3.7 -5.4 -3.8 -2.6 -11.3 -3.7 -8.7 -6.1 -12.2 -17.6
MQ: Mining Iron Ore -11.2 -30.8 -40.1 2.2 4.5 -27.0 5.0 -3.1 -3.1 36.2 3.8 40.3 39.8 24.7
Manufacturing (Mfg) 11.1 10.2 7.2 6.9 5.7 7.9 8.7 5.7 11.1 11.3 13.0 11.5 2.9 2.0
Mfg: Aquatic Products 3.0 24.4 7.5 5.9 4.2 11.5 8.6 2.6 2.2 6.7 1.6 2.5 2.8 -1.3
Mfg: Dairy Products 4.0 18.1 6.2 16.0 7.9 2.7 3.7 10.7 4.4 7.6 3.4 7.4 4.4 7.3
Mfg: Beer 3.7 4.1 8.8 11.0 16.0 9.3 10.1 7.5 10.1 12.1 8.3 10.3 12.0 11.1
Mfg: Tobacco 20.9 25.9 -5.8 7.9 3.4 6.4 2.1 -3.4 3.0 8.7 7.4 2.1 -5.6 1.4
Mfg: Shoes and Sandals 6.1 21.5 10.5 7.7 7.9 9.0 6.2 8.4 10.6 15.6 8.9 8.7 12.3 12.2
Mfg: Refined Petroleum Products 88.0 98.2 105.6 85.5 31.1 96.2 105.8 -13.5 -6.2 12.2 14.7 5.2 -44.0 -11.7
Mfg: Fertilizers 5.4 10.8 12.2 7.0 3.7 0.7 -2.5 1.1 7.8 13.1 -8.9 -1.8 4.8 3.1
Mfg: Pharmaceutical Products -23.6 -12.1 -27.7 -5.4 -11.2 3.6 -2.9 -2.5 -0.3 -29.8 -23.6 -26.2 0.8 -19.4
Mfg: Other Products from Plastics -2.8 14.4 11.0 16.3 15.3 14.5 16.2 16.5 17.3 14.5 13.0 13.2 13.3 13.6
Mfg: Cement 9.0 14.3 3.5 3.9 6.1 5.7 3.5 7.1 15.8 11.5 14.3 14.2 14.4 6.8
Mfg: Steel, Basic Iron 100.9 37.6 28.8 44.8 42.5 41.8 35.3 37.2 41.1 34.1 18.0 12.3 5.3 7.6
Mfg: Other Metal Products 4.6 16.7 5.8 4.9 9.2 3.3 -5.3 1.7 8.7 8.2 3.6 0.0 1.7 2.4
Mfg: Electronic Components 30.2 24.7 3.5 -4.0 2.6 12.9 17.7 4.0 12.4 9.5 39.7 50.8 20.2 11.8
Mfg: Communication Equipment -7.6 1.9 -7.7 -4.4 -9.0 -7.2 -4.8 -0.2 17.2 16.4 23.1 18.5 -7.7 -13.3
Mfg: Consumer Electronics 1.7 16.1 11.7 5.1 13.6 10.4 10.1 13.8 2.7 4.7 -3.2 -13.8 -6.0 -11.4
Mfg: Textile, Garment 22.5 29.3 7.2 36.8 7.2 23.1 12.8 -1.5 5.2 14.1 15.9 2.8 -8.1 -5.0
Mfg: Motor Vehicles 27.7 20.1 35.7 18.1 14.8 13.5 19.0 -1.8 16.2 2.2 3.2 6.2 5.1 3.5
Mfg: Motorbikes 7.2 -1.9 2.9 -6.4 -7.9 -6.3 -6.4 -12.5 -7.8 -9.1 -8.8 -5.5 -6.8 -6.5
Electricity and Gas (EG) 18.9 18.0 9.1 16.3 14.9 12.8 8.1 10.2 5.4 4.9 1.5 1.6 6.4 3.0
Water Supply, Waste Management (WS) 6.4 6.5 4.0 5.7 8.2 9.1 5.5 8.5 6.8 7.6 20.3 16.5 16.9 18.6
Note: Green = high value, yellow =neutral; red = low value
Source:GSO, SBV, HSC Research
Re-evaluating GDP Data – 2010 to 2017
On Friday 13 December 2019, Vietnam’s General Statistics Office (GSO) issued a press release detailing its re-
evaluation of the country’s GDP over the period 2010-2017.
This GDP re-evaluation by the government has resulted in significant improvements in key macro-prudential
ratios, such as credit to GDP, budget deficit to GDP, public debt to GDP, for the 2010-2017 period. However, it is
important to note that higher macro-prudential ratios in the period 2010-2017 may not yet be assumed to imply
better prudential ratios now or in the future.
There was no mention of applying this new GDP calculation methodology for the 2018-2020 period. We therefore
continue to use the GDP figures published under the old methodology for 2018 and beyond. We also use the
older data (pre-2018) for historic comparisons as well for any calculations of the prudential ratios mentioned
above.
After the revisions, GDP (current price) has increased by 27.0%, 27.3%, 25.5%, 24.8%, 23.8%, 25.2%, and 25.7%,
respectively, for the years 2010-2017.
Regarding GDP breakdowns, on average for the whole period, the share of the agriculture, forestry and fishery
sector was revised down to 14.7% from 17.4%, whereas the shares of the industry and construction sector
(manufacturing) and the services sector were revised up to 34.8% and 41.2%, respectively, from 33.0% and
39.2%.
Despite these changes, real GDP growth rates for the years 2010 to 2017 have only changed marginally – on a
year by year basis real GDP growth rates using the new data were 6.41% (2011), 5.50%, 5.55%, 6.42%, 6.99%,
6.69%, and 6.94% (2017) vs. 6.42% (2011), 6.24%, 5.25%, 5.42%, 5.98%, 6.68%, 6.21%, and 6.81% (2017) as
previously released.
Due to changes in GDP denominators, key prudential ratios changed. As at the end of 2017, the public debt to
GDP ratio fell to 48.8% from 61.4% on the new numbers, the budget deficit to GDP fell to 2.8% from 3.5% and
credit to GDP fell to 103.5% from 130.1%. Also, GDP per capita in 2017 increased to USD2,985 from USD2,389.
Figure 14: Impact of GDP Revaluation, 2010-2017 Figure 15: GDP Per Capita Revaluation, 2010 to 2017
3,500
2,985
3,000 2,759
2,561 2,597 2,590
2,500 2,370 2,389
2,194
2,052 2,109 2,215
1,958 1,907
2,000 1,690 1,748
1,517
1,500 1,273
1,000
500
0
2010 2011 2012 2013 2014 2015 2016 2017 2018
GDP per capita (before adjustment) GDP per capita (after adjustment)
Source: GSO & HSC Research Source: GSO, CEIC & HSC Research
Figure 16: Public Debt to GDP Revaluation, 2010 -2017 Figure 17: Credit to GDP Revaluation, 2010-2017
70 63.7 140 130.1 130.1
61 61.4 58.4 122.3
58 120 111.0
60 51.7 54.5 103.5
50.1 50.8 49.2 50.9 48.8 95.2 97.0 100.8 97.6
50 43.6 46.3 100 89.7
40.7 39.3 40.4 75.9 77.7 80.4
40 80
30 60
20 40
10 20
0
0
2012 2013 2014 2015 2016 2017 2018
2010 2011 2012 2013 2014 2015 2016 2017 2018
Public debt/ GDP (%) (before adjustment) Credit to GDP (%) (before adjustment)
Public debt/ GDP (%) (after adjustment) Credit to GDP (%) (after adjustment)
Source: GSO, CEIC & HSC Research Source: GSO, CEIC, SBV & HSC Research
Three main factors drove this re-evaluation:
1. The latest general economic censuses have resulted in more accurate GDP assessments which led to
increases of VND589tn per year on average. This accounted for approximately 60% of the total average annual
increase we have seen for the period 2010 to 2017. To illustrate, the 2017 census included more enterprises
(+76,000) and household businesses (+306,000) than the numbers used to calculate GDP in 2016;
2. Additional administrative documents (mainly related to the collection of tax revenues) resulted in a GDP
increase of VND305tn per year on average for the period 2010 to 2017. This accounted for approximately 30%
of the total increase seen.
3. Updated national accounts (in line with SNA 2008 of the United Nations Statistics Division), resulted in a GDP
increase of VND98tn per year on average for the period 2010 to 2017, accounting for approximately 10% of the
total increase seen.
These changes for the 2010-2017 period are intended to improve calculation methods and to allow alignment with
global standards. As explained by the GSO, the re-evaluation of GDP was in-line with recommendations on
national accounts systems (SNA 2008) with the focus on eradicating shortcomings arising in the previous
compilation process, and thereby enhancing the quality of statistical data. The GSO had worked closely with UN
and IMF experts in reviewing its assessment methodologies before the publication of the results of this GDP re-
evaluation.
Notably, the new 2010-2017 GDP data will not be used to assess the achievement of socio-economic development
objectives for the 2011-2020 period nor for socio-economic development planning for the 2011-2015 and the 2016-
2020 periods.
To restate, there was no mention of applying new GDP calculation methodologies for the 2018-2020 period. We
therefore continue to use the GDP figures published under the old methodology for 2018 and beyond. For the
purposes of this strategy report we use the older data (pre-2018) for historic comparisons as well for any
calculations of future prudential ratios.
2) Inflation: Limited pressure for the next few quarters

Average headline inflation was reported below 3% at 2.78% for 2019. In the last couple of
Inflation should remain months, we have seen a pick-up in food prices, which was expected in the context of pork
below the government’s shortages brought about by swine flu. Additional pressure has come from a rise in oil prices
4% ‘red line’ which has fed through to current inflation numbers.
Despite these upward trends, we expect inflation to go no higher than our 3.5% inflation forecast
for 2020. This forecast remains intact as we look into the new year.
We hold this sanguine view on inflation as housing and construction is likely to remain weak until
issues around the HCMC property market are resolved; we expect sometime in the second half
of next year at the earliest. Additionally, high pork prices, which are driving short-term food
inflation, should stabilize and then fall in coming months as the impact of swine fever is expected
to abate. Finally, oil prices are generally forecasted to trend down (Bloomberg consensus)
beyond the first quarter although this very much will depend how global macro and geopolitical
conditions develop.
Figure 18: Headline inflation: Spiking up due to pork Figure 19: …but food inflation is likely to fall longer-term
prices…
6.0 6.0
10.0
9.2 10.0 5.2
8.0 8.0
contribution to headline inflation in %

4.0 4.0
6.0 5.2 6.0

y/y%
2.0 2.0
4.0 4.0
2.8
2.0 2.0
0.0 0.0
0.0 0.0
-2.0 -2.0
-2.0 -2.0 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19
Food and foodstuff Housing and construction Transport
Core Inflation Food and foodstuff Inflation Headline Inflation
Medicine and health care others Headline Inflation
Note: Core inflation excludes food items; energy products and commodities under Source: GSO, CEIC & HSC Research
the State management including medical and educational services
Source: GSO, CEIC & HSC Research
Longer-term, structural inflation risks will increase, especially once we begin to see infrastructure
investment reignite post the National Assembly in 2021. This may in turn have an impact on the
property and construction constituents of inflation. However, this won’t be in real evidence until
post 2021. Other inflation trends to watch will be wage inflation as FDI continues to grow strongly
and domestic consumption increases.
3) Vietnam government bond yields expected to remain low

Monetary policy is run to ensure a stable currency primarily, but government bond yields remain
Bond yields are at at historic lows. Bond yields as of December 2019 were: 2Y yields at 1.55%, 5Y at 1.91% and
hististorically low levels 10Y at 3.39%. This is a decline of 150-260 bps y/y.
A decline in yields has been seen in all regional and generally all global bond markets
throughout this year, but the extent of bond declines in Vietnam has been dramatic. In ASEAN,
only the Philippines has seen a sharper decline, but in this case bond yields are much higher
than in Vietnam.
Figure 20: Vietnam government bond benchmark Figure 21: Vietnam government bond yield curves (%)
yields
12/31/2019 Changes since (bps)
Tenor
(%) 9/30/2019 6/30/2019 12/31/2018 12/31/2017 7.0
1Y 1.36 137 180 262 221
6.0
2Y 1.55 126 193 257 226
3Y 1.70 121 189 252 222
5.0
5Y 1.91 110 196 256 238
7Y 2.70 97 149 198 183
Yield %
4.0
10Y 3.39 65 127 167 175
15Y 3.57 73 145 174 204 3.0
20Y 4.02 70 139 162 197
30Y 4.44 70 137 154 195 2.0
1.0
-
1
10
15
20
30
Tenor, Years
31/12/2019 31/03/2019 31/12/2018 31/12/2017
Source: Bloomberg, HSC Research Source: VBMA, HSC Research
While there are a number of specific reasons for the unusually pronounced downward shift in the
yield curve, we also think that what we have seen is structural in nature and we are forecasting
that bond yields are not likely to rise until 2021 at the earliest. Demand and supply, liquidity and
foreign capital are all playing their interlinked role in what the bond market is experiencing.
The total stock of government bonds is currently at VND1,139tn, and it has only increased by
The government has VND77tn this year (VND215tn new issuance and VND138tn maturing). Not unsurprisingly, such
slowed down its pace of a limited increase in available government bonds has been a major factor in pushing up
issuance government bond prices. This, in turn, has led to the sharp decline in bond yields that we have
witnessed over the last two quarters.
Specifically, during the course of this year, Vietnam Social Security (VSS) will have had to invest
about VND90 trillion into VGBs. By implication, the VSS alone has absorbed nearly half of the
new issuance seen in 2019.
Life insurance companies are estimated to have increased their holdings of VGBs by about
VND22.4tn in 2019-through-November, based on an average annual rate of portfolio growth for
in recent years of 18%. In turn, this means the that total outstanding value of VGBs currently
held by commercial banks has been reduced by VND44.2tn in 2019-through-November (about
5.4% of total holdings) thereby reducing the sector wide VGBs to total liabilities from 8.7% to
7.5%.
However, demand The demand picture won’t alter much by the year end or indeed through 2020. Our expectation is
remains extremely that we see an increase in issuance from the middle of 2021 we expect approvals for
strong government related infrastructure projects, and therefore funding requirements, to pick up
substantially from the 2H21.
Figure 22: VGB holdings by investor type

2014 2015 2016 2017 2018 YE2019 (est.) 2020 (est.) 2021 (est.) 2022 (est.)
Commercial Banks 583,834 646,474 800,694 841,158 815,246 801,885 826,877 840,299 975,931
Vietnam Social Security* 96,000 186,000 276,000 361,000 441,000
Insurance Companies 66,718 91,204 113,366 134,154 149,462 176,365 208,111 245,571 289,774
Others 1,304 1,478 1,832 1,955 2,126 2,333 2,627 2,900 3,420
TOTAL* 651,856 739,156 915,892 977,267 1,062,834 1,166,583 1,313,615 1,449,769 1,710,125
Source: MOF, HSC Research
Figure 23: Banking sector liquid assets (VND bn), at year end
2014 2015 2016 2017 2018 2019 (est.) 2020 (est.) 2021 (est.) 2022 (est.)
SBV Bills 138,644 8,000 17,400 - 100,000 200,000 300,000 400,000
Government Bonds 583,834 646,474 800,694 841,158 815,246 801,885 826,877 840,299 975,931
Other liquid assests (est.) 213,474 278,348 261,392 367,190 300,000 350,000 400,000 450,000 500,000
Total Liquid Assets 935,952 924,822 1,070,086 1,225,748 1,115,246 1,251,885 1,426,877 1,590,299 1,875,931
Total Liabilities 5,504,457 6,403,829 7,492,741 8,924,285 9,368,392 10,679,967 12,175,162 13,879,685 15,822,841
Liquid Reserve Ratio 17.00% 14.44% 14.28% 13.73% 11.90% 11.72% 11.72% 11.46% 11.86%
Source: SBV, MOF, CEIC, HSC Research
Figure 24: Budget deficit coverage by short-term bond issuances

2014 2015 2016 2017 2018 (est.) 2019 (est.) 2020 (est.) 2021 (est.) 2022 (est.)
Budget Deficit 249,362 263,135 248,728 136,692 191,500 209,500 234,800 246,750 266,000
ST Issuances 208,995 216,142 281,750 160,271 165,797 200,000 250,000 300,000 300,000
Coverage Ratio 83.8% 82.1% 113.3% 117.2% 86.6% 95.5% 106.5% 121.6% 112.8%
Principal Payments 71,869 119,576 109,118 98,535 73,655 109,567 102,968 163,846 39,644
Net Change 137,126 96,566 172,632 61,736 92,142 90,433 147,032 136,154 260,356
Net Coverage Ratio 55.0% 36.7% 69.4% 45.2% 48.1% 43.2% 62.6% 55.2% 97.9%
Source: MOF,HNX,HSC Research
On the supply side, as alluded to above, the government appears to be in no hurry to raise the
pace of its issuance in the next 18 months or so. This reflects the slowdown in big infrastructure
project approvals and the consequent decline in the rate of disbursements, leading to an
improvement in the overall state budget.
In its report on the implementation of the state budget for first nine months of 2019, the Ministry
of Finance indicated a surplus of VND64bn may have been achieved. However, clarity is not yet
available, and so our expectations continue to be for a deficit of around 3.5% of GDP for the full
year of 2019. As a result, we take the view that there is currently limited pressure on the
government balance sheet.
Foreign capital net inflows can impact bond yields, but this appears not to have been the case
Lower debt issuance this time as depicted in the charts below. The really dynamic factor is onshore foreign investment
has benefitted state via foreign owned insurance companies. The second chart below shows foreign holdings (rather
finances than inward foreign capital) of VGBs against inverted bond yields. Unsurprisingly, there is a good
correlation, especially in recent months.
Figure 25: Foreign capital net inflows and inverted Figure 26: Foreign holdings and inverted bond yields
bond yields
1,500,000 3.0 50,000 3.0
48,000
1,400,000 3.5 3.5
46,000
4.0 44,000 4.0
1,300,000
4.5 42,000 4.5
1,200,000 40,000
5.0 38,000 5.0
1,100,000 36,000
5.5 5.5
1,000,000 34,000
6.0 6.0
32,000
900,000 6.5 30,000 6.5
30/04/2018
31/08/2018
31/12/2018
30/12/2016
28/02/2017
30/04/2017
30/06/2017
31/08/2017
31/10/2017
31/12/2017
28/02/2018
30/06/2018
31/10/2018
28/02/2019
30/04/2019
30/06/2019
31/08/2019
31/10/2019
31/12/2019
31/08/2017
31/08/2018
31/08/2019
30/12/2016
28/02/2017
30/04/2017
30/06/2017
31/10/2017
31/12/2017
28/02/2018
30/04/2018
30/06/2018
31/10/2018
31/12/2018
28/02/2019
30/04/2019
30/06/2019
31/10/2019
31/12/2019
Foreign Capital Flows (LHS - VND bn) 10Y (RHS - %) Adjusted Foreign Holding (LHS VND bn) 10Y (RHS - %)
Source: HSC Research Source: HNX, Bloomberg, HSC Research
Globally, we have been in a prolonged period of low interest rates and cheap money and it is
unlikely that this will change in the foreseeable future.
Generally, there are two mainly factors underpinning the structural decline of interest rates. First,
deepening financial markets is resulting in more choices of safe assets and second, monetary
policy has generally become more effective with inflation targeting, keeping inflation low and
steady.
Expect increased In the case of Vietnam, both of the above developments are in evidence, but we also have
infrastructure spending situation where demand for liquid assets is outstripping supply, both from the perspectives of
from mid-2021 which government and corporate bond issuance.
will lead to a pickup in
issuance Increasing disbursement for infrastructure spending (requiring an increase in government bond
issuance) which we anticipate will occur from mid 2021, and/or a global slowdown of
consequence, may change the picture, especially on timings, but we expect Vietnam
government bond yields to remain low throughout 2020 and into 2021.
Figure 27: Bond yield forecasts

31/12/2019 31/03/2020 30/06/2020 30/09/2020 31/12/2020 31/03/2021 30/06/2021
2Y 3.00 134 3.00 134 3.00 134 3.00 134 3.00 134 2.95 129 2.85 119
5Y 3.25 128 3.25 128 3.25 128 3.25 128 3.20 123 3.20 123 3.15 118
10Y 4.00 50 4.00 50 4.00 50 4.00 50 4.00 50 3.95 45 3.85 35
Source: HSC Forecasts
4) Interbank market: Volatile and difficult to predict

Since the 2019 Tet holidays, liquidity in the interbank market had been steadily increasing with
the exceptions of short interruptions at the end of June, August and November. Liquidity has
essentially been a function of current account surpluses, which is in turn associated with the
positive trade balance.
We have had excess In the last few weeks, the liquidity situation which we have experienced for much of the year has
liquidity for a while, altered somewhat, underlining the short-term volatility to which the interbank market can be
although short prone.
volatility is now
apparent Typically, open market operations are the most effective and used approach (as opposed to the
use of discount of refinancing rates) by the State Bank of Vietnam; this range is capped using
the reverse repo rate as a ceiling and the treasury bill rate as a floor. Currently the spread
between these two rates is set at 2.25% to 4.0%.
Figure 28: Interbank liquidity and inverted money market rates
500,000 -
400,000
1.00
300,000
2.00
200,000
100,000 3.00
-
4.00
(100,000)
5.00
(200,000)
(300,000) 6.00
30/12/2016
28/02/2017
30/04/2017
30/06/2017
31/08/2017
31/10/2017
31/12/2017
28/02/2018
30/04/2018
30/06/2018
31/08/2018
31/10/2018
31/12/2018
28/02/2019
30/04/2019
30/06/2019
31/08/2019
31/10/2019
31/12/2019
Interbank Liquidity (LHS VND bn) R.REPO (LHS VND bn)
1W (RHS - %) 1W Outright (RHS - %)
1W R.Repo (RHS - %)
Source: SBV, HSC Research
The width or band of this spread gives plenty of flexibility for intervention and sterilization (open
market operations in the US typically have a spread of only 0.25%).
In this context, and according to the latest update from customs, Vietnam achieved a positive
trade balance of USD9.9bn for 2019 and we estimate that the SBV had made net USD
purchases of USD20bn increasing the overall foreign reserve position to USD76bn for 2019.
The net effect is that sterilization operations have meant that about VND500tn has been put into
the banking system via the interbank market. The SBV’s foreign exchange reserves have since
reached USD79bn, or 3.6 months of imports by our estimation.
There are typically additional factors at play in the interbank market at the year end. For example,
A number of factors the remitting of profits by foreign companies and the repatriation of interest and dividend income
have caused short by foreign entities comes towards the financial year end and can impact liquidity. Another factor
rates to rise towards is that domestic savers begin to withdraw money at ahead of the Tet holidays which in this case
the end of the year is in January. A meaningful proportion of these types of seasonal money flows comes at the end
of both the calendar and lunar years which, in turn, has also contributed to the recent rate
volatility.
The state treasury also typically holds a lot of liquidity on behalf of the Ministry of Finance. Much
is invested in liquid assets within the interbank market. Additionally, ‘Circular 58’ has been
introduced to regulate short term money flows – this requires that all deposits should be
The key focus of transferred to the SBV by the end of the day which in turn can create short term volatility as a
monetary policy will result of expiries and rollovers.
remain a stable
currency What all of this means is that we have variable, large scale money flows being directed in out of
the interbank market and which go beyond simple market trading, thereby causing volatility in
interbank rates. This is important for three reasons: First, Interbank rates become hard to
anticipate; second, liquidity can swiftly change, which means that as a factor in forecasting stock
market performance the impact of excess money is difficult to predict; and third, the overriding
focus of monetary policy will remain a stable currency, not short term rates.
5) Currency: Stability is a positive

The Dong has proven to be very stable which has been a positive for both direct investment and
domestic confidence. Currently the trade surplus remains supportive of a stable FX rate and a
continued accumulation of foreign reserves.
We think this will continue and are forecasting only limited currency movements.
Figure 29: VND and CNY versus the USD

23,500 7.2
23,000 7.0
22,500 6.8
6.6
22,000
6.4
21,500
6.2
21,000
6.0
20,500 5.8
20,000 5.6
19,500 5.4
Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19
CNY / USD VND / USD
The VND has seen less Relative to other ASEAN currencies, the VND has seen less depreciation that the currencies of
depreciation against the the Philippines, Indonesia and Malaysia. Therefore, it cannot be readily said that the currency is
USD than most other being managed to gain competitive advantage.
ASEAN countries
Figure 30: Regional currency movements versus the USD
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
06/12/2014
06/12/2015
06/12/2016
06/12/2017
06/12/2018
06/12/2019
VND THB IDR MYR PHP
The strong external position (as discussed in the next sections) has permitted reserve
accumulation allowing for studied intervention; monetary policy is geared toward that goal and
the goal of a stable currency, over that of a less directly managed interest rate policy.
We assume the currency will continue to be managed within the trading band of +/-3% set by the
The VND will continue SBV. Annual depreciation has averaged between 1-3%. It is debatable whether this depreciation
to be managed for trend will continue as the attitude of the current US administration requires consideration.
stability
The US position on trade is well known and has led to the US/China trade war from which
Vietnam is benefitting (the impact of which is dealt with in the ‘Trade and FDI’ section of this
report). Part of the equation for this is what the US Treasury Department terms currency
manipulation.
The US considers a country as a currency manipulator if it meets all three of the following criteria
based on four consecutive quarters of trailing data:
a) There is a trade surplus of more than USD20bn with the US (Vietnam’s is currently
USD46bn).
b) There is a positive current account position of more than 2% GDP. We are forecasting a 2.7%
surplus for Vietnam in 2019, but less than 2% in 2020 (the trailing figure used by the US
Treasury in its May 2019 statement was 5.4% as at the end of 2Q18; we have since seen a
very substantial improvement.
c) Persistent, one-sided intervention in FX markets, defined by accumulated net buying of USD

equating to more than 2% of GDP, with net buying of USD for six months in any consecutive
12-month period.
Vietnam has seen its USD reserves build-up in recent years; this is a necessity – the International
Monetary Fund recommends 4x import cover, Vietnam is currently at 3.6x – so Vietnam is placed
in a contradictory position in this regard. We are forecasting a foreign exchange reserve position
of USD97bn by the end of this year and expect that to judiciously rise in coming years but within
the context of the US Treasury’s guidance.
It is very important to note that the US Treasury hasn’t designated any country as currency
manipulator since 1994. However, the Trump administration has shown a very particular focus on
China which, since August, has been under “observation and investigation” with regard to its
participation in currency markets.
Although on the US The US officially put Vietnam onto its watch list in May 2019, citing Vietnam’s trade surplus with
watchlist, along with the US as a factor as well as the controlled and prolonged depreciation of the Vietnamese Dong
Germany, Japan and within that. Also included on the watchlist at that time were China, Japan, South Korea, Germany,
the like, Vietnam does Italy, Ireland, Singapore and Malaysia.
not meet the criteria
of a “currency We think there is very little chance of the US acting against Vietnam for several reasons, not least
manipulator” because of the fact Vietnam does not meet all the criteria of being a currency manipulator and is
very unlikely to, regional geopolitics and Vietnam’s importance in it, and respect for the stage that
Vietnam’s economy is at.
Nevertheless, we expect that monetary policy will remain judicious and so we anticipate limited
movement in the currency and certainly not significant deprecation. Our forecast is for less for
than 2% depreciation per annum.
Figure 31: VND: Currency trading bands

24,000
23,500
23,000
VND per USD
22,500
22,000
21,500
21,000
20,500
Jan-14 Jul-15 Jan-17 Jul-18 Jan-20
Upper bound Lower bound Official Parallel market Interbank FX
Source: CEIC, SBV, HSC Research
6) External position: On sound ground

Reserves have been As mentioned in the previous section on currency, foreign reserves have been building up and we
built up – Vietnam has are currently forecasting a position of USD94.6bn by end-2020. With USD97bn in reserves, the
nearly met the IMF’s number of months of import cover would be approximately 4.0x which is the level recommended
recommendation of 4x by the IMF.
import cover
IMF’s international liquidity data on its website indicates that Vietnam’s foreign exchange
reserves (excluding gold) by the end of 3Q19 was USD69.2bn, and we estimate that the reserve
position for FY2019 was USD79bn. This would represent an increase of approximately USD24bn
in 2019, a record annual number and more than triple the figure for 2018. This stems from the
positive trade balance (up USD9.9bn as at the end of 2019), increased FDI disbursements of
USD20bn and estimated USD16bn of remittances. USD79bn is equal to 3.6 months of average
imports.
Should Vietnam wish to meet the IMF’s recommended target on reserves, then continued
accumulated net buying of the USD may bump up against the US Treasury’s “rules” around USD
acquisition. This is an invidious position to be in, although we expect Vietnam authorities to
continue to manage this tension judiciously.
Figure 32: Foreign reserves and as a % of external debt

120,000 120
100,000 100
80,000 80
60,000 60
40,000 40
20,000 20
0 0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019e
Total Reserves: Including Gold (US$mn)

Total Reserves: % of Total External Debt (RHS)
At end-November 2019, Vietnam’s foreign debt was estimated at USD122bn or 47% of GDP
(source: IMF). At present the government is curbing its offshore borrowing which reflects a slower
A solid debt structure
pace of big infrastructure project approvals as well as domestic demand for domestic debt,
but Private Public
principally corporate bonds.
Partnerships will be
needed to help drive
Going forward, we expect the level of foreign debt to plateau in 2020 and rise again in 2021 as we
infrastructure
see increased approvals and disbursements for infrastructure spending.
spending
We consider the country’s foreign debt structure to be solid – just over half is private, while the
rest is made up of government or government backed debt and all at long maturities which
reflects its use.
We don’t expect the mix to change much in 2020, although we can anticipate an increasing
proportion of private foreign debt from 2021 as Private Public Partnerships help drive
infrastructure spending. Total reserves as a percentage of total debt is currently 64.8% and rising.
This is healthy.
Figure 33: Vietnam: Estimated breakdown of foreign debt
7) Fiscal position: A strengthening balance sheet

We are forecasting that the budget deficit will remain stable at 3.5% of GDP in 2019. However, we
consider this a very conservative assumption, given that it is possible that government surpluses
may have been achieved in recent months – we await official data to confirm this.
Government revenues We expect that government revenues will improve in line with the economy and that the tax take
will improve in line with mix will change. At present tax collection is dominated by VAT, corporate income tax and
the economy personal income tax in that order. All are showing strong growth, especially personal income tax;
this is a function of increasing wealth not tax rate rises.
Additionally, excise tax will become increasingly important as trade and FDI boom.
Figure 34: Estimated budget deficit position
Expenditure is primary focused on recurrent expenditure at @65% of the total. Interest and debt
Longe- term repayments have fallen below 10% of total expenditure in the last two years. This last may
borrowing will reverse as bond issuance increases from 2021, in-line with infrastructure spending, but we remain
increase and so confident that the increased wealth effect will mean that this won’t put undue pressure on the
interest and debt government’s balance sheet.
repayments will rise
once again, but Our expectation is that GDP per capita will continue to rise; as rapidly increasing consumption
increased tax take will and a rising middle class will result in increased tax take. We believe that our forecasts are very
off conservative with regard to the government’s fiscal position.
Figure 35: GDP per capita (USD)

4,000
3,500
3,000 2,750
2,590
2,389
2,500 2,215
2,052 2,109
1,907
2,000 1,748
1,517
1,500 1,273
1,160
1,000
500
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e
Source: CEIC, GSO HSC Research
8) Trade position: Large and growing

From a fundamental perspective, Vietnam’s trade balance has mostly been positive since 2012.
Total trade is twice This reflects Vietnam’s rapid shift to a manufacturing based economy from an agricultural based
GDP – this is huge! one. This structural shift has also been characterized by a major shift into an export economy of
considerable size. Total trade is estimated to have reach USD517bn in FY19, which is just about
double our GDP forecast of USD262bn.
Vietnam is vulnerable Of course, as an export economy, Vietnam remains vulnerable to a slowdown in the global macro
to a slower global environment, and there is certainly evidence that this is occurring when we look at economy
macro environment – activity across the globe. However, our job is not to discuss external economies but to focus on
if it occurs how weakening global demand might impact Vietnam.
At present we believe that Vietnam is generally, albeit partially, insulated from a global slowdown,
although recent monthly export growth numbers have come down to 4.7% year on year in
November 2019 from a recent peak of 11.1% growth year on year in July 2019.
Figure 36: Vietnam: Trade balance

400,000 20,000
300,000 15,000
200,000 10,000
100,000 5,000
USD mn
0 0
-100,000 -5,000
-200,000 -10,000
-300,000 -15,000
-400,000 -20,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F
Export Import Trade balance (rhs)
It is worth noting that the trade balance is currently only USD9.9bn, which is a very small
percentage of total exports. This tells us that the value added component in Vietnam within the
manufacturing process is so far small, which in turn implies that the end products produced are
not especially price sensitive for end users (here we are considering assembled products, low end
manufacturing, fabrics etc.) and that imports tend to mirror exports very closely.
While Vietnam will rise up the value added chain as a result of FDI and government policy
making, at present being an assembler creates some downside protection in a global slowdown.
This has been consistently evident for many years, as depicted by the steady, albeit superior
performance of the economy versus competitors.
Figure 37: GDP growth: ASEAN economic performance

8.0
… but Vietnam is is
significantly
outperforming ASEAN 7.0 6.97
y/y% 6.0
5.0
4.0
3.0
2.0
Vietnam Thailand Philippines Indonesia Malaysia
Vietnam is a beneficary Furthermore, Vietnam is benefitting from a unique circumstance which is the fallout of the
of the China/US trade China/US trade war. This event has resulted in increased manufacturing being directed towards
war, but tangible positive Vietnam and an acceleration in FDI which we discuss in the next section. The flip side is that
effects will take time to exports to the US have surged as a result, and this is something which needs to be watched…it
emerge was China’s trade surplus (rather than “currency manipulation”) with the US which provoked the
current trade war between the two.
Figure 38: Exports to the US: Breakdown

30 30
25 25
20 20
%
15 15
10 10
5 5
0 0
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Wood and wooden products Textiles and garments
Foot-wears Comp, electrical products
Telephones, mobile phones Machine, equipment
Others Export to US/ Total Export (%)
As we discussed in the currency section, we certainly don’t think that Vietnam will in any way fall
Currently just under foul of the US Treasury’s focus on currency manipulation, but there is no doubt that Vietnam
25% of exports go to USD46bn trade surplus with the US stands out; currently, of Vietnam’s total exports, just under
the US, but this will 25%, is to the US.
change
Figure 39: Balance of trade with major partners
120,000
100,000
80,000
60,000
40,000
USD mn
20,000
-20,000
-40,000
-60,000
-80,000
-100,000
2007 2009 2011 2013 2015 2017 2019
US JP CN KR TW ASEAN EU Other
We think it unlikely that Vietnam will face the same trade issues as China for a variety of reasons,
but it is also worth considering what may change the current trade picture.
Expect exports to the The recent signing of the Europe Vietnam Free Trade Agreement (EVFTA) along with The
EU and the Pacific Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) ought to open
Region to steadily more markets to Vietnam exports. This may well diminish the relative importance of the US as an
increase export market and will also help alleviate the impact of the current export slowdown into China.
Longer term solutions are also a possibility – for example, Vietnam’s last multiyear plan for
meeting future energy supply was based around a focus on coal fired plants. The construction of
these plants has fallen behind schedule not least due to environmental concerns.
The alternative power source being discussed is LNG, the technology and raw imports for which
would in large part come from the US, thereby alleviating the issues with the trade balance. Of
course, this is a long term, multi-year solution and remains only a possibility at present, but it does
highlight how Vietnam’s economic development could be of benefit to key trade relationships.
If we look at the import side of the equation there is another story to tell. Korea, and specifically
There is clear evidence Samsung, has long been a big importer into Vietnam, but this was initially just for assembly. While
of supply chain we understand that an ecosystem is being built up in Vietnam for higher value add products
ecosystems are being (Samsung, for instance, now has 60% of Its handset production chain in Vietnam and is setting up
built up – this is good an R&D centre), the real change has been the acceleration in Chinese imports (and FDI) – again,
news a large consideration is the trade war they are fighting with the US; products made in Vietnam do
not attract the same tariffs as those made in China
Figure 40: Breakdown of imports from China

35 35
30 30
25 25
20 20
%
15 15
10 10
5 5
0 0
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Fabrics Comp, electrical products Telephones, mobile phones

Machine, equipment Iron and steel Plastic products
Others China Import/Total Import (%)
Emphasis is now shifting While the country has attracted a lot of FDI projects, such as Samsung smartphone production
towards value added facilities, the government’s emphasis is now shifting towards valued added manufacturing taking
manufacturing taking place onshore. This set of dynamics should ensure a continued and widening overall trade
place onshore surplus for the foreseeable future.
We also expect to see a broadening of export markets as a result of recently signed trade
agreements. We expect to see the trade surplus widening to USD16.5bn in 2020 and USD17.4bn
in 2021 versus our 2019 forecast of USD9.9bn.
There is certainly risk from external factors but we feel confident that Vietnam, as a result of the
low base effect at this stage of its economic development, is relatively insulated compared to
much more developed (and expensive export economies). Finally, as we have discussed
elsewhere, Vietnam’s own burgeoning domestic demand will not only have impact on the trade
picture but will also help alleviate pressures related to a slowdown in global growth.
Figure 41: Export growth components (%): Key drivers Figure 42: Import growth components (%): Key drivers
are computer & electrical related products are computer & electrical and machinery & equipment
products
60 60
50 50
50 50
40 40
40 40
30 30 30 30
20 20 20 20
10 10
10 10
0 0
0 0
-10 -10
-10 -10
-20 -20
Textiles and Garments Footwear
Machine & Equipment Comp & Electrical Product
Comp & Electrical Product Telephones & Mobile Phones
Fabrics Iron and Steel
Machine & Equipment Others
Telephones & Mobile Phones Others
Export growth (y/y%)
Import growth (y/y%)
Figure 43: Exports heatmap

Nov-19
Export growth by product (y/y growth %) (US$mn) Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
Total 21,800 8.7 0.3 9.4 -3.5 7.0 10.3 9.4 7.4 11.1 10.4 10.7 7.3 4.7 10.1
Telephones, mobile Phones etc 4,499 4.0 -23.1 -16.4 1.8 2.2 11.4 15.2 13.9 3.1 15.0 6.8 10.0 -5.7 10.0
Computers, Electrical Product etc 3,270 -3.1 6.6 3.6 2.6 23.6 16.7 17.1 18.4 16.6 22.2 32.0 24.1 28.5 32.5
Textiles and Garments 2,582 17.5 11.8 32.5 -19.8 8.8 9.5 16.7 4.8 12.9 6.9 5.8 -1.4 1.7 -2.3
Machine, Equipment etc 1,773 21.3 18.7 28.3 -3.2 0.7 2.0 5.6 5.5 13.7 4.4 18.3 15.3 21.1 28.2
Footwear 1,704 11.6 7.4 24.9 1.9 9.7 15.7 11.6 11.1 10.8 12.7 13.4 15.0 11.4 10.9
Wood and Wooden Products 958 20.5 10.4 25.2 -8.6 20.2 22.6 22.7 7.1 17.4 17.5 20.7 22.4 14.0 19.2
Fishery Products 766 4.6 3.6 10.6 -7.3 -2.2 -7.3 -0.7 -5.5 3.6 -4.9 -5.3 -4.4 -3.6 -1.6
Other Transportation, Parts etc 731 13.4 4.4 12.3 -10.0 10.3 0.5 6.2 7.8 14.7 13.6 10.5 -9.9 9.5 6.6
Iron and Steel 369 21.1 2.7 48.6 -13.3 -4.9 1.4 9.4 -11.7 -27.4 -24.7 -19.9 -24.4 -2.8 -11.5
Yarn 351 7.2 6.4 6.4 19.9 1.8 8.7 -3.6 -13.6 6.6 2.8 7.5 8.5 1.8 -2.5
Handbags, Purses etc 316 19.7 6.5 27.0 -14.9 9.7 13.6 14.2 4.5 11.3 13.5 20.4 3.5 5.2 5.1
Fruits and Vegetables 302 -17.5 -10.5 -7.3 -14.0 11.2 33.0 2.7 -14.2 -27.8 -25.0 -4.7 3.8 16.6 21.1
Cashew Nuts 292 -14.3 -10.8 -14.6 -21.5 -12.8 -12.3 -10.7 -5.9 5.6 5.6 15.0 8.2 5.5 3.9
Plastic Products 291 20.2 13.9 31.0 6.5 15.3 17.4 14.5 3.9 11.5 7.8 17.4 10.0 6.3 3.8
Rubber 262 5.0 -14.0 1.0 39.1 24.6 5.9 -29.1 0.5 24.8 12.1 0.6 5.7 17.1 30.7
Iron and Steel Products 258 24.1 25.5 11.7 -5.4 10.6 12.7 17.8 18.8 28.7 10.7 1.6 12.3 -3.5
Cameras and Related 236 25.2 -8.5 -14.9 -2.6 34.6 71.1 -9.4 -25.4 -17.2 -45.3 -49.0 -52.2 -63.4 -57.8
Toys and Sports etc 220 7.4 -5.9 9.5 -18.7 -12.4 10.1 12.7 14.5 19.1 50.4 77.0 90.5 82.2
Other Base Metal 204 12.1 17.0 17.9 9.7 16.6 16.8 5.4 -2.7 11.9 11.7 20.7 6.5 8.6
Coffee 196 15.6 -15.6 -16.2 -24.7 -26.5 -22.2 -21.8 -19.8 -4.8 -30.1 -20.5 -37.2 -24.6 -6.4
Insulated Wires and Cables 195 -14.1 -9.4 -8.4 -10.0 6.8 18.8 14.9 6.0 13.8 13.6 18.3 35.0 33.7 48.3
Furnitures - other 187 16.4 6.3 25.8 -7.6 34.8 44.9 48.5 76.7 65.5 76.9 97.5 81.7 72.9
Fine Art Products 172 23.2 13.4 15.0 30.1 14.4 20.1 1.8 221.2 379.8 357.3 200.5 58.9 16.9 12.0
Rice 168 8.7 24.6 -19.5 -30.5 -11.8 -21.4 -23.4 -5.5 17.8 -8.9 24.5 12.1 -12.6 -20.8
Textile, Leather etc 166 10.3 5.4 8.4 -22.0 -1.8 3.0 -0.5 12.9 8.9 13.3 9.2 8.7 7.1
Clinkers and Cement 145 52.3 14.0 24.1 22.5 19.7 27.0 21.7 -11.0 2.7 -4.4 -5.4 16.8 22.0
Petroleum Products 134 12.0 13.7 26.7 -13.8 -3.6 0.8 15.6 -26.8 -6.9 -13.5 -8.4 -39.7 -12.3 -20.3
Chemicals 127 32.9 51.7 54.2 12.5 26.4 34.3 28.3 -13.0 21.5 -18.0 -14.7 -22.3 -37.8 -3.9
Chemical Products 123 21.8 21.4 25.0 20.0 17.6 30.7 16.6 27.4 43.8 17.8 29.7 18.7 24.8 23.9
Crude Oil 113 -11.5 -41.7 13.4 -20.6 32.5 -9.1 -6.9 -8.1 -26.1 -20.4 -47.7 3.7 -33.7 14.4
Others 691 6.3 3.0 13.0 7.4 2.2 9.2 3.1 4.7 13.4 10.8 13.9 6.3 5.4
Note: Green = high value, yellow =neutral, red = low value
Figure 44: Imports heatmap

Nov-19
Import growth by product (y/y growth %) (US$mn) Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
Total 21,339 10.3 2.1 6.8 4.6 11.1 19.3 9.7 0.8 7.5 5.9 11.8 2.9 -0.9 11.0
Comp, Electrical Products etc 4,371 13.4 2.5 7.9 9.8 17.5 42.5 21.4 17.7 31.0 21.1 30.3 12.3 10.1 18.4
Machine, Equipment etc 3,166 3.8 -0.2 18.8 9.1 14.2 24.6 8.9 3.2 9.1 15.2 10.6 6.2 5.5 18.5
Telephones, mobile phones etc 1,221 -0.9 -20.0 -27.1 -12.7 -2.7 6.5 29.4 9.6 1.9 -9.1 -2.8 -9.8 -29.5 -13.9
Fabrics 1,175 5.1 3.1 11.6 -14.5 20.4 9.5 1.0 -2.1 0.7 0.6 1.4 5.8 2.6 13.6
Plastics 734 25.5 9.5 2.8 5.0 -4.2 8.6 1.5 -6.6 8.9 1.4 -3.4 -9.7 -12.5 5.2
Iron and Steel 707 -6.5 6.8 -0.3 -13.1 19.7 4.3 -4.9 -18.4 -7.0 -8.1 -3.7 4.1 -4.5 -12.9
Automobiles 608 13.7 -12.9 148.3 126.2 66.7 61.5 47.1 53.5 45.4 4.3 6.7 21.2 -1.5 13.6
Petroleum Products 593 -24.1 -49.4 -51.2 -55.6 -29.8 4.5 -40.6 -67.2 10.7 -3.9 -27.7 33.1 16.1 38.8
Plastics Products 570 5.5 2.9 11.5 -3.1 11.8 21.2 7.3 5.2 14.0 9.6 13.1 8.5 6.2 15.6
Other Base Metals 538 3.1 -11.0 -6.5 -6.1 -15.2 -13.2 -0.1 -10.5 -55.6 -4.5 19.4 1.9 4.2 7.2
Textile, Leather etc 493 7.8 5.0 9.2 3.1 6.4 5.6 2.8 -3.3 4.6 1.2 -3.2 1.5 0.7 9.7
Chemical Products 480 5.7 1.2 6.5 -0.7 3.0 11.1 8.3 4.7 10.0 1.6 17.4 6.3 5.9 13.9
Chemicals 417 22.5 7.6 8.3 10.6 4.8 2.7 7.2 -5.9 -2.4 -2.4 1.6 -10.0 -13.6 -4.2
Iron and Steel Products 340 7.8 -0.6 20.3 6.2 10.6 20.7 18.1 2.8 20.7 5.6 17.3 12.9 -2.7
Maize 272 36.0 122.5 8.1 42.4 4.9 -14.6 9.2 -45.0 25.3 62.6 28.3 23.9 33.5
Pharmaceutical Materials 249 12.2 -10.1 8.0 39.7 11.6 4.3 6.9 12.8 7.2 7.5 19.5 2.7 0.0 19.8
Coal 238 23.1 73.2 143.8 32.8 82.6 36.6 46.5 68.3 109.1 126.8 -0.3 21.9 11.9
Animal Fodder etc 233 22.9 53.5 13.2 0.0 5.7 -21.3 3.8 -23.8 39.6 26.4 -32.0 1.4 -26.8 -6.1
Wood and Wooden Products 220 23.5 6.1 18.8 -8.0 17.6 17.5 24.5 14.0 15.6 9.5 2.6 -0.5 -1.5 12.8
Cameras and Related 213 4.5 -18.5 -13.3 14.9 20.2 46.4 11.6 -5.8 18.2 9.6 24.2 -6.8 -16.6
Yarn 193 25.1 16.8 7.6 0.2 9.1 11.3 4.2 -2.0 4.0 -10.3 -3.1 -10.6 -7.9 -5.5
Electric Consumer Products and Parts 173 -0.3 4.5 -27.0 -9.0 -9.5 5.1 11.8 6.5 38.0 12.1 26.2 24.8 16.1
Cashew nut 169 37.7 -36.7 -51.8 9.7 13.3 -28.3 0.6 5.3 -34.8 -22.9 31.6 6.5 20.7
Cotton 167 44.7 21.3 3.6 -16.8 -5.4 7.2 -5.0 -8.1 -26.3 -35.5 -25.9 -15.6 -18.7 -30.5
Crude Oil 166 461.2 474.8 224.4 64.9 87.8 -15.7 -41.1 215.8 -74.0 -56.9 -13.2
Other Base Metals Products 166 24.3 42.3 63.8 24.2 50.6 16.9 6.3 -58.2 -60.9 38.4 34.9 23.4 60.3
Ores and Other Minerals Product 148 44.4 109.7 63.6 39.0 54.0 95.6 8.5 77.5 20.5 -3.8 33.6 -11.9 28.0
Fishery Products 147 7.8 9.2 -9.7 7.7 10.3 17.4 3.1 -8.7 16.9 4.6 10.6 -4.0 -6.3 3.5
Paper 147 8.7 4.9 -8.1 4.2 -10.7 -7.4 -5.4 -6.4 9.6 -11.8 -6.6 -8.2 -16.0 0.6
Insulated Wires and Cables 143 25.4 18.2 17.5 1.9 35.0 60.0 28.2 22.0 50.4 44.8 16.6 11.6 3.1
Other Transportation, Parts etc 136 137.8 34.8 7.9 -14.8 32.7 78.0 29.0 -3.3 137.8 17.6 50.9 -24.2 -20.9 -7.8
Glass and Glassware 128 -10.2 -13.2 -3.4 -15.3 11.8 10.5 14.5 19.2 49.3 53.7 45.1 50.2 36.9
Rubber 120 1.3 7.0 -0.1 9.5 -3.0 14.1 7.4 -4.8 23.0 9.4 10.5 2.3 20.6 42.8
Fruits and Vegetables 120 -2.7 22.3 9.7 20.5 41.7 108.4 31.9 9.9 -22.9 -38.6 -21.5 -13.1 -15.7 -10.2
Others 2,378 12.1 7.5 -1.4 8.3 -0.4 10.3 7.9 4.1 9.1 1.6 14.7 -0.4 -0.8
Note: Green = high value, yellow =neutral, red = low value
9) Foreign direct investment: A powerful force

FDI commitments We continue to see strong growth in FDI commitments and registered FDI exceeded USD38bn in
continue to rise, 2019. Unsurprisingly, nearly 70% of investment has been made into manufacturing.
USD32bn this year
The attractions of investing in Vietnam are well known: A highly educated labour force, a stable
currency, low cost of factors of production, government support (albeit localized) and an improving
business environment generally. According to the Work Bank, Vietnam is the 70 th easiest place to
do business (out of 192 countries), ahead of Indonesia and Thailand; this ranking is slowly rising.
Figure 45: Registered FDI by sector

40,000 40,000
70% of FDI goes into

35,000 35,000
manufacturing
30,000 30,000
25,000 25,000
USD mn
20,000 20,000
15,000 15,000
10,000 10,000
5,000 5,000
0 0
2013 2014 2015 2016 2017 2018 2019
Manufacturing Real estate Electricity, gas

Wholesale/retail Others* Disbursement (rhs)
Figure 46: Registered FDI by country of origin

40,000
China has overtaken
Korea as the source of 35,000
newly registered FDI
30,000
25,000
USD mn
20,000
15,000
10,000
5,000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
KR JP SG TW CN/ HK Others

The US/China trade war is also playing its part, at least in terms of highlighting what Vietnam has
to offer. This year China has become the biggest investor in Vietnam, with over 30% of registered
FDI.
Perhaps a lot of this investment from China stems from pragmatism as products made in Vietnam
don’t attract tariffs but, in reality, Vietnam is simply more competitive when it comes to the
manufacturing of assembly and labour intensive products. Separately China’s focus is to move up
the value chain and so it makes sense to invest in a lower cost production environment.
As an investment At present, Vietnam is attractively positioned; IMA Asia estimates that the manufacturing wages in
destination, Vietnam is China have risen from USD2.0/hr to USD3.9/hr which would imply that labour costs in Vietnam
highly competitive are currently around 45% that of China. Additionally, various property agencies indicate that land
rents for industrial parks in China are USD180/sqm and above. Currently Land prices in Vietnam
are between USD40 and USD120/sqm.
Figure 47: Manufacturing IP & PMI index: PMI is at its Figure 48: …but industrial production continues to
lowest level since November 2015… expand thanks to a resilient electronics sector
50 60 60
50
40 58
40
30
30 56
y/y%
Index
y/y%
20
20 54 10
10 52
-10
-20
0 50 Jan-19 Apr-19 Jul-19 Oct-19
Jan-18 Jul-18 Jan-19 Jul-19
Electronic Components Communication Equipment
Manufacturing IP Vietnam PMI (rhs)
Consumer Electronics Textile, Garment
Source: GSO, Markit, CEIC & HSC Research Source: GSO, CEIC & HSC Research
Figure 49: FDI registered inflows remain strong… Figure 50: … with the Asian region being the major
source of disbursed FDI
40,000 20,000
30,000
YTD USD mn
YTD USD mn
20,000 10,000
10,000
0 0
Jan-18 Jul-18 Jan-19 Jul-19 Jan-18 Jul-18 Jan-19 Jul-19
Manufacturing Real estate Electricity, gas Wholesale/retail Others* South Korea Japan China Hong Kong Taiwan Thailand Singapore others
Note: Others include Construction, Accommodation, Food Service, Agriculture, Source: GSO, CEIC & HSC Research
Forestry & Fishery, Mining and others
Source: GSO, CEIC & HSC Research
The nature of FDI has also changed significantly over the years, which production increasingly
focused on export markets – this is no surprise and is reflected in the trade numbers which, in
total, now approximate 200% of GDP.
However, it is not all plain sailing – Institutions and policies on foreign investment have not kept
The number of small- pace with development requirements. The number of small-scale, low-tech, labour intensive
scale, low-tech, labour projects remains large.
intensive projects
remains large – this is Therefore, it has become a government focus to refine institutions and policies on foreign
changing investment in order to facilitate new growth models, protection of the environment, the solving of
social problems and improving productivity, quality, efficiency and competitiveness of the
economy.
The recent resolution brought in on October (‘Resolution 50’) aims to do to just that. The goals
which have been set are the following, the key one of which is point three:
1. Registered FDI: USD30-40 billion per year (2021-2025 period), USD45-50 billion per year
(2026 – 2030 period).
2. Implemented FDI: USD20-30 billion per year (2021-2025 period), USD30-40 billion per year
(2026 – 2030 period).
3. Increasing percentage of FDI enterprises using advanced technology, modern management,

environmental protection, high-tech orientation by 50% in 2025 and 100% in 2030
(compared to 2018).
4. Increasing the localization rate to 30% in 2025 and 40% in 2030.
5. Increasing the proportion of trained workers over total labor from 56% in 2017 to 70% in
2025 and 80% in 2030.
Of course there are Aside from the qualitive nature of FDI which the government is focused on improving in order to
challenges, but we drive Vietnam up the food chain, direct investors have concerns about coming power shortages,
expect implemented FDI infrastructure and the slow pace of regulatory approvals.
to exceed 10% of GDP
over the next five years Notwithstanding these concerns, we fully anticipate that implemented FDI will exceed 10% of
GDP over the next five years.
Figure 51: Vietnam is one of the top FDI destinations in ASEAN, and it’s rising
80,000
2018 (Millions of dollars)

60,000
40,000
20,000
Source: FIA, UNCTAD
10) Infrastructure spending: Opportunity and necessity

Infrastructure The long-term prospects for build-operate-transfer (BOT) projects remains very positive given
requirements, and the massive infrastructure requirements. Infrastructure development will continue to be a key
therefore future government priority for the foreseeable future.
spending, look to be
huge According to CBRE, at approximately 5.5% to 6.0%, Vietnam will invest the highest proportion of
its GDP into infrastructure in the ASEAN region while according to World Bank estimates,
Vietnam has a sustainable need for around USD25 billion of investment in infrastructure per
year.
Achieving this level of investment is not without challenges as Vietnam has become ineligible for
concessional official development assistance and preferential loans from multilateral institutions.
This is a function of its shift to lower-middle income status. The World Bank defines this as gross
national income (GNI) per capita of USD2,400 as of 2018; currently Vietnam’s GNI per capita is
approximately USD4,000.
The private sector has As a consequence, Vietnam is not able to access the World Bank’s International Development
a key role to play in Association (IDA) nor the ADB’s Asian Development Fund (ADF). However, official development
infrastructure and assistance (ODA) offering low interest and long repayment terms from other bilateral donors is
energy investments, still available.
in particular
While public private partnerships (PPP) in infrastructure investment has been increasing in
number, we estimate that 60-70% of total investment in future infrastructure will need to be
raised via the private sector. While it might be fair to say that total investment by domestic
private and foreign investors has reached about 65% of the total for the economy as whole,
specifically for infrastructure and energy, that proportion falls to just over 25%.
Figure 52: Total investment: Private & public Figure 53: Energy and transportation investment: Private
& public
100% 50 100% 500,000
80% 40
80% 400,000
60% 30
60% 300,000
40% 20
40% 200,000
20% 10
20% 100,000
0% 0
0% 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Investment: State Investment: Non State
Investment: Foreign Total Investment/ GDP (%) (RHS) Energy and Transportation Investment: Non State and other sectors
Energy and Transportation Investment: State
Total Energy and Transportation Investment (VND Bn) (RHS)
Source: CEIC, GSO, HSC Research Source: GSO, CEIC & HSC Research
Key projects need to be Key projects – including parts of the North-South expressway, the Long Thanh New Airport, the
undertaken – they are HCM Ring Roads 3&4 – require a total investment of approximately VND400,000 billion
essential for future (USD17.2 billion) over the next 5-7 years
prosperity
The speed of infrastructure spending has been an issue and is unlikely that this will accelerate
until 2021. At present, government approvals and disbursements have slowed ahead of the
Party Assemblies and Congress due over the next 18 months.
In this context then, if we look at the Vietnam power sector in a little more detail, we can see both
risks to economic growth but also opportunity.
We fully expect the power sector to as it will experience rapid growth over the coming decade, in
terms of consumption, capacity and generation. The country needs to rapidly build up and deploy
generation capacity in order to meet the power needs of an expanding manufacturing sector and
robust economic growth.
Figure 54: Vietnam GDP growth and electricity consumption

250,000 16.0%
14.0%
200,000
12.0%
10.0%
150,000
8.0%
100,000
6.0%
4.0%
50,000
2.0%
- 0.0%
FY17
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY18
Electricity consumption (million kWh) Electricity consumption growth (%) GDP growth (%)
Source: GSO, MOIT, HSC forecasts
There will be persistent In the country’s latest power development plan, i.e. the revised Power Development Plan VII
electricity shortages for (PDP VII) projected demand for electricity to grow at 10.5% per annum during 2016–2020, and
the foreseeable future 8.5% per annum for the period 2021–2025. Generation capacity roll out was expected to meet
this growth, but there have been delays in the 43.5 GW to be installed by 2025. This means
there will be persistent electricity shortages for the foreseeable future.
Figure 55: Vietnam electricity shortage projected to 2025

million kWh
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
-
FY18
FY19F
FY21F
FY20F
FY22F
FY23F
FY24F
FY25F
(50,000)
Generation demand Generation output Shortage
Source: MOIT, HSC forecasts
Shortages will be addressed by the importation of power, as with increasing demand for raw
material, especially coal, but this then raises questions about energy security generally.
Currently, power production is still dominated by hydropower with a share of 40.1% in electricity
Expectations had generation, followed by coal with 38.1% and coal with 18.5%, and other renewable energy with
been for coal power 3.3%.
plants to meet
essential capacity At this stage, in the revised PDP VII, coal power plants will be the main contributors to the
expansion… essential capacity expansion. However, this comes with challenges.
First, expected fossil resource demand will exceed the domestic supply and Vietnam’s fossil
import dependency will increase. Second, the increasing understanding of the negative impact
that coal power has on the environment and population health is creating greater social
opposition against coal power projects.
… but LNG is also a These are key factors for the government to consider as it reviews its coal-dependence power
realistic proposition strategy in the up and coming PDP VIII (to be published by end-2020). Certainly discussions
around focusing more on LNG are being entertained.
Hydro power projects have reached at the country’s upper capacity limit. Other renewable
energy sources such as wind and solar power, are at an early stage of development and are
held back by the national grid system which at crucial points is overloaded and cannot
accommodate new plants connecting in.
At the same time the current renewable PPA with a “take-and-pay” term puts majority of the risk
on the shoulders of project developers and makes it difficult for them to get financed.
So what will change? An acceleration in approvals from 2021 for one, a shift and improvement
the investment structure for another but the power market restructuring roadmap envisages the
operation of a competition-based generation, wholesale and retail market by 2023. This will
make the power sector more attractive to private and foreign investment going forward.
Politics: Stability, resilience & positive change

Political volatility has For four and half decades, Vietnam’s has been characterized by political stability. This has
been markedly lower helped to underwrite the prosperity which is now beginning to manifest itself in many areas of the
than that of regional economy. Directed investment into education and health has resulted in social stability and has
peers laid the foundations of wealth creation and the emergence of the middle class, an on-going
process that will remain critical in facilitating future economic momentum.
Political volatility in Vietnam has been markedly lower than that of regional peers, which means
we have limited the risk of personality driven or “strong man” politics. Although single party, the
government will remain consensual in its approach.
While this may mean that the pace of change in areas such as the regulatory environment or
infrastructure spending may never be as fast as some may wish, the quid pro quo is steady
economic performance (rather than spectacular) over prolonged periods.
The chart below is an attempt to show pictorially the stability that Vietnam offers investors even
in the face of external pressures. Suffice it to say, we do not expect the Vietnam political
equation to change anytime soon.
Figure 56: Consistently weathering storms
2007 – 09 Global 2017 /2018 –

Financial Crisis Vietnam achieves
1998 2002 / 03 the highest and
Asia SARS most sustainable
Crisis Outbreak 2011 Japanese rate of GDP
Tsunami growth in Asia
2004 Indian 2012 Further

Ocean political crisis in
Earthquake Thailand
2001
Tech
Bubble
burst 2006 Political 2014/15 Malaysian
upheaval in corruption Scandals
Thailand
Source: GSO, CEIC, HSC Research
We are about to transition to a new period of government as we move into the next five-year
cycle, which will commence from 2021 and end in 2026. These transitions are invariably
smoothly done. Although not officially confirmed, the current calendar of key dates and events
are expected to be close to the following:
We are now entering into • June 2020: 9th session of the 14th National Assembly will take place. We would expect to
an 18 month period of see amendments on the Enterprise law (this will be the time when we get more clarity on
government transition possible changes in foreign ownership structures and the NVDR (non-voting depository
receipt) proposals) as well as the PPP/investment law. The securities law, amended in
November 2019, and the amended enterprise and PPP/investment laws are all expected to
take effect on 1st January 2021.
• Additionally, the amended law on public investment will take effect in January 2020, and
when coupled with the PPP/investment law will have big impact on the efficiency of public
infrastructure investment spending generally.
• January 2021: 13th National Congress of the Communist Party of Vietnam will take
place. The National Party Congress has been held every five years since 1976. The
congress will elect around 200 members to make up the Party’s Central Committee, which
comprises 180 official and 20 alternate members.
• This new Central Committee will then elect to nominate around 19 members to be members
of the Central Politburo. Included in the nominations are the four most important offices of
state which are the General Secretary, President, Prime Minister and Chairman of the
National Assembly.
• April 2021: Formal Formation of New Leadership. The President, Prime Minister, the
Supreme Court and the Supreme People's Procuracy will all be officially elected during the
final session of the 14th National Assembly.
• June 2021: The Fifteenth National Assembly (2021–2026) will convene. The National
Assembly will consist of around 500 elected deputies. At the start of this new term, the new
Chairman of the National Assembly will officially be elected as well as Vice Chairpersons.
• Key new members of government (ministers) will be selected by the Prime Minister,
proposed to the National Assembly for approval and appointed by the President in the final
session of the 14th National Assembly and the 1st session of the 15th National Assembly.
During this period we The world of politics is never smooth. For example, it might be said that the government’s anti-
can expect decision corruption programme has hindered decision making even more than is usual ahead of the
making to be slower than Government transitions detailed above. Additionally, key projects often require several ministries
usual – the brakes will to cooperate together. Given upcoming events, this co-ordination may also be harder to achieve
come off in 2021 than normal.
Nevertheless, looking at the blend of politics and macroeconomic progress from another
perspective, the World Bank has recently ranked Vietnam 70 th out of 192 countries for Ease of
Doing Business for 2020. This is up from 99th in 2014, and is already a better performance than
Indonesia, Thailand, the Philippines, Greece, Brazil, Nigeria, South Africa and Luxembourg for
example. Again, incremental and positive change is on-going.
So why is Vietnam progressing so steadily when many of its neighbors aren’t? Aside from a low
base effect, Vietnam is often said to be closer in business mentality to North Asia than South
Asia and certainly the spirit of the land is much more entrepreneurial than its ASEAN
counterparts, while the national work ethic is more deeply ingrained than in some other
countries.
The regulatroy, Couple the population’s mindset with the government’s overarching policy of running a “Socialist
investment and Orientated Market Economy”, and we can be sure that while the rate of positive change in key
operating environments policy areas may be variable and subject to political events (as with anywhere), the regulatory,
will continue to see slow investment and financial operating environments will continue to improve over time.
and steady positive
change
Demographics: Underpins everything

The power of the domestic economy is becoming a key driver of growth, demographics being
one of Vietnam’s greatest strengths. Middle class formation is continuing apace. Below are two
population charts one of China in 1998 and another of Vietnam in 2019.
Figure 57: Population pyramid: Vietnam 2019 Figure 58: Population pyramid: China 1998
Source: PopulationPyramid.net Source: PopulationPyramid.net
This is clearly not a perfect match, but approximately 58-60% of each country’s working
population was between the ages of 15-64 at these two moments in time.
Demographics will be What a young, well-educated population will do is drive growth momentum for an economy and
the key driver of this is well illustrated in the chart below. From 1998, GDP growth in China accelerated each year
growth for ten years until the Global Financial Crisis and the impact of a steadily aging population took
hold.
Figure 59: China’s GDP growth (%) from 1998

16
15
14
13
12
%
11
10
9
8
7
6
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: MOIT, HSC forecasts
The current population of Vietnam is estimated to be 97.3mn of which 55% of the population is
under 35 and 45% of the population is currently in the high productivity category of 25 to 54 – it
is these cohorts which are driving the rapid emergence of the middle class.
High educational Education attainment is high which underpins a quality workforce, while gender equality doubles
attainement, gender the productive labour that is available. At present we are forecasting steady GDP growth of 6.7%
equality and mobility are plus for Vietnam in the coming years but we could well be surprised on the upside purely on the
all qualities in what is a basis of stronger than anticipated consumption.
young workforce If we then look at GDP per capita, we see the positive progression you would expect:
Figure 60: GDP per capita, USD

4,000
3,500
3,000 2,750
2,590
2,389
2,500 2,215
2,052 2,109
1,907
2,000 1,748
1,517
1,500 1,273
1,160
1,000
500
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e
Figure 61: Regional gross income per capita, USD

6,000
5,000
VND thousand
4,000
3,000
2,000
1,000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018
Whole Country Red River Delta
Northern Midlands & Mountain Areas Northern Central Area & Central Coastal Area
Central Highlands Mekong River Delta
Urban Rural
The Red River Delta Similarly, looked at purely from the perspective of gross income capita, we see identical, positive
Region is see the growth trends. Broken down regionally, the Red River Delta around Hanoi is in fact seeing higher
biggest increases in income levels and stronger growth that the Mekong River Delta around Ho Chi Minh City, but of
income per capita course income growth in urban areas is the strongest of all.
Urbansiation is low but Urbanization, then, has to be considered a most important factor in stimulating individual
surging – a powerful earnings and as can be seen, at 37%, Vietnam has the lowest urban population in the region
catalyst for growth after India while, along with China, Vietnam has seen the fastest rate of urbanization for the last
decade at 21%. The pace of urbanization in Vietnam unlikely to change and we see this as a
powerful catalyst for continued consumer demand.
Figure 62: Regional urbanization rates, 2010-2019
Formal wealth is The following table highlights exactly how much is changing and how swiftly – the formation of
increasing – the rise of the middle class is accelerating rapidly. Another key feature is would be the rise of incomes
the middle class facilitated by full employment.
The impact of urbanization can be seen in that overall consumer spending will has grown two
and half times in the space of nine years. The rise of the middle class is a powerful force which
will underpin future growth, even in periods where we are experiencing malaise in the global
economy.
Figure 63: Formal wealth indicators: Rapid change

Unit 2010 2019 % change
No. Of Billonaires no. 0 5
No. UHNWIs (assets > than $30mn) no. 110 142 29% (from 2013)
No. UHNWIs (assets > than $1mn) no. 10,000 12,327 23% (from 2013)
Those earning USD750 per month no. 2,000,000 7,500,000 275%
Consumer spending PA USDbn 54 177 230%
Unemployment Rate % 2.9% 2.2% -25%
Domestic / International flights no. 14,000,000 52,000,000 271%
International Visitors no. 5,049,855 17,160,675 240%
Smartphone Penetration (Vietnam) % 5.0% 37.0% 640% (from 2012)
Smartphone Penetration (City) % 10.0% 85.0% 750% (from 2012)
Internet Penetration % 31.0% 66.0% 113%
Car Ownership % 1.5% 2.6% 73%
Home Ownership % 84.2% 93.1% 11%
Shopping Malls no. 101 210 108%
Newly Registered Companies no. 74,842 126,721 69% (from 2014)
Bank Cards no. 47,890,000 171,300,000 258% (from 2012)
Bank Accounts no. 68,511,000 84,991,000 24% (from 2012)
Retail investment in Bonds USDbn 0.0 3.0
Source: GSO, Bloomberg, CEIC, World Bank, Statista, Knight Frank and HSC Research
The next series of charts indicate how durable domestic consumption trends have been – since
2000 retail sales have risen 24x, and compound annual growth has been 18.5% over this period.
Domestic consumption While the rate of growth has slowed in recent years, recent data continues to point to strong and
trends will continue to steady growth.
remain durable
Underpinning domestic consumption is an increase in tourism – in the last decade we seen the
number of international domestic flights increase by 2.7x to 52mn, while the number of
international visitors has increased by 240%.
We see no reason why these positive trends for domestic consumption and those which are
associated with middle class formation will not continue for the foreseeable future. We still have
a low base effect with disposable income only likely to increase through 2020 and beyond.
Figure 64: Monthly retail sales: Steady & strong growth Figure 65: Retail sales: CAGR of 18.3%....
500,000 500,000 35
30
400,000 400,000
25
VND bn
300,000 300,000
20
y/y%
200,000 200,000 15
10
100,000 100,000
5
0 0 0
Jan-18 Jul-18 Jan-19 Jul-19 2001 2004 2007 2010 2013 2016 2019
Goods Accomodation, Food & Beverage Service Services and Tourism Retail Sales
Retail Sales
Source: GSO, CEIC & HSC Research Source: GSO, CEIC & HSC Research
Figure 66: Vietnam’s retail sales have increased 24 fold Figure 67: Underpining domestic consumption is a
since 2000 and now accounts for 82% of GDP growing tourism sector
25.0 100 20
number of accumulated tourist arrivals YTD mn

18
20.0 80 16
14
15.0 60
12
10
10.0 40
8
6
5.0 20
4
2
0.0 0
0
Jan-18 Jul-18 Jan-19 Jul-19
America Europe Oceania China South Korea Japan other Asia

Retail Sales/ GDP (%) (rhs) Retail Sales (2000 = 1)
Source: GSO, CEIC & HSC Research Source: GSO, CEIC & HSC Research
The impact of the consumer also flows though into industrial production. Retail consumption now
equates to 82% of GDP. Most noticeable has been the huge increase in cellphone and television
production, in large part for the export market but there has also been near doubling of steel
production and a one and half times increase in electricity generation which reflects the
economic expansion Vietnam has under gone in recent years.
Economic expanison will Again, we see no reason why these positive structural trends should not continue into 2020 and
continue to drive the next decade.
industrial production
Figure 68: Production of goods: A function of export growth and domestic consumption
Unit 2010 2019 % change
Exports USDbn 72 268 271%
Long Steel m MT 5,658,500 10,639,966 88%
Clothes bn Pieces 2,777 5,240 89%
Fabric m m2 1,187 1,861 57%
Liquid Milk Mn lt 521 1,359 161%
Beer Mn lt 2,420 4,636 92%
Electricity mkWh 85,669 212,223 148%
Cellphones no. 11,000,000 198,000,000 1700% (from 2013)
Televisions no. 2,456,370 12,640,383 415%
Coffee M tons 1.10 1.68 53%
Seafood M tons 5.14 8.08 57%
Source: GSO, Bloomberg, CEIC, World Bank, Statista, Knight Frank and HSC Research
ESG: The start of positive change

ESG: Ever increasing We are being increasingly asked by our clients about Environmental, Social and Governance
importance (ESG) criteria in Vietnam and so we take a first step forward in this strategy report.
The US SIF Foundation estimates that in 2018, investors held USD11.6tn in assets chosen
according to ESG criteria, which is up from USD8.1tn in 2016. Furthermore, it has been
suggested that USD30tn in now invested in sustainable funds of one sort or another. In short,
ESG is becoming an increasingly consequential asset class of its own and this will increasingly
impact investment decision making in the Vietnam context.
In very simple terms, environmental criteria consider how a company performs within the
physical world, Social criteria considers how a company looks after its staff, the communities it
operates in and the relationships it may have with suppliers and customers. Governance deals
with leadership, shareholder rights, internal controls and external audits.
We have taken generally applied frameworks and adapted it a little to suit our situation in
Vietnam. We have broken down the three primary areas of ESG into 12 areas and then broken
that down further into 42 key issue areas.
Our analysts made HSC analysts were asked to look at each company under our coverage plus a substantial
assessments on close to number more that we know well. At HSC, our direct universe is 67 stocks presently, and we have
100 companies looked at an additional 30 companies – in this way, every sector has never fewer than three
companies in it.
The analysts were then asked to score each company out of 4, with a score of 4 being the
highest level of attainment. The following guidance notes were used, and once the exercise was
completed, ‘sense checks’ were provided by the senior analysts in the team. If an analyst didn’t
know a company’s positioning around a key issue, or if a key issue wasn’t deemed relevant, then
the analysts didn’t provide a score.
At the headline level then, our universe heat map is the following:
Figure 69: Strength of ESG criteria by sector

Pharmaceuticals
Conglomerates
Transportation
Manufacturing
Infrastructure
Real Estate
Technology
Distribution
Agriculture
Consumer
Oil & Gas

Avg
Textiles
Utilities
Banks
Retail
Governance 2.5 2.8 2.4 2.7 2.6 2.4 2.6 2.3 1.9 1.9 2.5 2.1 1.8 2.2 2.0 2.3
Social 2.9 2.5 2.5 2.6 2.5 2.8 2.4 2.6 2.3 2.1 1.7 2.0 1.8 1.8 1.8 2.3
Environment 2.7 2.2 2.7 2.0 2.2 2.0 2.1 2.0 2.1 1.9 1.5 1.7 1.9 1.4 1.4 2.0
Average 2.7 2.5 2.5 2.5 2.4 2.4 2.4 2.3 2.1 2.0 1.9 1.9 1.8 1.8 1.8 2.2
The immediate conclusion from the table above is as you would expect. Environment criteria are
harder to fulfil satisfactorily; we are an emerging market after all. The next table provides the
detailed breakdown of the core areas and the key issues which the analysts were asked to
score.
Figure 70: ESG Breakdown into core areas and key issues
We tried to make Principle Focus Core Areas Key issues

assessments around 42 Climate change Carbon Emissions
key issues for each Product Carbon Footprint
company Financing Impact Studies and Improvement
Climate Change Vulnerability
Natural Resource Management Water Stress
Biodiversity & Land Use Impact
ENVIRONMENT Raw Material Sourcing
Pollution and Waste Toxic Emissions & Waste,
Packaging Material & Waste,
Electronic Waste
Environmental Opportunities Opportunities in to use Clean Tech
Green Building
Renewable Energy
Human Capital Labour Management
Human Capital Development
Health & Safety,
Supply Chain Labour Standards
Product Liability Product Safety & Quality,
Chemical Safety,
Financial Product Safety,
Responsible Investment,
SOCIAL
Health & Demographic Risk
Data Security Privacy and Data Security
Stakeholder Opposition Controversial Sourcing
Social Opportunities Access to Communications
Access to Finance,
Access to Health Care
Opportunities in Nutrition & Health
Mental Wellbeing
Corporate Governance Board
Pay structure
Ownership Structure
Accounting
Corporate Behavior Business Ethics
Anti-competitive Practices
GOVERNANCE Tax Transparency
Corruption & Instability
Shareholder Accessibility Access to Management
English language information availability
Public Releases made non-selectively
Insider Information Leakage
Exert undue influence on Analysts
Source: MSCI, HSC Research
On the next page are the The notes and guidance below were offered to the analysts in order to help them begin to
guidance notes we used understand the key issues they were expected to address.
to ensure consistency
Figure 71: Strength of ESG criteria by sector

Key Issues Description
Carbon Emissions Some industries will have very low carbon emissions, others will be very high - how is this managed?
Product Carbon Footprint This relates to what a company produces
Financing impact studies Is the company doing much to mitigate its impact on the environment?
Climate Change Vulnerability Is the company vulnerable to climate change - low lying land, impact agriculture, hydro-electric generation etc.
Water Stress Does the company put pressure on the water ecosystem - eg cattle farming, hydro electricity
Biodiversity & Land Use Impact Is the company causing environmental degradation - intensive agriculture, tourism, mining
Raw Material Sourcing How does the company source raw materials - eg, mining, oil and gas, strip farming etc.
Toxic Emissions & Waste, Does the company produce emissions in its production process? If so, what does it do about managing it?
Packaging Material & Waste Does the company use plastic, biodegradable materials etc?
Electronic Waste If there is electronic waste how does the company dispose of it? Recycling? Landfill?
Opportunities in to use Clean Tech Are there replacement technologies the company could employ? If so, has it or is in the process of doing so?
Green Building How are buildings constructed - use of Solar? Energy efficient office space, design etc.
Renewable Energy Is the company switching to renewable energy either as a producer of electricity or a user?
Labour Management Does the company work with its staff? Is their staff representation? Unions etc.
Human Capital Development Is the company good at developing its staff
Health & Safety How well does the company ensure the safety of its staff - construction, manufacturing, agriculture
Supply Chain Labour Standards Does the company ensure that child, indentured or slave labour isn't being used on its supply chain?
Product Safety & Quality Is the product they produce of the requisite standard. Do they meet international standards?
Chemical Safety If a primary manufacturer, do they have effective controls to manage dangerous and polluting substances?
Financial Product Safety If the company is in the financial space, are their products appropriate for their customer base
Responsible Investment Does the company make an effort to ensure responsible investing?
Health & Demographic Risk Is the company at risk from aging populations?
Privacy and Data Security Does the company have suitable and extensive safeguards to protect the data of customers and suppliers?
Controversial Sourcing Does the company have an activist shareholder base concerned about sourcing practices?
Access to Communications Does the company provide access to communications in remote areas, internet etc?
Access to Finance, Does the company provide start up financing to its employees or otherwise
Access to Health Care Does the company provide good quality healthcare etc.
Opportunities in Nutrition & Health Does the company provide health food options? Gym? Sporting activities etc?
Mental Wellbeing Does the company provide suitable access to mental health healthcare professionals?
Board What is the make-up of the board? Family numbers? Number of independents? Mix of experience?
Pay structure What is the pay structure? Is it appropriate and fair?
Ownership structure Is it over complex? Does it disadvantage minorities?
Accounting What is the quality of accounting? Have their own accountants signed off etc.
Business Ethics Does the company stand for something? Does it behave fairly to customers, suppliers, staff etc?
Anti-competitive Practices Does the company try and squeeze out competition by unfair practices?
Tax Transparency Does the company pay its fair share of tax?
Corruption & Instability Can the company be accused of corruption? Are its business practices leading to substandard performance?
Access to Management Can shareholders and analysts access management? Can they do so beyond analyst briefings etc?
English Language Availability Does the company supply none, part or all of its information in English? Does it have an English language website?
Public releases made non-selectively Does the company release information fairly and at the same time to all investors?
Insider Information Leakage Does the company actively try and prevent information / leakage /whispers to the investing community?
Exert undue influence on Analysts Does the company try to exert pressure on the analyst community on content, forecasts, recommendations?
Source: MSCI, HSC Research
Broken down by core areas, it is unsurprising that certain specific industries are weakest,
especially in the area of Environment. Additionally, the differences across sectors become quite
pronounced when it comes to corporate governance.
We will be looking for Those industries which are outward facing – by which we mean those business which have large
going forward isnot the foreign shareholdings, limited family ownership and which operate outside of Vietnam – tend to
absolute score but achieve the best scores. Vinamilk, Sabeco and others are already notable for including extensive
change – especially ESG sections in their annual reports.
around governance
At present we are applying much more art than science to our assessments here, but we hope
over time to try and numerically quantify our key issues as much as possible in the future.
The absolute key going forward for all companies is to progress in as many ways as possible – it
does not matter much if a company is currently scoring a 1 or 3 in a particular area, what we
want to see is future improvement. Positive change in this respect will help to inform our
recommendations in the future.
Figure 72: Strength of ESG criteria broken down by core areas and sectors
Pharmaceuticals
Conglomerates
Transportation
Manufacturing
Infrastructure
Agriculture a
Real Estate
Technology
Distribution
Consumer
Oil & Gas

ENVIRONMENT Avg
Textiles
Utilities
Banks
Retail
Pollution and Waste 2.7 3.0 2.1 2.3 2.1 2.2 2.0 2.1 1.9 1.7 1.9 2.0 1.7 1.7 1.5 2.1
Climate change 3.0 2.2 2.3 2.3 2.0 2.0 2.0 1.9 2.2 2.0 1.7 2.0 1.5 1.3 2.0
Natural Resource Management 2.4 2.0 2.0 2.4 2.7 2.2 1.8 1.7 2.0 1.5 1.5 1.0 1.3 1.9
Environmental Opportunities 2.5 2.3 2.1 2.0 1.9 1.7 1.5 1.9 2.2 2.1 1.5 1.5 1.0 1.6 1.5 1.8
Average 2.7 2.6 2.2 2.2 2.1 2.1 2.0 2.0 2.0 1.9 1.9 1.7 1.6 1.5 1.4 2.0
Pharmaceuticals
Conglomerates
Transportation
Manufacturing
Infrastructure
Agriculture a
Real Estate
Technology
Distribution
Consumer
Oil & Gas

SOCIAL Textiles Avg
Utilities
Banks
Retail
Human Capital 2.8 2.9 2.7 2.6 3.1 3.0 2.8 2.6 2.4 2.2 2.0 2.3 2.3 1.6 2.0 2.5
Social Opportunities 2.7 3.0 3.0 2.7 2.6 2.8 2.7 2.5 2.6 2.0 2.0 1.6 1.6 2.0 2.1 2.4
Product Liability 2.8 2.4 2.5 2.6 2.4 2.8 2.5 2.5 2.4 2.1 1.8 2.3 2.3 1.7 1.9 2.3
Data Security 3.5 2.0 3.0 2.0 2.0 2.0 2.0 1.8 2.0 2.0 1.5 2.2
Stakeholder Opposition 3.0 3.0 2.0 2.7 2.0 2.6 2.3 2.0 1.0 1.0 2.0 1.0 2.1
Average 2.9 2.8 2.6 2.6 2.5 2.5 2.5 2.4 2.3 2.1 2.0 1.8 1.8 1.8 1.7 2.3
Pharmaceuticals
Conglomerates
Transportation
Manufacturing
Infrastructure
Agriculture a
Real Estate
Technology
Distribution
Consumer
Oil & Gas

GOVERNANCE Avg
Textiles
Utilities
Banks
Retail
Corporate Behavior 2.9 2.8 2.8 3.0 2.3 2.5 2.4 2.6 2.5 2.5 2.1 2.3 1.9 2.0 1.9 2.4
Shareholder Accessibility 2.9 2.8 2.5 2.0 2.5 2.5 2.5 2.3 2.4 1.9 2.4 1.7 2.1 1.7 1.7 2.3
Corporate Governance 2.6 2.5 2.6 2.8 2.9 2.6 2.4 2.2 2.0 2.1 1.9 2.0 1.8 2.1 1.9 2.3
Average 2.8 2.7 2.6 2.6 2.5 2.5 2.4 2.4 2.3 2.2 2.1 2.0 1.9 1.9 1.8 2.3
Figure 73: Strength of ESG criteria broken down by key issues and sectors
Pharmaceuticals
Conglomerates
Transportation
Manufacturing
Infrastructure
Agriculture a
Real Estate
Technology
Distribution
Consumer
Oil & Gas

ENVIRONMENT Avg
Textiles
Utilities
Banks
Retail
Climate Change Vulnerability 3.0 3.0 2.2 3.0 2.4 2.0 2.0 1.7 2.0 2.0 2.0 1.8 2.3
Opportunities in to use Clean Tech 3.0 3.0 3.0 2.0 2.0 2.0 2.2 2.3 2.3 1.4 1.0 1.8 2.0 2.2
Toxic Emissions & Waste 3.0 2.0 3.0 2.2 2.0 2.4 2.3 1.7 2.0 2.0 2.0 2.0 1.3 1.5 2.1
Water Stress 2.7 2.0 2.2 3.0 2.3 2.6 1.3 2.0 2.0 2.0 1.5 1.0 1.5 2.0
Packaging Material & Waste 3.0 3.0 2.3 2.0 2.0 2.0 2.4 2.0 1.7 2.0 2.0 2.0 2.0 1.8 1.0 2.1
Financing Impact Studies and Improvement 3.0 1.7 3.0 2.6 1.0 2.2 2.5 2.7 1.0 2.0 2.5 2.0 1.3 1.5 2.1
Green Building 2.5 2.0 2.0 3.0 2.0 2.0 1.4 2.1 2.0 2.0 2.0 2.0 1.0 2.0 1.5 2.0
Biodiversty & Land Use Impact 3.0 1.8 3.0 2.6 2.3 2.0 1.0 2.0 1.0 2.0 1.0 1.5 1.9
Electronic Waste 2.0 3.0 2.0 2.0 2.0 2.0 1.8 2.0 2.5 1.0 1.8 2.0 1.0 2.0 2.0 1.9
Carbon Emissions 2.0 2.0 2.4 2.0 1.4 1.4 1.7 3.0 2.0 1.5 2.0 1.5 1.0 1.8
Product Carbon Footprint 2.0 2.0 2.4 2.0 1.4 1.4 1.7 3.0 2.0 1.5 2.0 1.5 1.0 1.8
Raw Material Sourcing 1.7 2.0 2.0 2.0 2.4 1.8 2.0 2.0 2.0 1.5 1.0 1.0 1.0 1.7
Renewable Energy 2.0 2.0 1.3 1.0 1.8 1.0 1.6 1.3 2.3 2.0 1.1 1.0 1.0 1.0 1.0 1.4
Average 2.7 2.6 2.2 2.2 2.1 2.1 2.0 2.0 2.0 1.9 1.9 1.7 1.6 1.5 1.4 2.0
Pharmaceuticals
Conglomerates
Transportation
Manufacturing
Infrastructure
Agriculture a
Real Estate
Technology
Distribution
Consumer
Oil & Gas

SOCIAL Avg
Textiles
Utilities
Banks
Retail
Financial Product Safety 3.0 2.5 2.8

Supply Chain Labour Standards 3.0 3.0 3.0 4.0 2.9 2.4 2.0 2.7 3.0 3.0 2.5 2.0 2.0 2.7
Access to Health Care 2.5 3.0 3.0 2.7 3.0 3.0 3.0 2.6 3.0 2.0 2.0 2.0 3.0 2.0 2.6
Product Safety & Quality 3.0 2.3 3.0 2.7 3.0 2.8 2.8 2.6 2.3 2.8 2.3 2.0 3.0 2.0 2.6
Access to Communications 3.5 3.0 3.0 3.0 3.0 2.5 2.3 2.8 2.0 2.0 1.8 2.0 2.5 1.9 2.5
Health & Safety 3.0 2.7 3.0 3.0 3.0 2.8 3.0 3.0 2.4 2.0 2.5 2.3 1.5 2.0 1.0 2.5
Health & Demographic Risk 3.0 3.0 3.0 2.3 2.0 2.6 2.4 2.6 2.0 3.0 3.0 2.0 1.5 2.0 2.5
Labour Management 2.5 3.0 3.0 2.7 3.0 2.3 2.9 2.8 2.4 2.0 2.0 2.0 2.0 2.0 2.0 2.4
Human Capital Development 2.5 3.0 3.0 2.7 2.0 2.5 2.3 2.2 2.6 2.0 1.8 2.0 2.0 2.0 1.3 2.3
Opportunities in Nutrition & Health 2.5 3.0 2.0 2.5 2.0 2.3 2.0 2.0 2.0 2.0 2.0 2.2
Privacy and Data Security 3.5 2.0 2.0 2.0 3.0 2.0 2.0 1.8 2.0 2.0 1.5 2.2
Responsible Investment 2.0 2.3 3.0 2.3 2.0 2.4 2.0 2.0 2.0 1.5 1.8 2.0 2.1
Controversial Sourcing 3.0 2.0 2.7 3.0 2.0 2.6 2.3 1.0 1.0 2.0 1.0 2.0 2.1
Chemical Safety 2.0 2.0 2.3 3.0 2.8 2.3 2.0 2.0 2.3 1.5 1.0 1.0 2.0
Mental Wellbeing 2.0 2.0 3.0 1.0 1.0 2.0 1.8
Access to Finance 3.0 1.0 1.0 1.0 1.5
Average 2.8 2.7 2.7 2.6 2.6 2.6 2.6 2.5 2.4 2.1 2.0 2.0 1.9 1.9 1.8 2.3
Pharmaceuticals
Conglomerates
Transportation
Manufacturing
Infrastructure
Agriculture a
Real Estate
Technology
Distribution
GOVERNANCE
Consumer
Avg
Oil & Gas
Textiles
Utilities
Banks
Retail
Tax Transparency 3.0 3.0 3.0 2.5 3.0 3.0 3.0 3.0 2.7 2.0 3.0 3.0 1.7 2.6 2.0 2.7
Accounting 2.7 2.0 2.8 3.5 3.0 2.0 3.0 2.4 2.5 2.5 3.0 2.3 2.0 2.0 1.8 2.5
Exert undue influence on Analysts 3.7 3.0 3.2 3.0 3.0 3.0 2.0 2.3 2.5 2.5 2.8 2.3 2.0 2.0 2.3 2.6
Anti-competitive Practises 3.0 3.0 3.0 2.5 3.0 2.5 1.5 3.0 2.9 3.0 3.0 2.3 2.0 1.4 1.9 2.5
English Language Information Availabilty 2.7 3.0 2.6 2.5 2.0 2.5 3.7 2.5 2.5 2.5 1.8 2.0 2.0 2.0 1.5 2.4
Ownership Structure 3.0 3.0 3.0 3.0 3.0 3.0 2.0 2.0 1.6 1.5 2.0 2.0 1.3 2.4 1.6 2.3
Public Releases made non-selectively 2.7 3.0 2.6 2.5 2.0 2.0 2.7 2.8 2.6 2.0 1.0 1.8 2.0 1.8 1.4 2.2
Pay structure 2.0 3.0 2.0 2.5 2.0 2.5 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.3 2.2
Access to Management 3.3 3.0 2.0 2.5 1.0 3.0 1.7 1.8 1.9 2.5 2.3 1.3 2.3 1.2 1.9 2.1
Corruption & Instability 3.0 3.0 2.4 2.0 3.0 2.0 2.3 2.2 2.1 1.5 2.0 2.0 2.0 2.2 1.8 2.2
Business Ethics 2.7 2.0 2.6 2.0 3.0 2.5 2.7 2.3 2.3 2.0 2.0 2.0 2.0 1.6 2.1 2.3
Board 2.7 2.0 2.4 2.5 3.0 3.0 2.7 2.3 1.8 1.5 1.3 1.8 2.0 2.0 2.0 2.2
Insider Information Leakage 2.3 2.0 2.0 2.0 2.0 2.0 2.3 2.0 2.5 2.5 1.8 1.0 2.0 1.6 1.5 2.0
Average 2.8 2.7 2.6 2.5 2.5 2.5 2.4 2.4 2.3 2.2 2.1 2.0 1.9 1.9 1.8 2.3
Financial market restructuring & MSCI EM inclusion – the great

stimulus to come?
Stifled access to We note the following of Vietnam:
capital will restrict
growth but we are • The economy requires capital;
seeing steady, albeit
slow, improvements in • The banks require capital; and
the regulatory
environment • Companies require capital.
Despite this, equity and bond markets are strangled at present.
Corporate profitability and economic growth will always be capped so long as access to capital is
stifled. However, this is understood and we are seeing slow and steady improvements in the
regulatory environment. Nevertheless, it is important to note that we don’t expect a big bang type
event – positive change in capital markets will come over years rather than offering a short term
catalyst in coming months.
Figure 74: Current capital market structure
An over reliance on domestic credit?

An over reliance on bank In the absence of a deep corporate bond market or a mature, open equity market, the primary
credit has and will recourse for funding has been the banking sector. This has resulted in issues – specifically, the
continue to create issues asset quality crisis of 2012. While asset quality issues have largely been resolved, the banking
sector remains undercapitalized for the central role it has as the provider of the only real source
of capital. Consequently, the government has restricted annual credit lending growth for the
sector to 14%.
By extension, restricting lending can act as a cap on economic growth generally – very simply,
companies are tempted to hold cash for future investment rather than pay dividends, thereby
limiting potential returns.
That the Vietnam market’s dividend yield lags that of ASEAN and its frontier market peers
shouldn’t be surprising given that ROEs are comparatively high, and capital is scarce. However,
ROAs are under pressure and can be expected to continue be below average for the region. We
expect this situation to remain so until more efficient financing mechanisms are in place.
Figure 75: High ROEs but disappointing dividend yields and below average ROAs
Dividend Yield (%) ROE% ROA%
2019 est 2020 est 2021 est 2019 est 2020 est 2021 est 2019 est 2020 est 2021 est
Singapore 3.98 4.25 4.40 9.22 9.23 9.82 1.65 2.02 2.19
Malaysia 3.49 3.61 3.81 8.66 9.57 9.73 1.44 1.54 1.60
Thailand 3.26 3.24 3.46 9.28 9.91 10.08 2.41 2.78 2.83
Indonesia 2.40 2.31 3.00 10.6 17.11 17.49 2.80 3.96 4.09
Philippines 1.60 1.75 1.88 11.79 11.68 11.91 2.66 3.65 3.78
India 1.19 1.39 1.58 12.27 13.77 15.62 2.12 2.88 2.77
Vietnam 2.04 1.97 2.32 14.71 18.12 18.58 2.41 2.12 2.31
Source: Bloomberg,HSC Research
Financial market The ultimate concern around inefficient or strangled capital markets then, is that earnings growth
restructuring is a can only really accelerate through increased leverage via the banking sector. With the banking
necessity for the future sector undercapitalized, the corporate bond market small, and the IPO market currently stagnant
growth of the country due to the bad performance of 2018’s listings, the long term sustainability of economic and
corporate growth can be called into question.
Needless to say, in this circumstance, any financial market restructuring and regulatory change
is a necessary but positive change.
Figure 76: Credit growth & M2 vs GDP Figure 77: Deposit, credit and M2 growth
172.4% 30
170%
28
160% 26
150% 24
140% 135.8% 22
y/y%
20
130%
18
120%
16
110%
14
100% 12
90% 10
80%
2012 2013 2014 2015 2016 2017 2018 2019
Credit/GDP M2/GDP Deposit growth Credit growth M2 growth
Source: SBV, GSO, HSC Source: SBV, GSO, HSC
Figure 78: Credit by sector Figure 79: Drivers of credit demand, in %
Source: SBV, GSO, HSC Source: SBV, GSO, HSC
Changes in the bond market slow and steady

The corporate bond Issuance of government bonds is decreasing as a result of the slowdown in disbursements and
market is only nascent, project approvals, although we expect the small nascent corporate bond market to expand over
but it will expand in coming years. However, there is no ratings agency and this needs to change in order to facilitate
coming years foreign participation.
At present the corporate bond market is approximately USD26bn in size of which 70% of
issuance to date (approximately USD18.5bn) has been by the commercial banks as they work
on improving their medium and long-term funding capacity as well as their capital adequacy
position. Half of this amount has come from the top five banks: Vietienbank, VPBank, BIDV, SCB
and SHB.
This means that non-corporate bond issuance, as of today, totals approximately USD7.5bn only,
which is approximately 10% of total government and corporate bond issuance. Of the non-bank
corporate bond issuances, real estate developers are the biggest issuers, with Vingroup the
largest, having issued USD1.8bn to date.
Certainly the non-bank corporate bond market is growing rapidly, at around 50% per year in the
last two years, and are now accounting for up to 50% of very recent new issuance, but this is
obviously off a very low base.
Demand is real and There is definite domestic demand for local bond issuance, the largest investors in corporate
growing… bonds are the banks and then other institutional investors. The number of retail investors is also
growing, but as yet they may only account for 10% of the primary market. There is some
evidence to suggest that retailers are more active in the secondary market.
…but so far At present there is little management appetite to replace bank credit with corporate bond raising.
management teams Moreover, foreign participation remains minimal (this year’s international issuances have
seems reluctant to issue amounted to USD300mn out of the USD2.35bn recently registered) and will continue to be so
debt and foreign without formal corporate credit ratings in place – currently Vietnam has a non-investment grade
particpation remains sovereign credit rating (Ba3 for Moody’s, BB for Fitch and S&P). However, we are confident this
minimal will improve as a result of steadily improving public finances (discussed in the macro section of
this report) and a strengthening of the banking system (as discussed in the banking sector
review section).
Figure 80: A deepening of capital markets is required
Stock market deepening: US21bn in placements in 2020-‘21?

The stock market could Ignoring the issue of market accessibility for a moment, the stock market is also somewhat
use more depth – the constrained; five companies – VinGroup (VIC), VinHomes (VHM), VietcomBank (VCB), Vinamilk
government is targeting (VNM) and Petrovietnam (GAS) – account for approximately 35% of Vietnam’s market
a stock market capitalization. Our expectation here is that there will be increased equity raising activity during
capitalisation of 100% of the course of 2020 and certainly into 2021 once the National Assemblies have been completed.
GDP by 2025
The government is targeting stock market capitalization to exceed 100% of GDP in 2025, which
would represent a near doubling from the current stock market capitalization of USD186bn (GDP
for FY19 is forecasted by us to be USD261bn). While, as share brokers, we can vainly hope that
this will be achieved through market performance alone, this is very unlikely and so we can
anticipate a significant increase in IPO activity.
Currently, we estimate that there may be upwards of USD21bn in new IPOs and placements
coming to the market over 2020-21. This would represent more than 12% of the current market
capitalization. Most of this new issuance would be SOE and government mandated issuance –
government decree no26/2019 announced a resumption of SOE privatization and divestments in
93 SOEs in coming years.
Certainly there is a substantially longer list of SOEs that could make our list but the table below
considers potential equity raisings which might possibly come to the market in a two, or possibly
three, year time frame.
USD21bn in IPOs and We expect private companies to resume going public via Upcom or though new listings and
placements in 2020 and placements next year, while M&A deals are likely to be focused on industrial goods, construction
2021? and services, retail and real estate. Education, healthcare, pharmaceuticals and renewable
energy will also remain attractive.
Figure 81: Potential equity raisings, 2020-‘21 (USDmn) Figure 82: Past and future M&A
Forecast M&A Deals US$7bn 20-21
Notable Past Deals:

Thai Bev Buy 54% of
US$4.8bn 2018
Sabeco
GIC Private Ltd invest
US$1.3bn 2018
in Vinhomes
Jardine C&C invest in
US$1.2bn 2018
Vinamilk
KEB Hana Bank by
US$882mn 2019
15% stake in BIDV
SK Group invest in
US$1bn 2019
Masan Group
SK Group invest in
US$1bn 2019
Vingroup
Source: Companies, HNX, HSX, HSC Research Source: Companies, HNX, HSX, HSC Research
In principle then we might see a much more active listing market in FY20 and FY21 following the
hiatus in FY19. This deepening and enriching of the equity stock market will be a good thing but
there are plenty of hurdles to overcome before the IPO market really takes off. A difficult IPO
process and prior failures have limited activity while foreign ownership limits have prevented full
and meaningful market participation - however, regulatory changes are afoot.
The new securities law: Small steps in the right direction

The new security law, The much awaited (amended) securities law was passed by the 14th National Assembly at the
effective in 2021, is a end of November. The law is expected to take effect on 1 January 2021 and will replace the ‘Law
step in the right direction on Securities No.70/2006/QH11’ and the ‘Law on Amending’, thereby supplementing a number
of ‘Articles of the Law on Securities No. 62/2010/QH12’.
It is safe to say that there was some disappointment that the new securities law wasn’t greater in
its scope and that is particularly true around foreign ownership limits. However, this was always
going to be the case as details on FOLs are to be dealt with in the new enterprise law. This is
scheduled, tentatively at least, for discussion at the next National Assembly meeting (from May
to June 2020).
It is most likely that the route taken to increase foreign participation will be along the lines of non-
voting depository receipts (NDVRs), similar to that seen in Thailand. And the new securities law
provides for that approach.
The enterprise law, Essentially what the securities law has done has provided an improved framework for IPOs and
under review, will do in particular has moved the overall regulatory equation slowly but steadily in the right direction.
more to address foreign There were a number of key changes announced:
participation
• In case the issuing securities' price on the securities trading system is lower than its par value,
the issuing company may offer securities at prices lower than its par value.
• The issuing company must have a book value of contributed charter capital of VND30bn
(currently VND10bn) or more at the time of registration for public offering of stocks or bonds.
• For initial public offering of stocks, major shareholders must commit to holding at least 20% of
the issuing company's charter capital for at least one year. Statement of operations for two
consecutive years (currently one year) preceding the year of registration of the offering must
indicate profitability, and there must be no accumulated losses up to the year of registration of
the offering.
• For initial public offering of bonds, issuing companies (regulated under the government
regulation required for credit rating) must have a credit rating result before the IPO.
• Following the initial public offering, securities of issuing company must be listed or registered
for trading at Vietnam Stock Exchange within 30 days from the completion of the offering.
An improved framework • Private placement of securities (including stocks and bonds) of issuers other than public
for IPOs companies need to comply with the provisions of the enterprise law (the amended enterprise
law will be passed by the 14th National Assembly in 2020).
• Participants in the offering must include strategic investors and professional stock investors.
Such regulation is to protect investors and ensure market safety.
• Expanding the general definition for “professional securities investor” to include: Individuals
holding a portfolio with a value of at least VND2bn as certified by a securities company at the
time such individual is identified as a professional securities investor; An individual that has
taxable income of at least VND1 billion in the latest year.
• The transfer of ownership of stocks and convertible bonds is limited for at least three years for
strategic investors and at least one year for professional securities investors.
• The company must have a charter capital of VND30bn (currently VND10bn) or more and at
least 100 investors who are not major shareholders most own at least 10% of the voting
shares.
• Public companies (not subject to the initial public offering) must register for stock transactions
on the unlisted securities trading system of the Vietnam Stock Exchange within 30 days, from
the date the State Securities Commission confirms the completion of public company
registration.
• A public company that repurchases its own shares must follow procedures for reducing its
charter capital.
• Depository receipt is defined as a type of securities issued on the basis of securities of an

organization legally established and operating in Vietnam.
• Provisions on non-voting depository receipts (NVDR) will be provided in the amended

enterprise law, which states that NVDR have full rights and obligations with respect to
common ordinary shares, except voting rights.
• The SSC is still under the Ministry of Finance but is supplemented with more powers to
inspect, supervise and issue legal documents.
In addition to the above, the restructuring and merging of the two existing stock exchanges
(Hanoi and Ho Chi Minh) into a single stock exchange won’t be carried out immediately as there
remains some work to be done in refining the functions and tasks of the Hanoi Stock Exchange
and the Ho Chi Minh Stock Exchange.
However, it is envisaged that in due course, all bond and derivative securities transactions will be
conducted at the Hanoi Stock Exchange, all stock transactions will be conducted at Ho Chi Minh
Stock Exchange and on that the basis, equity market indices will be unified into single index. The
timing of this remains uncertain.
MSCI inclusion and market accessibility: The big one…

Inching towards MSCI The standard answer to the question “when will I get unfettered access to the Vietnamese
emerging market market?” has been consistently the same for years: upon MSCI Emerging Market inclusion.
inclusion
There are two points we would make: First, access doesn’t have to be unfettered for MSCI
inclusion; and second, the real stock market action is in the one or two years prior to inclusion.
There is no doubt that Vietnam has work to do in order to meet MSCI criteria for emerging
markets which, in fact, have got harder over the years. MSCI undertakes an annual market
classification review and classifies markets in four groupings: developed, emerging, frontier or
standalone markets. MSCI’s central tenet is that, when it assigns market status it aims “to reflect
the views and practices of the international investment community by striking a balance between
a country’s economic development and the accessibility of its market while preserving index
stability”.
What that actually means in practice is set out in their framework which consists of the following
criteria:
• Economic development: Considers the sustainability of economic development and is only

used in determining the classification of developed markets, given the wide range of
development levels within emerging and frontier markets.
• Size and liquidity requirements: Determines those securities that meet the minimum
investibility requirements of the MSCI Global Standard Indexes.
• Market accessibility criteria: Aims to reflect international institutional investors’ experiences of

investing in a given market and includes five criteria: openness to foreign ownership, ease of
capital inflows/outflows, efficiency of operational framework, availability of investment
instruments, and stability of the institutional framework.
As it stands then, economic considerations should not impact on Vietnam with regard to their shift
to emerging market status.
Size and turnover are Additionally, as the following charts would indicate, size and liquidity are not necessarily a
not the issue; market stumbling block. What is preventing Vietnam’s accession is restricted investability and market
accesibility is accessibility.
Figure 83: MSCI emerging market (EM) and frontier market (FM) constituents – market cap. (USDbn)
Vietnam has the largest

Market Capitalisation in
the Frontier Group…
Figure 84: MSCI EM and FM constituents – market cap/GDP (%)
Again, Vietnam
compares favourably…
Figure 85: MSCI EM and FM constituents – average daily turnover (USDmn)
While Vietnam’s daily volume is there,

accessibility is not – however it is possible
envisage Vietnam turning over US450mn
or more a day upon MSCI accession and
financial market deregulation.
So where precisely is Vietnam falling down? We are currently rated poorly by the MSCI on
foreign ownership limits, foreign exchange controls, clearing & settlement infrastructure and
equal flow of market information.
Openess to foreign However, the two really key areas which need to be addressed are:
ownership and the
settlement framework • Openess to foreign ownership: It is hoped that the new securities law, discussed above, has
are the two key issues moved the country forward in this regard, but the key legislation will come in the enterprise
which need to be law in the second quarter of 2020. Implementation won’t take place until the first quarter of
addressed FY21 (at the earliest), which means that MSCI emerging market inclusion is theoretically
possible in FY21 but more realistic by FY22. Non-voting depository receipts, as seen in
Thailand, as most likely to be the vehicle used to open up access to the market.
• Operational framework: This essentially is focused on ease of settlement, especially for

omnibus accounts which cannot currently access the Vietnam market and constitute at least
20% investments made in emerging markets. An omnibus account allows for managed trades
for more than one entity, which necessarily means that buyers may be anonymous. This
remains an issue to be overcome.
Other concerns centre around ease of capital inflows and outflows, the competitive landscape,
stability of institutional frameworks and corporate governance related issues. As has been proven
in other accessions to the emerging market indices, there is more flexibility in “interpretation”
around these more secondary issues and we are confident that these factors won’t hold back
Vietnam’s inclusion in quite the same way as foreign ownership limits and access for omnibus
accounts has.
Other issues can be Additionally, there are no provisions for stock borrow and short selling, although this is to a large
managed extent true of EM countries generally and we therefore don’t see this as an issue.
To sum up then, we don’t think that MSCI accession is in anyway imminent, but we also think that
by the time that date arrives in 2021-22 (at the earliest), it will be too late – this is because, step
by step, all the necessary changes will have happened by the time of MSCI inclusion.
Accession posible in in The chart below shows market performance of the four markets – Saudi Arabia (May 2019
2021, but more likely in inclusion), Pakistan (May 2017 inclusion), Qatar (May 2014 inclusion) and UAE (May 2014
2022 inclusion) – which have been most recently added to the emerging market index. Suffice it to say,
it’s very clear the right strategy is to buy well ahead of inclusion, not after it.
Figure 86: What happens before and after MSCI Emerging Markets inclusion?
Before Inclusion After Inclusion
Buy before, not after

inclusion!
Source: Bloomberg
Future stock market performance: The devil remains in the detail

Vietnam has the liquidity, but lacks the confidence
Strategy is not about predicting short-term movements; this would, rather, be tactics on which we
hope to write regularly over the year. Nevertheless, short-term factors do play a role especially
when it comes to investment timing, even for long-term investors. Chief among those factors are
both liquidity and confidence.
Figure 87: VN Index – turnover and index level

400,000,000 1,200
350,000,000
1,100
300,000,000
1,000
250,000,000
200,000,000 900
150,000,000
800
100,000,000
700
50,000,000
0 600
Turnover monthly (USD, LHS) VN-index monthly (RHS)
Source: Bloomberg
Favourable liquidity Liquidity conditions are favorable currently, but domestic confidence remains key to outsize
conditiosn but a lack of returns and that is difficult to predict. Domestic investors seem to be led by foreign investors
confidence even though the latter are a relatively small component of market ownership and turnover.
At present, foreign investors remain largely on the sidelines; part of this is because the pace of
change has been slow, whether regulatory or re. MSCI inclusion, external concerns have
weighed heavily and, while more large funds are getting increasingly interested in Vietnam as an
investment story, these longer-term investors have found it hard to access the market, especially
as the IPO market has been so fallow.
Figure 88: Foreign activity continues to give the market direction
Source: HSX, HNX, SBV, GSO, HSC Research
Figure 89: Investor market share in % Figure 90: Stock ownership
Approximately 25% foreign Room remains, however, much of

this is in illiquid or “theoretical” investment opportunities
Source: SBV, HSX, HSC Research Source: HSX, HNX, HSC Research
We are hopeful that investors will recognize that change is occurring (albeit slowly) in Vietnam; it
is inching to MSCI inclusion, the flow of the global economy is picking up in its favour, and we
can expect more primary activity in 2020 than we saw in 2019. If this is enough to get foreign
participation to increase, we may well see domestic investors return and a climb towards a bull
market and a rerating.
Domestic investor What has not replaced foreign capital this year is domestic participation, despite excess liquidity
participation has been conditions for much of the year (as discussed below). Although retail investors accounted for 80%
lacking this year of market turnover, there appears to be a lack of confidence to invest heavily despite the very
signficant levels of liquidity currently available in the system.
Again, there are a number of reasons which could explain this lack of domestic confidence, but
should trade negotations between China and the US resolve themselves and a potential
slowdown in global growth recede as a major risk, we can anticipate significantly increased
market participation by both domestic and foreign market investors.
Concensus isn’t We are forecasting 1,200 in the VNI index, or 20% upside in the next six months. This would put
expecting much at all us on a PE of 16.1x which is roughly where Malaysia, Philippines and Thailand are trading now
next year; we see 20% (with similar earnings growth forecasted for all four markets in 2020). The risk, of course, is that
upside foreign investors remain sidelined, domestic confidence remains ho hum, and the index ends up
going nowhere – this would in fact be the consensus expectation at present.
Liquidity conditions remain favorable

Despite being a beneficiary of significant periods of excess liquidity this year, the stock market
has not been able to break out of the current trading range we are in. Perversely, if you look
carefully at current liquidity conditions versus those in the 2016 to mid-2018 bull run, the
conclusion seems to be that money market liquidity is currently at higher sustained levels that we
saw in that bull market period.
Figure 91: Liquidity rebased to 100, Jan 2019 Figure 92: Liquidity rebased to 100, Jan 2017
Unsurprisingly, the domestic money markets, the domestic bond markets and the stock market
are generally closely linked to each other, as shown in the charts below.
Figure 93: Bond and stock market liquidity (VNDbn) Figure 94: Bond and money market liquidity (VNDbn)
8,000 400,000 6,000

7,000 350,000
5,000
6,000 300,000
4,000
5,000 250,000
4,000 200,000 3,000
3,000 150,000
2,000
2,000 100,000
1,000
1,000 50,000
0 0 0
13/05/2018
13/07/2018
13/08/2018
13/09/2018
13/10/2018
13/11/2018
13/12/2018
13/01/2019
13/02/2019
13/12/2017
13/01/2018
13/02/2018
13/03/2018
13/04/2018
13/06/2018
13/03/2019
13/04/2019
13/05/2019
13/06/2019
13/07/2019
13/08/2019
13/09/2019
13/10/2019
13/11/2019
13/12/2019
13/12/2017
13/02/2018
13/04/2018
13/06/2018
13/08/2018
13/10/2018
13/12/2018
13/02/2019
13/04/2019
13/06/2019
13/08/2019
13/10/2019
13/12/2019
Bond Daily Trading 1M Average HSX Daily Trading 1M Average Interbank Liquidity 1M Average (LHS VND bn) Bond Daily Trading 1M Average
Figure 95: Foreign capital flows and stock market liquidity Figure 96: Money market and stock market liquidity
(VNDbn) (VNDbn)
1,600,000 9,000 400,000 9,000
1,500,000 8,000 350,000 8,000
7,000 7,000
1,400,000 300,000
6,000 6,000
1,300,000 250,000
5,000 5,000
1,200,000 200,000
4,000 4,000
1,100,000 150,000
3,000 3,000
1,000,000 100,000 2,000
2,000
50,000 1,000
900,000 1,000
28/02/2018
30/06/2018
31/10/2018
30/12/2016
28/02/2017
30/04/2017
30/06/2017
31/08/2017
31/10/2017
31/12/2017
30/04/2018
31/08/2018
31/12/2018
28/02/2019
30/04/2019
30/06/2019
31/08/2019
31/10/2019
31/12/2019
0 0
30/12/16
28/02/17
30/04/17
30/06/17
31/08/17
31/10/17
31/12/17
28/02/18
30/04/18
30/06/18
31/08/18
31/10/18
31/12/18
28/02/19
30/04/19
30/06/19
31/08/19
31/10/19
31/12/19
Adjusted Accumulated Foreign Capital Flows (LHS - VND bn) HSX Liquidity 1M Average Interbank Liquidity 1M Average (LHS VND bn) HSX Liquidity 1M Average
Source: SBV, Customs, GSO, Bloomberg, HSC Research Source: FiinPro, HSC Research
However these relationships can be seen to have broken down recently. Local investors,
especially, began to prefer bonds over equities in 2019 (and indeed bonds over property).
Besides money and bond markets, as mentioned the most influential factor in giving the market
direction remains foreign capital net inflows, so we turn full circle – in the short-term, the stock
market needs a shot of confidence to mirror the excellent long term fundamentals.
Exchange traded funds: Will they be a catalyst?

Will up and coming ETFs In the first quarter of 2020, we are expecting the launch of three new ETFs: The VN Diamond,
spark the market? the VN Fin Lead (which is being set up by VietFund Management (VFM)), and VN Fin Select
(which is being set up by SSI Asset Management). The related indices have been established
These ETFs, issued by domestic funds (VFM and SSIAM), are being set up to attract offshore
money (although local investors are also likely to participate) and are designed to essentially be
a proxy for foreign investors who will gain exposure to stocks which have full or nearly full foreign
ownership limits. Currently, upon issuance, the maximum size of each new ETF is set at
VND50bn as per regulations, or approximately USD2.15mn.
Stumbling blocks will be At present, the proposed ETFs are going through the regulatory channels, with the stumbling
overcome easily enough block said to be around voting rights. For example, it is possible that direct foreign ownership
(reaching a foreign ownership limit of 49%, for example) coupled with further indirect foreign
ownership through the ETFs could result in foreign majority ownership of a company. This issue
is likely to be resolved, perhaps around restrictions of voting rights for offshore buyers of the
ETFs.
The constituents (along with estimated weightings) for the proposed ETFs are shown in the
exhibits below.
Figure 97: VN
VN Diamond Diamond constituents
constituents Figure 98: constituents
VNFIN Lead VNFIN Lead constituents
Outstanding Rounded Outstanding Rounded
No. Ticker Price Weighting No. Ticker Price Weighting
volume (share) free float (%) volume (share) free float (%)
12 FPT 57,000 678,276,312 80% 15.3%
1 VCB 87,500 3,708,877,448 8% 15.3%
11 MWG 114,700 442,689,942 65% 15.2%
2 VPB 19,950 2,437,748,366 70% 14.8%
1 VPB 19,950 2,437,748,366 70% 11.7%
3 MBB 20,950 2,325,679,300 60% 14.7%
9 TCB 23,050 3,500,139,962 65% 11.4%
4 TCB 23,050 3,500,139,962 65% 14.5%
6 MBB 20,950 2,325,679,300 60% 10.3%
5 HDB 27,000 980,999,771 70% 10.0%
5 PNJ 85,800 225,188,176 80% 10.0%
6 STB 10,050 1,803,653,429 100% 9.9%
10 KDH 26,500 544,429,109 60% 5.6% 7 CTG 21,350 3,723,404,556 8% 5.9%
3 REE 36,450 310,050,926 55% 4.0% 8 BID 45,800 4,022,018,040 5% 5.0%
2 TPB 21,150 826,573,150 60% 3.7% 9 EIB 17,500 1,229,432,904 85% 4.6%
7 GMD 22,250 296,924,957 85% 3.6% 10 SSI 18,200 508,054,676 60% 2.7%
14 DXG 13,700 518,796,292 75% 3.4% 11 TPB 21,150 826,573,150 60% 1.3%
13 NLG 26,700 249,702,575 55% 2.4% 12 BVH 67,600 742,322,764 10% 0.7%
2 CTG 21,350 3,723,404,556 8% 2.2% 13 HCM 20,850 305,516,173 40% 0.4%
1 CTD 52,600 76,292,573 45% 1.2% 14 VND 14,300 208,565,370 65% 0.2%
100.0% 100.0%
Source: HSX, HSC Source: HSX, HSC Source: HSX, HSC Source: HSX, HSC
Figure 99: VNFIN

VNFIN Select Select constituents
constituents
Outstanding Rounded
No. Ticker Price Weighting
Shares free float (%)
1 TCB 23,150 3,500,139,962 65% 14.8%

2 VPB 19,600 2,406,748,366 70% 14.6%
3 MBB 21,400 2,282,470,273 60% 13.4%
4 VCB 86,000 3,708,877,448 8% 11.7%
5 HDB 27,550 980,999,771 70% 8.7%
6 STB 10,050 1,803,653,429 100% 8.3%
7 EIB 16,900 1,229,432,904 85% 8.1%
8 TPB 21,000 826,573,150 60% 4.8%
9 BID 41,900 4,022,018,040 5% 3.9%
10 CTG 20,300 3,723,404,556 8% 2.8%
11 SSI 19,050 508,054,730 60% 2.7%
12 BVH 72,700 700,886,434 10% 2.3%
13 VCI 31,400 164,349,986 65% 1.5%
14 HCM 23,150 305,516,173 40% 1.3%
15 VND 14,350 208,565,385 65% 0.9%
16 BMI 24,750 91,354,037 30% 0.3%
17 TVB 13,550 48,574,680 35% 0.1%
100.0%
Source: HSX, HSC Source: HSX, HSC
ETFs have been ETFs have been successfully launched before, but none with the focus of providing access to
launched successfully stocks which have reached their foreign limit – by their nature, these types of ETFs will only
before, but none were really appeal to foreign investors. There have been numerous other ETFs launched; the major
solely focussed on FOLs ones are detailed below:
Figure 100: VNFIN Select constituents
AUUM end Current Vietnam

Fund Flow Vietnam
ETF name 2018 AUM % increase Holdings
YTD Weighting
(USDmn) (USDmn) (USDmn)
FTSE Vietnam ETF 10 100.0% 251 272 8.5% 272

VNM ETF 101 70.0% 320 443 38.6% 310
VN30 ETF 102 100.0% 180 287 59.4% 287
iShare MSCI Frontier 100 ETF (19) 12.5% 474 508 7.2% 63
Premia MSCI Vietnam ETF (*) 4 100.0% 24 24
TOTAL 198 1,225 1,535 25.3% 957
(*) Premia MSCI Vietnam ETF listed on July 17th 2019
Source: HSX, HSC
ETFs create interest in ETFs, when launched, have certainly created interest in the market in the past. The chart below
the market, but columes shows the trading volumes for the VN30 ETF, which is generally seen as the best proxy for the
are low so the biggest ETF space. There have been surges of activity and to a greater or lesser extent this has had an
impact is on sentiment impact on the market; the two most notable periods being in February and March 2018 and in
March and April 2019. The first period of increased activity was more likely a result of the bull
market already underway, but the second notable period may well have had a positive impact on
the market at the margin.
Figure 101: VN index – Turnover and index level

25
1200
1100 20
1000
15
900
10
800
700 5
600
0
500
-5
400
300 -10
1/2/2017
2/2/2017
3/2/2017
4/2/2017
5/2/2017
6/2/2017
7/2/2017
8/2/2017
9/2/2017
1/2/2018
2/2/2018
3/2/2018
4/2/2018
5/2/2018
6/2/2018
7/2/2018
8/2/2018
9/2/2018
1/2/2019
2/2/2019
3/2/2019
4/2/2019
5/2/2019
6/2/2019
7/2/2019
8/2/2019
9/2/2019
1/2/2020
10/2/2017
11/2/2017
12/2/2017
10/2/2018
11/2/2018
12/2/2018
10/2/2019
11/2/2019
12/2/2019
VNINDEX VN30 ETF Flows (US$ million, RHS)
Source: Bloomberg
However, as a percentage of total volumes, ETFs are relatively small, so the biggest impact of
these funds can have is on sentiment.
Figure 102: VN30 ETF flows vs total market Figure 103: Major ETF flows –2017-’19 (USDmn)
8,000 1.4% 250
1.2% 198
7,000 200
1.0%
6,000 150
0.8%
0.6% 101 102 98

5,000 100 79 83
0.4% 55
USDmn
4,000 50
0.2% 32
10 4
2
3,000 0.0% 0
-0.2% (19)
2,000 (23) (28)
(50) (39)
-0.4%
1,000
-0.6% (100)
0 -0.8% (120)
(150)
Oct-17
Oct-18
Oct-19
Mar-17
Feb-17
Sep-17
Mar-18
Feb-18
Sep-18
Mar-19
Feb-19
Sep-19
Dec-17
Dec-18
Dec-19
Nov-17
Nov-18
Nov-19
Jan-17
Jul-17
Aug-17
Jan-18
Jul-18
Aug-18
Jan-19
Jul-19
Aug-19
Apr-17
May-17
Jun-17
Apr-18
May-18
Jun-18
Apr-19
May-19
Jun-19
FTSE Vietnam VNM ETF VN30 ETF iShares MSCI Premia MSCI Total
Index Frontier 100 ETF Vietnam ETF
VNINDEX traded value (US$ million) VN30 ETF Flows/total Market flows (%) FY2017 FY2018 FY2019
Source: Bloomberg, HSC Research Source: Bloomberg, HSC Research
Difficult to know if ETFs We can certainly say that the launches of the up and coming ETFs will encourage foreign
will prove to be catalyst interest in the market which may well stimulate domestic demand in turn. It is difficult to know to
for a market rerating on what extent the new ETFs will create a short term catalyst, but their advent will certainly not be a
their own, but their negative or a drag in domestic investor confidence.
introduction is certainly
not a negative
Valuations and stock picks

On a regional basis, Vietnam compares favorably when using Bloomberg consensus data. For
2020, we are forecasting 13.1% EPS growth implying a PER of 12.56 x for our universe.
At the same we also consider ourselves to have been conservative in our own forecasting
relative to the market, especially so for the property and construction sectors where we see
upside risk to our numbers should difficulties with the HCMC market be resolved, and the retail
sector where stronger than anticipated demand could fuel better earnings growth than currently
forecast.
Similar earnings Our index target for the first six months of the year is 1,200, representing approximately 25%
prospects than Malaysia, upside. This would imply a market PER of 15.8x on 2020 forward earnings, which would then
Thailand and the place the market on approximately the same valuation multiples as Malaysia, Thailand and the
Philippines but trading at Philippines are trading at currently – Forecasted EPS growth for all four markets (Bloomberg
a 20-25% discount consensus) is similar.
While it may it can be argued that a liquidity discount could be applied to Vietnam, superior,
unique and long term, macro-economic prospects must in turn be considered an offsetting factor.
If we accept that the superior macro picture justifies a rerating relative to regional peers, we can
gain further comfort from our target pricing. On the surface, we are forecasting total upside for
our universe of 11%.
However, if we remove the top five largest stocks we have under coverage (BIDV, VietCom
Bank, Vin Group, VinaMilk and PV Gas), our total universe performance rises to 25%. The
upside performance for our top picks is 35%. Of course, what this highlights is exactly how
important stock picking is in this market.
Figure 104: Regional markets – 2020 forward P/Es and EPS growth rates
25.0 50.0%
20.0 40.0%
30.0%
15.0
20.0%
10.0
10.0%
5.0 0.0%
0.0 -10.0%
PER (X, LHS) EPS Growth %
It is also instructive to look at Vietnam’s valuation relative to its frontier market peer group. Again,
it can be argued that Vietnam looks comparatively cheap.
Figure 105: Vietnam index – forward P/E Figure 106: MSCI frontier markets – forward P/E
22
21 19
20
18
19
18
17
17
16 16
15
15
14
13
14
12
01/03/17
03/03/17
05/03/17
07/03/17
09/03/17
11/03/17
01/03/18
03/03/18
05/03/18
07/03/18
09/03/18
11/03/18
01/03/19
03/03/19
05/03/19
07/03/19
09/03/19
11/03/19
01/03/20
13
01/02/17
03/02/17
05/02/17
07/02/17
09/02/17
11/02/17
01/02/18
03/02/18
05/02/18
07/02/18
09/02/18
11/02/18
01/02/19
03/02/19
05/02/19
07/02/19
09/02/19
11/02/19
01/02/20
VN index Fwd PE PE +1Std PE -1Std
Forward P/E MSCI FM P/E +1Std FM P/E -1Std
Source: Bloomberg, HSC Source: Bloomberg, MSCI, HSC
On a relative performance basis, Vietnam has persistently outperformed the MSCI Frontier
Market Peer group which reflects Vietnam’s long-term growth and investment story. However,
2019 was a relatively tougher year; from a relative perspective versus recent global Frontier
Market performance, the recent correction may have provided us with a good buying opportunity.
Figure 107: VN index Vs MSCI Frontier Markets, from 2017 Figure 108: VN index Vs MSCI Frontier Markets from
2019
190
120
180
170 115
160
110
150
140
105
130
120
100
110
100 95
01/02/19
01/16/19
01/30/19
02/13/19
02/27/19
03/13/19
03/27/19
04/10/19
04/24/19
05/08/19
05/22/19
06/05/19
06/19/19
07/03/19
07/17/19
07/31/19
08/14/19
08/28/19
09/11/19
09/25/19
10/09/19
10/23/19
11/06/19
11/20/19
12/04/19
12/18/19
01/01/20
01/03/17
02/03/17
03/03/17
04/03/17
05/03/17
06/03/17
07/03/17
08/03/17
09/03/17
10/03/17
11/03/17
12/03/17
01/03/18
02/03/18
03/03/18
04/03/18
05/03/18
06/03/18
07/03/18
08/03/18
09/03/18
10/03/18
11/03/18
12/03/18
01/03/19
02/03/19
03/03/19
04/03/19
05/03/19
06/03/19
07/03/19
08/03/19
09/03/19
10/03/19
11/03/19
12/03/19
01/03/20
Vn-index absolute return MSCI Frontier Market absolute return

Vn-index absolute return MSCI Frontier Market absolute return
Source: Bloomberg, HSC Source: Bloomberg, MSCI, HSC
Earnings, valuations and We have a long-term positive outlook on the market, but take a view that stock picking remains
coporate governence essential. As highlighted elsewhere in this report, we acknowledge that ESG considerations, and
inform our top picks especially corporate governance, are becoming increasingly important with regard to investment
decisions. Our top picks reflect that as much as their long-term earnings prospects.
Figure 109: HSC universe – Sector EPS growth (%) & P/E (x), 2020F
Some sectors are more

interesting then others…
We expect the index to trade up 25%, reaching 1,200 by the middle of 2020. In this context our
key sector and stock calls are as follows.
• Transport: Airports and seaports primarily – ACV, GMD, VSC.

… but the right stock • Energy: Electricity power plants (including clean and renewable energy), pipelines – POW,
selection remains key PVS, PVT.
• Industrial and technological zone development: KBC
• Manufacturing sector: A wide range of industries (from steel to oil and gas, to machinery
equipment) – HPG, VEA, BMP, DRC.
• Technology: FPT.
• High quality banks: MBB, TCB, VPB.
• Consumer: Consumption stocks – VHC, SAB, QNS, MWG, PNJ, VRE.
• Real estate: Select property companies with good land bank – KDH, NLG, DXG, VRE.
We go into more individual stock and sector thematic details in the next section of this report.
Figure 110: HSC universe

Market Cap EPS Growth (%, YoY) P/E (x)
Sector
(USDmn) 18A 19F 20F 18A 19F 20F
Banks 38,038 25.5% 18.8% 20.2% 14.6 12.5 10.7
Insurance 2,184 -35.1% 18.1% 16.3% 49.4 40.8 35.9
Real Estate: Developers 7,303 18.0% 6.8% 13.7% 13.6 12.7 11.1
Real Estate: Construction Materials 867 12.4% -6.8% 11.9% 7.4 7.8 7.1
Infrastructure 310 -25.4% -24.1% 23.9% 8.6 12.1 9.6
Conglomerates 17,275 -0.6% 9.1% 7.7% 48.8 39.4 34.7
Transportation 12,757 53.1% -14.5% 0.8% 14.1 15.0 15.1
Agriculture and Agri-Chemicals 358 -2.8% -20.4% 40.0% 7.0 12.2 9.2
Consumer 18,922 2.0% 33.4% 5.8% 30.3 18.3 13.9
Retail 3,126 21.9% 22.4% 19.3% 14.7 11.8 9.6
Technology & Internet 1,720 0.9% -55.8% 24.9% 11.2 11.3 15.9
Distribution 42 36.9% 26.0% 23.2% 8.5 6.7 5.5
Pharmaceuticals 519 12.2% -10.1% 7.0% 18.6 20.7 19.3
Manufacturing 6,091 -29.8% 19.6% 21.9% 12.5 10.9 8.7
Oil and Gas 9,034 157.6% -8.0% 17.7% 16.4 37.3 17.0
Utilities 4,928 -0.3% 0.5% 1.4% 15.0 15.6 15.3
Textiles 101 53.9% -13.2% -0.8% 5.2 6.1 6.1
TOTAL UNIVERSE 123,575 5.5% 9.1% 13.1% 16.0 15.5 12.6
Figure 111: Foreign stock availability, January 2020

Stock Outstanding Market cap % Foreign Total Room - Current Foreign % Available to Current Room - in
Price
code shares (USmn) Owned limit in USDmn Ownership (%) Foreigners USDmn
VNM 117,400 1,741,377,694 8,812 100% 8,814 58.6% 41.4% 3,647
GAS 97,800 1,913,950,000 8,068 49% 3,953 3.6% 45.4% 3,661
VIC 114,500 3,368,575,556 16,625 36% 5,985 14.5% 21.5% 3,567
SAB 223,800 641,281,186 6,186 100% 6,186 63.3% 36.7% 2,269
ACV 73,982 2,176,998,736 6,942 30% 2,083 3.7% 26.3% 1,828
VEA 44,479 1,328,800,000 2,548 49% 1,248 5.6% 43.4% 1,106
BID 45,800 4,022,018,040 7,940 30% 2,382 18.0% 12.0% 951
VCB 87,500 3,708,877,448 13,988 30% 4,196 23.9% 6.1% 860
NVL 55,800 969,540,797 2,332 39% 909 7.0% 32.0% 747
VRE 33,650 2,272,318,410 3,296 49% 1,615 32.9% 16.1% 531
BVH 67,600 742,322,764 2,163 49% 1,060 29.5% 19.5% 421
POW 11,350 2,341,871,600 1,146 49% 561 13.7% 35.3% 404
HVN 33,500 1,418,290,847 2,048 30% 614 10.1% 19.9% 408
VJC 146,000 523,838,594 3,297 30% 989 19.6% 10.4% 344
HPG 24,000 2,761,074,115 2,856 49% 1,400 38.2% 10.8% 309
MSN 56,600 1,168,946,447 2,852 49% 1,397 39.1% 9.9% 283
DHG 91,200 130,746,071 514 100% 514 54.4% 45.6% 234
VHC 39,000 181,946,026 306 100% 306 34.1% 65.9% 202
PLX 57,300 1,190,813,235 2,941 20% 588 13.4% 6.6% 194
OIL 8,400 1,088,425,100 394 49% 193 5.9% 43.1% 170
QNS 27,141 356,939,955 418 49% 205 17.2% 31.8% 133
KDC 19,150 205,661,141 170 100% 170 20.5% 79.5% 135
PPC 25,700 320,613,054 355 49% 174 16.2% 32.8% 116
PHR 39,100 135,499,198 228 49% 112 6.1% 42.9% 98
VGC 18,000 448,350,000 348 49% 170 13.4% 35.6% 124
PVS 19,000 477,966,290 391 49% 192 21.8% 27.2% 106
PVD 15,850 421,129,789 288 49% 141 19.9% 29.1% 84
LPB 7,452 888,144,095 285 30% 86 4.2% 25.8% 74
HDB 27,000 980,999,771 1,142 30% 343 23.4% 6.6% 76
DPM 12,700 391,334,260 214 49% 105 18.9% 30.1% 65
KBC 15,100 469,760,189 306 49% 150 26.7% 22.3% 68
VIB 17,289 924,491,395 689 30% 207 20.5% 9.5% 65
HSG 8,020 423,223,589 146 49% 72 17.7% 31.3% 46
CII 23,000 247,838,282 246 70% 172 51.0% 19.0% 47
AAA 12,300 171,199,976 91 40% 36 2.4% 37.2% 34
YEG 37,900 29,505,628 48 100% 48 32.0% 68.0% 33
PVT 16,600 281,440,162 201 49% 99 32.0% 17.0% 34
NKG 7,730 181,999,868 61 100% 61 38.4% 61.6% 37
BMP 44,700 81,860,938 158 100% 158 80.5% 19.5% 31
DRC 24,250 118,792,605 124 49% 61 23.3% 25.7% 32
HBC 11,050 230,875,398 110 49% 54 23.1% 25.9% 29
KDH 26,500 544,429,109 622 49% 305 44.5% 4.5% 28
DPR 40,500 40,124,790 70 49% 34 14.9% 34.1% 24
STK 16,700 70,726,944 51 49% 25 8.6% 40.4% 21
CTG 21,350 3,723,404,556 3,426 30% 1,028 29.5% 0.5% 18
TCB 23,050 3,500,139,962 3,478 23% 800 22.5% 0.5% 18
CRE 24,700 79,999,892 85 49% 42 27.9% 21.1% 18
CTI 22,500 62,999,997 61 49% 30 23.7% 25.3% 15
DGW 23,000 41,800,278 41 49% 20 16.7% 32.4% 13
PAC 25,000 46,471,707 50 49% 25 25.0% 24.0% 12
DXG 13,700 518,796,292 306 49% 150 45.5% 3.5% 11
MBB 20,950 2,325,679,300 2,100 20% 429 20.0% 0.4% 8
VSC 27,500 55,122,798 65 49% 32 37.6% 11.4% 7
VPB 19,950 2,437,748,366 2,096 23% 482 22.7% 0.3% 6
LTG 20,322 80,593,340 71 49% 35 44.3% 4.7% 3
CTD 52,600 76,292,573 173 49% 85 47.6% 1.4% 2
MWG 114,700 442,689,942 2,189 49% 1,075 49.0% 0.1% 2
EIB 17,500 1,229,432,904 927 30% 280 30.0% 0.2% 2
FRT 22,000 78,981,792 75 49% 37 47.5% 1.5% 1
PNJ 85,800 225,188,176 833 49% 408 49.0% 0.0% 0
TCM 19,600 57,916,468 49 49% 24 49.0% 0.1% 0
NLG 26,700 249,702,575 287 49% 141 49.0% 0.0% (0)
FPT 57,000 678,276,312 1,666 49% 817 49.0% 0.0% 0
REE 36,450 310,050,926 487 49% 239 49.0% 0.0% 0
GMD 22,250 296,924,957 285 49% 140 49.0% 0.0% 0
ACB 22,500 1,656,515,277 1,607 30% 482 30.0% 0.0% 0
Sector reviews – Stock selection is key

We believe stock selection is key. In a number of sectors, we see good opportunities…but also
bad choices. Earnings momentum, valuations and market positioning is always a factor in our
recommendations and target price setting, but equally important are corporate governance, an
ability to execute and strategic vision.
Figure 112: HSC’s top picks
HSC Closing Target Upside / Mkt Cap EPS Growth (%, YoY) P/E (x) Div Yield (%)
Ticker
Rating Price Price Downside US$m 18A 19F 20F 18A 19F 20F 18A 19F 20F
Financials: Banks
MBB Buy 20,950 33,300 59% 2,111 +75% +22% +17% 7.7 6.3 5.4 2.4% 2.9% 2.9%
TCB Buy 23,050 35,000 52% 3,496 -2% +8% +15% 9.1 8.4 7.3 0.0% 0.0% 0.0%
VPB Add 19,950 25,800 29% 2,107 -34% +3% +24% 6.6 6.4 5.1 0.0% 0.0% 0.0%
Real Estate: Developers
DXG Buy 13,700 25,400 85% 308 +38% -16% +9% 4.3 5.1 4.6 7.2% 3.6% 3.6%
KBC Add 15,100 17,500 16% 307 +28% +15% +8% 9.5 8.3 7.7 0.1% 6.7% 6.7%
KDH Add 26,500 30,100 14% 625 +5% +8% +19% 17.8 16.5 13.9 1.9% 3.8% 3.8%
NLG Buy 26,700 39,700 49% 289 +33% +10% +19% 8.2 7.4 6.3 3.1% 2.8% 2.7%
VRE Buy 33,650 42,800 27% 3,313 +57% +15% +20% 32.6 28.3 23.6 0.0% 0.0% 0.0%
Transportation
ACV Buy 73,982 95,000 28% 6,978 +55% +17% +9% 28.1 24.0 22.1 1.2% 1.2% 1.2%
GMD Add 22,250 28,372 28% 286 +216% -71% -6% 3.6 12.3 13.1 43.0% 6.7% 6.7%
VSC Buy 27,500 33,099 20% 66 +15% -33% +11% 4.9 7.4 6.7 7.3% 9.1% 10.9%
Agriculture and Agri-Chemicals
LTG Add 20,322 27,024 33% 71 -17% +27% -12% 4.7 3.7 4.2 9.8% 7.9% 7.9%
Consumer
VHC Add 39,000 45,100 16% 307 +24% -12% -0% 5.0 5.7 5.7 10.3% 0.0% 10.3%
SAB Buy 223,800 314,579 41% 6,218 -13% +28% +25% 36.2 28.3 22.6 2.7% 2.2% 2.7%
QNS Add 27,141 34,400 27% 420 +23% +1% +11% 6.5 6.4 5.8 5.5% 5.5% 5.5%
Retail
MWG Buy 114,700 164,400 43% 2,200 +17% +31% +23% 18.2 13.9 11.3 1.3% 1.3% 1.3%
PNJ Add 85,800 94,700 10% 837 +28% +22% +26% 20.7 17.0 13.5 1.9% 1.6% 2.1%
FPT Buy 57,000 78,100 37% 1,675 -24% +30% +25% 14.6 11.3 9.0 2.6% 3.5% 3.5%
Manufacturing
BMP Add 44,700 63,096 41% 159 -6% +1% +8% 9.3 9.2 8.6 8.9% 8.9% 10.1%
HPG Buy 24,000 28,288 18% 2,871 -33% -30% +20% 6.3 9.0 7.5 0.0% 8.3% 8.3%
VEA Add 44,479 60,929 37% 2,561 +38% +1% +9% 8.5 8.5 7.7 0.9% 8.5% 10.1%
DRC Buy 24,250 30,074 24% 125 -17% +55% +14% 22.5 14.5 12.7 4.5% 4.1% 6.2%
Oil & Gas
PVS Buy 19,000 22,818 20% 393 +29% +1% +7% 9.2 9.1 8.5 5.6% 5.3% 5.3%
PVT Buy 16,600 22,000 33% 202 +45% +9% +10% 7.6 7.0 6.4 6.0% 6.0% 6.0%
Utilities
POW Buy 11,350 16,200 43% 1,152 -20% +26% +12% 13.8 10.9 9.8 3.9% 0.0% 0.0%
Textiles
TCM Add 19,600 24,274 24% 49 +29% -25% +9% 4.8 6.4 5.9 2.5% 6.1% 6.1%
Banks: Forecast solid growth largely priced in

We maintain our Market Weight sector view on our covered banks due to three key
considerations: (1) A likelihood of sustainable double-digit earnings growth over the
period 2019-2021; (2) A view that mild dilution risk can be net off by strong earnings
growth; and (3) Low policy risk from authorities in order to strengthen Vietnam banking
sector operations gradually. Our top picks are TCB (Buy) and MBB (Buy) and VPB (Buy).
Figure 113: Banking sector

Name Ticker Market cap Current price Rating Target price Up/downside P/B P/E Div. yield (%) ROAE
VNDbn USDmn VND VND 2019F 2020F 2019F 2020F 2019F 2020F 2019F 2020F
JSC Bank for Foreign Trade of Vietnam VCB 333,428 14,403 89,900 Hold 91,400 1.7% 4.1 3.9 20.8 16.6 0.9% 0.9% 26% 23%
Bank of Invesment & Development of Vietnam BID 187,828 8,114 46,700 Reduce 32,000 -31.5% 2.4 2.3 33.4 26.8 0% 0% 12% 11%
Vietnam JSC Bank For Industrial And Trade CTG 79,309 3,426 21,300 Add 25,200 18.3% 1.1 0.9 0.1 8.2 0% 0% 13% 15%
Vietnam Prosperity JSC Bank VPB 49,098 2,121 20,400 Buy 25,800 26.5% 1.2 1.0 6.5 5.2 0% 0% 20% 20%
Military JSC Bank MBB 49,421 2,135 21,250 Buy 33,300 56.7% 1.4 1.1 6.4 5.4 2.8% 2.8% 20% 20%
Ho Chi Minh City Development JSC Bank HDB 27,027 1,167 27,550 Add 31,000 12.5% 1.5 1.3 8.6 7.5 3.6% 3.6% 19% 18%
Vietnam Technological JSC Bank TCB 84,440 3,648 23,650 Buy 35,000 48.0% 1.4 1.1 8.7 7.5 0% 0% 17% 16%
Asia JSC Bank ACB 38,100 1,646 23,000 Buy 34,000 47.8% 1.3 1.1 5.6 4.9 4.3% 4.3% 24% 22%
Vietnam International JSC Bank VIB 15,586 673 17,500 Suspended N/A N/A 1.3 1.0 5.7 4.5 3.1% 3.1% 5% 5%
VietNam Export - Import JSC Bank EIB 21,208 916 17,250 Reduce 15,100 -12.5% 1.3 1.2 26.8 25.6 0% 0% 25% 26%
Lien Viet Post JSC Bank LPB 6,661 288 7,500 Buy 17,600 137.8% 0.5 0.5 4.8 4.2 0% 0% 13% 12%
Source: Company data, (F): HSC Research
Figure 114: Bank index vs. VNIndex

% change 3Y
140
120
100
80
60
40
20
0
03/17
06/19
01/17
04/17
06/17
08/17
10/17
12/17
02/18
03/18
05/18
07/18
09/18
11/18
01/19
03/19
04/19
08/19
10/19
12/19
Bank Index (HSC coverage) VNINDEX
Source: Fiinpro, as at Jan 06 2020
Despite worries from the beginning of 2019 about a lower credit quota (14% y/y) and new,
stricter regulations proposed in some draft circulars, listed banks reported strong results in the
period.
Indeed, we estimate that banks in our coverage universe – the top three state-owned
commercial banks (SOCBs) and another six private banks – will see aggregated growth of
21.5% y/y in PBT in 2019 (9M19: +22.5% y/y growth in PBT); this is far higher than our initial
forecast of only 16.7% y/y (published in our Jan. 2019 annual strategy report).
Notably, our recently updated forecasts were mainly driven by better than expected results from
VCB and CTG, whose earnings contributed to nearly 40% of the total.
Figure 115: PBT comparables

VNDbn
40000
35000
30000
25000
20000
15000
10000
5000
0
BID
VIB
VCB
ACB
MBB
CTG
VPB
TCB
HDB
2018 2019F 2020F 2021F
Forecasting solid earnings for 2020, 2021

Sustainable teens+ We believe that the banks can continue to prosper amidst predicted underlying trends; we
earnings growth forecast PBT growth of 22.3% y/y in 2020 and 19.4% in 2021. Our positive view is based on the
following assumptions:
• We forecast that the nine banks will see aggregated 13.9% y/y growth for customer
loans in 2019, 12.6% y/y for 2020, and 12.5% y/y for 2021. This said, private banks will
always see higher growth than SOCBs, in our view, and even far higher growth than other
OTC operators thanks to: (1) their higher CAR, especially under Basel 2 regulations; (2) their
better asset quality and, subsequently, lower NPLs; and (3) their smaller size (gains here are
less likely to bring pressure to overall sector credit quota).
Figure 116: PBT growth Figure 117: Customer loans growth
80.00% 35.00%
30.00% 27.0%
60.00%
37.9%
25.00% 22.5%
40.00% 33.2% 20.1%
23.2% 21.5% 22.3% 20.00%
18.1% 19.4%
20.00% 10.8%
15.00% 13.5% 13.9%
3.9% 15.7% 12.6% 12.5%
14.9%
0.00% 12.9%
10.00%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
-20.00% -23.2% 5.00%
0.00%
-40.00%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
-60.00%
Aggregated 9 banks 3 SOCBs 6 Private banks Aggregated 9 banks 3 SOCBs 6 Private banks
Source: Company data Source: Company data, (F): HSC Research
• Banks are expected to see a continuing moderate growth in NIMs. Amongst them, the
SOCBs will see stronger growth in NIMs than private banks. The SOCB’s aggregated NIMs
was still low, at around 2.8%, due to their lower lending rate (100-150 bps lower than private
banks). Thus, they still have much room to improve their NIMs, especially via boosting their
retail operations by 8-12 bps per annum. Meanwhile, we forecast that aggregated NIMs in
private banks will rise slightly – around 4 bps y/y – over the period 2019-2021.
Figure 118: NIMs Figure 119: NII growth
6.00% 40.00% Title:

Source:
5.00%
30.00%
Dimension: 26.5%
4.00% 22.2% 22.1%
3.10% 3.24% 20.00% Please fill in the values above to have them entered in your report 15.0%
17.0%
3.64% 2.91% 2.98% 14.5%
3.00% 3.09% 12.7% 13.9%
2.74% 2.60% 2.63% 2.65% 10.00%
2.00%
2.2%
0.00%
1.00%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
0.00% -10.00% -7.7%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY21F
FY19F
FY20F
-20.00%
Source: Company data, (F): HSC Research Source: Company data, (F): HSC Research
• We forecast that both SOCBs and private banks will see moderate growth for non-NII
from 2019 onwards. Especially, after one year seeing a drop in total non-NII due to the lack
of big one-off income from bancassurance upfront fees or from subsidiaries divestment
profits, private banks will gain back the growth momentum from more sustainable
businesses such as transactions & services fees and bancassurance annual commissions.
Figure 120: Non-NII growth Figure 121: Net fee income/total assets
3 0.90% Title:
Source:
0.80% 0.75%
2.5
0.70% Dimension:
0.61%
2 0.60%
0.50% Please fill in the values above to have them entered in your0.47%
report
1.5
0.40% 0.39% 0.37%
0.30% 0.31% 0.32%
0.30% 0.28% 0.27%
1 0.27%
60.8% 0.20%
50.1%
0.5
21.6% 28.4% 0.10%
7.1% 8.2% 2.3% 13.7% 12.0%
18.1%
0 0.00%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
-0.5
• We also forecast the sustainable growth of operating expenses for listed banks will be
around 14.5% y/y in 2020 and 15.0% y/y in 2021 – with the faster growth in SOCBs. We
think the banking sector will invest more capex in digital transformation in order to improve
client service and experience.
Figure 122: OPEX growth Figure 123: CIR (%)

40.00% 55.0 Title:
Source:
35.00%
50.0
30.00% Dimension:
25.00% 45.0
20.2% 21.7% 45.9 45.8
Please 45.3values45.6
fill in the above to44.9
have them entered in your report
19.8% 41.7
20.00%
15.0% 40.0 39.3
14.5% 40.5
15.00% 12.3%
11.2% 10.3% 11.1%
37.5 37.3 37.9
10.00% 8.2% 35.0
5.00%
30.0
0.00%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY21F
FY19F
FY20F
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
-5.00%
-10.00%
Aggregated 9 banks 3 SOCBs 6 Private banks Aggregated 9 banks 3 SOCBs 3 SOCBs-adjusted for BWF 6 private banks
• Last but not least, our forecasts for lower growth in provision expenses (+5.4% y/y in
2020 and +0.4% y/y in 2021) will play very crucial role in supporting predicted earnings
growth. Actually, the listed banks saw a slowdown in provision expenses growth in 2018
(+9.5% y/y, vs. A full 40.0% y/y in 2017); however, provision expenses in both CTG and BID
surged in 2019 due to some uncovering of hidden NPLs. However, we believe that from
2020 onwards, the provision expenses in SOCBs will drop sharply, leading to the relatively
flat growth of the whole sector.
Figure 124: Provision expense growth Figure 125: EPS growth

140.00% 60.00% Title:
Source:
120.00%
40.00%
100.00% Dimension:
20.00% 28.34%
11.57% 19.33%
80.00% Please fill in the values above16.30%
to have them entered in your report 19.58%
7.49% 12.73%
0.00% 7.24%
60.00%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
40.0%
40.00% -20.00% -12.79%
22.6% 24.0% 21.2%
14.4% 19.1% 9.5%
20.00% 5.4%
7.9% -40.00%
0.4% -40.86%
0.00%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19F
FY20F
FY21F
-60.00%
-20.00%
-40.00% -80.00%
Aggregated 9 banks 3 SOCBs 6 Private banks Aggregated 9 banks 3 SOCBs 6 private banks
Mild dilution risk on the The impressive profit earnings growth we are forecasting translates into 12.7% y/y growth in
horizon 2020’s EPS and 19.6% y/y growth in 2021’s EPS – assuming potential dilutions from some
private placements which have been planned for 2019 might instead be brought along to
2020 – including those for MBB, VCB, VIB. In addition, BID and CTG also can restart new
rounds of capital raising to comply with CAR under Basel 2. Reflecting all dilution risk, we are
comfortable predicting that the banking sector can maintain EPS growth of c.13-15% y/y for for
next two years.
New government regulations are judicious
Cir 22 & 18 give smooth Following decisions on rate cuts for both deposits and loans, the SBV recently announced two
transitional period important circulars which both will come to effect from 1 January 2020 as follows: (1) circular
22/2019/TT-NHNN replaces circular 36/2014/TT-NHNN and related revisions which regulate
operational safety ratios in the banking sector; and (2) circular 18 is a revision and amendment
of circular 43 which regulates the consumer finance business.
From our point of view, we believe that both regulations are far more relaxed than initial draft
proposals (from the beginning of 2019). Both banks and finance companies will have reasonable
transitional periods to deal with any changes. Indeed, we think that circulars 22 & 18 should be
viewed positively – they are reaffirming efforts by the authorities to strengthen bank operations
without causing any shocks to the whole system.
Private banks that have already complied with Basel 2 in CAR calculations and have <80% LDR
will benefit the most from circular 22. However, SOCBs or non-compliant Basel 2 banks will meet
some difficulties. We also believe that VPB will be the biggest beneficiary from cir. 18 given its
very high cash loan weighting at around 83% at the end of 3Q19. However, according to cir. 18,
its cash loan will be around 59% only and far lower than the cap of 70% since 1 January 2021.
Figure 126: Prudent ratios

CAR LDR SML
Banks
FY18 (Basel 1) 3Q19 (Basel 2) 3Q19 3Q19
BID (*) 10.3% 8.8% 85.8% 38.5%
CTG (**) 9.5% 9.5% NA 35.0%
VCB (***) 12.1% 9.9% 70.0% 27.0%
ACB 12.8% 10.3% 78.0% 29.8%
MBB 12.1% 10.2% 74.0% 35.0%
TCB 14.3% 16.5% 70.9% 36.1%
VPB 11.9% 11.4% 76.0% 27.8%
HDB 12.1% 9.9% 76.0% 36.0%
VIB 13.0% 9.7% 76.5% 31.5%
(*): HSC's estimate for BID's CAR under Basel 2 at the end of 3Q19
(**): HSC's estimate, under Basel 1 for both
(***): VCB's SML was at the end of FY18
Underweighting insurance as excessive competition weighs in

We maintain the insurance sector at an Underweight rating due to several concerns. From
a coverage point of view, this sector presently only consists of life insurance company
Bao Viet Holdings (BVH), but we also offer preliminary thoughts here on non-life
insurance companies, including PVI, BMI, and PTI.
Several themes underpin our concerns; these include the following:
• An extremely competitive environment in the life insurance segment, especially via the
bancassurance channel, which has led to very high commission expenses and operating
costs. Notably BVH, who doesn’t have a strong bancassurance network, is losing market
share here. The same situation is also happening in the non-life segment, and is pushing up
the claim ratios in some top players;
• The burden of mathematical reserve expenses remains high, driven by still-low valuation
rates due to the ‘new bottom’ of government bonds yields. We expect that this situation will
continue throughout 2020; and
• Poor results from investment portfolios in life insurers, mainly due to low interest rates.
Figure 127: Insurance sector

Name Ticker Market cap Current price Rating Target price Up/downside P/B P/E Div. yield (%) ROAE
VNDbn USDmn VND VND 2019F 2020F 2019F 2020F 2019F 2020F 2019F 2020F
Bao Viet Holding Company BVH 50,923 2,200 68,600 Reduce 68,000 -0.9% 3.2 2.7 41.4 36.5 1.5% 1.5% 9% 9%
Figure 128: Insurance stock performance

% change 3Y
140
120
100
80
60
40
20
-20
-40
03/17
06/19
01/17
04/17
06/17
08/17
10/17
12/17
02/18
03/18
05/18
07/18
09/18
11/18
01/19
03/19
04/19
08/19
10/19
12/19
BVH VN Non-life Peer Index VNINDEX
Source: Fiinpro, as at 06 Jan 2020
Life insurance: Being shaken by bancassurance
There are more and more life insurers active in the bancassurance channel, as it’s seen as the
‘fast and furious’ way to acquire market share. These new players have the potential to
significantly change the landscape of the life insurance distribution channel, in our view.
Unavoidably, insurers without strong bancassurance channels, such as BVH, will lose market
share.
As can be seen in the Figure below, for the period of 2010-2016, the whole market saw only
seven deals regarding bancassurance agreements. However, over the last two years, there were
10 deals re. bancassurance which have mainly been exclusive deals involving big banks.
Specifically, some amongst the top five insurance companies have signed exclusive
bancassurance agreements with big banks in order to boost sales (including Prudential, Manulife,
AIA, and Dai-ichi Life). And there are more to come, we think. For example, it has been
suggested in the market that FWD will sign a deal with VCB (one of the biggest State-owned
commercial banks of Vietnam); meanwhile, Sun Life Group also paired with TPB recently.
Figure 129: Bancassurance agreements

Upfront fee Signed
Bank Insurer Duration Type of contract
(VND bn) year
TPB Sun Life Financial 1,840 15 Nov-19 Exclusive
VCB (*) FWD 9,200 15 Nov-19 Exclusive
OCB Generali 15 Oct-19 Exclusive
ACB Manulife N/a Sep-19 Comprehensive cooperation
VPB AIA 1,600 15 Oct-17 Exclusive
SHB Daiichi Life 1,000 15 Oct-17 Exclusive
MSB Daiichi Life N/a Sep-17 Comprehensive cooperation
TCB Manulife 1,446 15 Sep-17 Exclusive
STB Daiichi Life 800 20 Sep-17 Exclusive
Nam A Bank FWD 15 Aug-17 Exclusive
LPB Daiichi Life 5 Nov-16 Exclusive
EIB Generali N/a Jul-16 Exclusive
An Binh Bank FWD N/a Jul-16 Comprehensive cooperation
ACB AIA N/a Nov-15 Comprehensive cooperation
VIB Prudential 15 Oct-15 Exclusive
SCB Manulife 10 Sep-15 Exclusive
SCB Generali N/a Dec-14 Comprehensive cooperation
EIB Daiichi Life N/a Nov-10 Comprehensive cooperation
(*): Estimate based on the media
Figure 130: Bancassurance performance_life insurance

Bancassurance
9M16 FY17 FY18 1H19
performance_life insurance
Market share of new DWP 9.63% NA 20.95% 27.95%
Total market share 11.12% NA 11.97% 17.10%
Size of bancassuarance (VNDmn) 2,821,843 NA 10,352,344 8,232,429
Meanwhile, the burden of mathematical reserve expenses has remained high due to still-low
valuation rates. Yields for 10-year government bonds and longer than 10-year government
bonds were used as the major anchors for valuation rates and they have declined significantly in
2H19. This will lead to only moderate growth of mathematical reserve expenses instead of a big
recovery in income (as was expected last year). Finally, stable-low government bonds yields also
have led to the poor performance of investment portfolios. As a result, there is more than one
headwind for BVH.
Non-life insurance: Moderate premium growth vs. high commissions and claim ratios
Non-life insurance premium growth has been quite modest with total direct premium CAGR for
period 2013-2018 only 13.8% for non-life, vs. 30.0% for life. Growth in non-life premia was
mainly driven by three products: Health insurance, auto insurance, and fire & explosion
insurance, with 2013-2018 CAGRs of 23.2%, 16.1%, and 19.0%, respectively.
Figure 131: Premium growth Figure 132: Product segments 1Q19
Title: Others 5.1%

50,000 18.0% Hull and P&I 4.3%
VND bn
CAGR 13.8% Source:

45,000 16.0% Goods
40,000 transportation 5.1%
14.0%
35,000
12.0% Please fill in the values above to have them entered in your report
30,000
10.0%
46,653
25,000 Auto 31.2%

41,344
8.0% Fire,Explosion
36,607
20,000
32,143
10.4%
27,507
6.0%
24,455
15,000
10,000 4.0%
2.0% Property &
5,000
Casualty 14.9%
0 0.0%
2013
2014
2015
2016
2017
2018
Heath 29.1%
Direct insurance premium YoY growth
Source: IAV, HSC Research Source: IAV, HSC Research
For 9M19, aggregated non-life premium was estimated to have grown 12% y/y to VND37,300bn,
which was similar to the growth seen in the past two years. Growth drivers for the three main
segments mentioned above will likely continue to be favourable, such as increasing improving
GDP per capita, still-low penetration rates, growing car ownership, and increasing awareness
regarding health care risks. For the medium-term, we have yet to see any particularly strong
catalyst that can facilitate growth much higher than the current level. Thus, our estimation for
non-life insurance premium growth for 2019-2021 stays in the range 12-15% per annum.
While top line growth has been moderate, bottom line growth has been even more modest. The
poor performance can be explain by the following factors:
• A highly competitive environment with numerous players, which has led to higher
commission expenses and operating costs, and to unfair competition; and
• Very high claim ratios for key producs, namely auto and health insurance, due to ineffective,
decentralized claim payment control and still-high levels of insurance fraud.
These factors have together led to lower bottom line growth for most listed insurers.
Figure 133: Market share Figure 134: Top line and bottom line growth
Direct
PBTTitle: PBT 9M18 (VND PBT 9M19 (VND
Source:premium YoY
27.0% 29.1%
CAGR 12-18 bn) bn)
30.9% 33.5% 36.6% 38.2% 37.8%
CAGR 12-18
2.9% 3.2%
PVI 5.2% 6.2% 595 795 33.6%
8.7% 3.6%
8.1% 7.8%
4.0%
4.0%
PTI* 16.7%
Please fill in23.0% 69 entered in your report
the values above to have them 63 -8.7%
7.0% 3.9% 3.8%
10.0% 9.4% 6.8% 6.3% 6.0% PGI 5.1% 7.2% 131 140 6.9%
9.5% 8.8%
7.2% 6.0% 8.5% 8.2% 7.6% BMI 11.1% 9.1% 204 165 -19.1%
6.3% 7.7%
8.5% 7.8% 8.9% BIC 10.5% 17.6% 173 214 23.7%
20.5% 20.9% 21.2% 20.8% 17.8% 16.2% 14.7%
23.7% 23.2% 20.7% 19.5% 21.1%

18.3% 17.9%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
BVH PVI PTI BMI PGI BIC Others
Source: IAV, HSC Research Source: Company data, IAV, HSC Research
Brokerage sector: Dealing with multiple challenges

Whilst we don’t directly cover any listed brokers at this time, we are hard pressed to see
good reasons to invest in any right now, and would therefore be inclined to Underweight
the sector. The challenges again here look to be excessive competition and high funding
costs relative to foreign-owned rivals.
The Amended Securities Law was passed in November 2019 and will take effect on 1 January
2021. The new law forces new requirements for public companies, notably the limit up-lift to
minimum charter capital and the strengthening of corporate governance. Unfortunately, only
general indications were suggested re. foreign ownership limits – one of the most pressing
concerns of foreign investors regarding investing in the Vietnam market.
In other words, the bright future contemplated for the VNIndex as a full member in the MSCI
Emerging Markets Index might be delayed. Meanwhile, negative impacts from the present US-
China trade war and concerns of a coming global recession have together led to average trading
volumes of the VNIndex shrinking gradually and, subsequently, total margin loan books being
reduced.
The competition amongst brokers is becoming more and more brutal than ever before, not only
in margin books but also in trading fees being cut. Specifically, local brokers with higher funding
costs are losing market share to Korea- and Taiwan-owned brokers who can acquire very cheap
funding from their offshore parents. Besides, after circular 128/2018/TT-BTC was enacted in
1Q19, many players have reduced or even eliminated trading fees from the previous level of
0.15%. Finally, there were only a minimal number of IB deals completed successfully in 2019.
As a result of all these factors, PBT of local brokers dropped by an average of 30-50% y/y from
the peak in 2018 while, at the same time, Korean brokers reported slight earnings growth. We
anticipate these trends will continue in the next several years.
Figure 135: Brokers: Profit before tax Figure 136: Margin loan book
10,000,000 600,000 8,000,000 Title:

9,000,000
500,000
Source:
8,000,000 7,000,000
7,000,000 400,000 6,000,000
VNDmn
VNDmn
6,000,000 300,000
5,000,000 5,000,000
VNDmn
4,000,000 200,000
4,000,000
3,000,000 100,000
2,000,000 3,000,000
-
1,000,000
- (100,000) 2,000,000
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
1,000,000
-
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
Daily market turnover (LHS) SSI
HCM VCI
VND MBS SSI HCM VCI VND
Mirae Asset KBSV MBS Mirae Asset KBSV KIS
Source: Company data Source: Company data
Only local brokers with professional leadership, diversified business models, well-prepared
technology infrastructure, proactive cost control and international standard risk management
policies are likely to be prepared enough to resist the ever increasing incursion of global players.
Meanwhile, Korean firms, sooner or later, must pay more attention to enhancing their currently
thin profitability and credit risk controls – instead of focusing solely on market expansion, as is
the case at the moment.
Figure 137: Brokerage M&A deals in Vietnam

Implementation Pre M&A charter 3Q19 charter
Buyer Nationality Target Entity post-M&A
Time capital (VNDmn) capital (VNDmn)
Mirae Asset Securities Co.Ltd Korea Self-established legal entity Mirae Asset Securities Vietnam Dec-07 n/a 4,300,000
Korea Investment & Securities Co., Ltd Korea EPS Securities Corporation KIS Vietnam Securities Corporation Dec-10 n/a 1,897,011
Shinhan Securities Co.Ltd Korea Nam An Securities Ltd. Co Shinhan Securities Vietnam Jul-15 146,000 812,600
KB Securities Co.Ltd Korea Maritime Securities Inc. KB Securities Vietnam Oct-17 300,000 1,675,021
NH Investment & Securities Co.,Ltd Korea Woori CBV NH Securities Vietnam Nov-17 25,000 735,000
Yuanta Securities Co.Ltd Taiwan FSC Securities Corporation Yuanta Securities Vietnam Dec-17 300,000 1,000,000
Hanwha Investment & Securities Co., Ltd, Korea HFT Securities Corporation Pinetree Securities Vietnam Apr-19 100,000 615,000
Kiwoom Securities Co.Ltd Korea ACBS n/a Tentative 1,500,000 n/a
Financials sector: Top picks

Military Bank – Solid fundamentals
(MBB, TP VND33,300, upside 59%)
• MBB follows a universal banking model and incorporates commercial banking, consumer
finance, life and non-life insurance and brokerage.
• We believe that MBB will continue to grow at an above average pace given a superior
balance sheet and dynamic management.
• Their strong presence in the retail and SME market is backed by low cost deposits; They
have one of the highest current and savings account (CASA) to total deposit ratios in the
sector at around 30%.
• The bank has always been disciplined in its lending practices and quick to write-off NPLs.
Therefore, it has been able to enjoy strong prudential ratios enabling it to grow credit faster
than most of its competition
• We forecast 2019 and 2020 PBT growth at 23.6% y/y and 19.5% y/y, respectively.
Figure 138: MBB selected financials Figure 139: MBB – Operating income breakdown
Market Cap, USDmn 2,111
MBB 2018 2019F 2020F
Sales VNDbill 32,935 40,551 47,974
Sales Growth % 33.8% 23.1% 18.3%
Net Profit VNDbill 6,113 7,609 8,868
Net Profit Growth % 73.7% 24.5% 16.5%
EPS VND 2,704 3,311 3,858
EPS Growth % 74.6% 22.4% 16.5%
P/E X 7.7 6.3 5.4
P/B X 1.4 1.2 1.0
ROE % 20.1% 20.4% 19.7%
Div Yield % 2.4% 2.9% 2.9%
Source: HSC Research Source: HSC Research
Vietnam Prosperity Bank – A Leader in the consumer finance segment

(VPB, TP VND25,800, upside 33.7%)
• VPB is a unique bank which includes the number one finance company (FE Credit).
• FE Credit dominate the unsecured consumer finance market with around 55% market share
with a high concentration of cash loans. FE credit contributes nearly 50% to group profit.
• However, thanks to the recent issuance of circular 18/2019/TT-NHNN which relaxes the cap
for cash loan weightings, an equilibrium between the risk and the return might be achievable
in the medium term. However, this requires close attention.
• The parent bank has also steadily improved its asset quality by completely clearing all VAMC
bonds in 2019. NPLs remain well controlled at < 3%.
• VPB has a tentative plan to partly exit from FE Credit, possibly in 2020. Although we don’t
have details for the divestment progress, we believe that, if done successfully, divestment
will significantly improve VPB’s CAR ratio.
Figure 140: VPB selected financials Figure 141: VPB – Operating income breakdown
VPB 2018 2019F 2020F
Sales VNDbill 48,871 57,879 64,604
Sales Growth % 21.3% 18.4% 11.6%
EPS VND 3,032 3,127 3,884
EPS Growth % -34.3% 3.1% 24.2%
P/E X 6.6 6.4 5.1
P/B X 1.4 1.3 1.1
ROE % 22.8% 21.6% 23.5%
Div Yield % 0.0% 0.0% 0.0%
Techcombank – An efficient bank, with a focus on mortgages

(TCB, TP VND35,000, upside 52%)
• TCB is a well-positioned retail bank with a focus on mortgages and a very strong ecosystem
with leading real estate developers.
• TCB focuses mainly on affluent and mass affluent markets. The strategy is to offer various
products and services to a selective, existing customer base, rather than acquire new
customers.
• Currently TCB is the most efficient bank with the highest ROA and one of the lowest cost to
income ratios (CIR) in the sector.
• Market leadership in areas: mortgages, DCM, bancassurance, payment solutions.
• Clean balance sheet and strong growth of CASA will help lower funding costs and will lead to
NIM improvement.
Figure 142: TCB selected financials Figure 143: TCB – Operating income breakdown
TCB 2018 2019F 2020F
Sales VNDbill 29,289 32,552 38,467
Sales Growth % 13.9% 11.1% 18.2%
EPS VND 2,527 2,732 3,143
EPS Growth % -1.8% 8.1% 15.0%
P/E X 9.1 8.4 7.3
P/B X 1.6 1.3 1.1
ROE % 21.6% 16.9% 16.5%
Div Yield % 0.0% 0.0% 0.0%
Real Estate: Aligning with a new development cycle

A more stringent regulatory environment (which started in late 2017) has put a cloud over HCMC
real estate market activities and the impact, in our view, will continue to reflect in earnings of
developers in the overall FY20 picture. However, we believe that several developers have been
able to better align their business activities – in terms of acquiring land and other raw assets and
selling completed inventory – with the new development cycle. Currently, we see signs of a
pickup in inventory, and earnings will likely reflect launches in the coming 1.5-2 years as a
consequence.
Looking forward, we see the development of ‘satellite’ urban cities/townships surrounding large
metropolitan areas as potentially the most interesting ‘emerging’ real estate segment in Vietnam.
Moreover, this segment should be helped by improving transportation and logistics infrastructure
in the country. In this sub-segment, we prefer ‘affordability factor’ over ‘location’ as a more
pressing investment theme – though we do see the potential for better prices here (given low
base effect).
We also think that the residential real estate market will be governed more strictly in the future by
the government both via credit limits and through more stringent legal regulations. Messages
being sent are quite clear: “…[For sustainable development], it is time to do things properly!”.
Below, we talk through several key ‘items of interest’ for 2020. Related to residential real estate,
these include a possible pickup in the inventory cycle, ‘sentiment leading earnings’ in 2020,
opportunities for developers and investors in ‘satellite cities’ as well as in affordable to mid-level
housing, and new regulations. We also briefly discuss retail real estate and industrial parks; we
continue to feature these in the context of Vietnam’s still strong macro picture:
Figure 144: Real estate developer comps

Market cap P/E (x) P/B (x) Discount Div. yield (%)
Price Upside/ RNAV
Ticker Rating TP (VND) to RNAV
(VNDbn) (USDmn) (VND) (downside) FY19F FY20F FY19F FY20F (VNDbn) FY19F FY20F
(%)
Dat Xanh Real Estate DXG VN 7,202 310 13,700 Buy 25,400 85.4% 5.1 4.6 1.0 0.9 13,180 83% 3.6% 3.6%
Kinh Bac City Development KBC VN 7,093 306 15,100 Add 17,500 15.9% 8.3 7.7 0.8 0.7 9,147 29% 6.8% 6.8%
Khang Dien House KDH VN 14,427 622 26,500 Add 30,100 13.6% 16.5 13.9 2.0 1.9 16,413 14% 3.8% 3.8%
Nam Long Investment NLG VN 6,667 287 26,700 Buy 39,700 48.7% 7.4 6.3 1.3 1.1 9,493 42% 2.8% 2.7%
Novaland Group NVL VN 54,100 2,332 55,800 Hold 58,200 4.3% 18.1 17.1 2.3 2.0 60,192 11% 0.0% 0.0%
Vincom Retail VRE VN 76,464 3,296 33,650 Buy 42,800 27.2% 28.3 23.6 2.7 2.6 99,672 30% 2.9% 2.9%
Phuoc Hoa Rubber PHR VN 5,298 228 39,100 Add 71,400 82.6% 5.5 4.5 1.7 1.5 9,680 83% 10.2% 10.2%
Share prices as of 06 January 2020
Source: Company data, HSC Estimates
Figure 145: Conglomerates, construction, infrastructure and other comps

Market cap Price Upside/ P/E (x) P/B (x) EV/EBITDA Div. yield (%)
Ticker Rating TP (VND)
(VNDbn) (USDmn) (VND) (downside) FY19F FY20F FY19F FY20F FY19F FY20F FY19F FY20F
Conglomerates
Vingroup VIC VN 385,702 16,625 114,500 Hold 113,300 -1.0% 71.7 62.4 4.4 4.2 31.3 17.8 0.0% 0.0%
Refrigeration Electrical Eng. REE VN 11,301 487 36,450 Add 41,200 13.0% 7.1 7.1 1.1 1.0 7.6 6.6 4.5% 4.5%
Construction, infrastructures & others
Cuong Thuan IDICO Corp CTI VN 1,417 61 22,500 Add 27,100 20.4% 18.4 14.2 1.1 1.1 10.5 9.9 5.5% 5.5%
Century Land CRE VN 1,976 85 24,700 Add 29,400 19.0% 5.3 4.6 1.1 0.9 3.3 2.9 4.2% 0.0%
Coteccons Construction CTD VN 4,013 173 52,600 Reduce 72,800 38.4% 5.7 5.0 0.5 0.4 1.5 0.3 4.9% 5.2%
Hoa Binh Construction HBC VN 2,551 110 11,050 Add 12,389 12.1% 7.9 7.2 0.7 0.7 7.8 6.8 2.4% 14.2%
Viglacera VGC VN 8,070 348 18,000 Add 22,000 22.2% 11.9 11.5 1.2 1.2 6.3 6.2 0.0% 0.0%
Share prices at the closing of 06 January 2020
Share prices at the closing of 06 January 2020
Source: Company data, HSC Estimates
Residential real estate: A pick-up in the inventory cycle? We see glimmers

The HCMC residential RE market has moved gradually from being essentially frozen (according
to our observations, this started in late 2017 and ran through 1H19) to a semi-frozen stage (in
2H19), in our view. This we show in the figure below, which demonstrates the relationship
between the inventory cycle and the earnings cycle.
More ‘clean’ projects have now been rolled out, mostly located outside of the HCMC CBD.
Despite the somewhat less favorable location in general, some projects have received a 90%
take-up rate – this suggests the emergence of an underserved market. As the government’s
regulatory review has been carrying on now for nearly two years, we think some developers
have been able to better time their launch activities with market movements. Indeed, it appears
to us that more launches will come in 2020 and onwards by developers that are following a more
prudent and structured path.
Figure 146: Presales value of the top 5 listed developers
Source: Company data, HSC forecast
Due to the typical lag of 6-12 months for low-rise residential developments and 18-24 months for
high-rise residential projects of inventory cycle vs. earnings cycle (obviously, with the former
leading), we expect this pick up in inventory accumulation will only clearly reflect on earnings of
developers from 2021 onwards. The 2020 earnings outlook looks like more of a mixed picture, in
our view, due to the ‘quiet’ period of launches in 2017-2018.
Sentiment should lead to better stock prices in 2020
We remind readers that the slowdown in project launches was a result of a more stringent
regulatory environment in HCMC, which started in late 2017 and carried on through 2018 and
early 2019. Though the earnings pickup from property development might only be seen clearly
from 2021 onwards, we look forward to more good news on the progress of new project
approvals from 2H20. Any such news will improve consensus views towards the sector thus an
upgrade in earnings forecasts and from market weight might be considered in the 2H20.
Satellite cities visualize the future of real estate market
Amidst hardship in the HCMC residential RE market – much of this related to difficulties around
the transfer of land ownership of several projects approved in the past, coupled with limited
availability of landbank (at reasonable cost) in the central areas of the city – we will continue to
see rising the popularity of satellite cities in nearby provinces which are within one hour of HCMC
(as illustrated below). We predict that in the next 2-4 years, the growth in demand for these fully
developed mini-urban developments will constitute a key theme.
We see that several choices of location have been made by developers, but all share some
things in common: (1) projects are in the suburbs of large metropolitan areas, with the support of
existing or future infrastructure developments; and (2) projects are in areas where industrial
proliferation happens, and commute times to big cities are 1-2 hours, e.g. Binh Duong, Long An,
Dong Nai provinces.
Figure 147: Developers’ expansion to adjacent provinces of HCM City
Source: Company, HSC
We believe that a sub-trend, related to this, has be a shift towards the ‘affordability factor’ and a
move away from ‘location’. As the result of the recent government led regulatory review on land,
the duration of capital being tied-up in projects unexpectedly lengthened leading to higher costs
of financing As a result, housing prices spiked up to compensate for the heightened opportunity
cost.
Many HCMC-based developers now appear to be seeking large-scale land bank outside of
HCMC, this is because of lower land costs, a ‘healthier’ regulatory environment due to less
active historic real estate activity and the underserved nature of locations.
As a value-added benefit project cycles are shorter; the development process in the suburbs is
significantly shorter than in metropolitan areas due to faster approval processes and the smaller
amount of capital required for development in less-developed rural areas. Notable developers
involved in the decentralized development projects include:
• Nam Long Group (HSX: NLG, Buy): Market leader known for its affordable product
offerings. NLG started to develop a large land bank in Long An in 2019; first launches of
more than 700 units were made in 4Q19, with pricing around USD1,000 per square meter for
low rise units. We expect this project will continue to be NLG’s key focus in 2020.
• Dat Xanh Group (HSX: DXG, Buy): The leading real estate broker and now a rising
property developer targeting mid-end segments. DXG has added projects in Binh Duong and
Dong Nai to its pipeline. These include a 92 ha land plot project near Long Thanh Airport
and Opal Cityview, and Opal Skyline projects in Binh Duong. Earnings contributions from
these projects should commence from 2021.
• NovaLand (HSX: NVL, Hold): A mid-end developer, with an in-house real estate brokerage,
NVL has since expanded its business to Dong Nai province with its mega project Aqua City.
Their portfolio includes several hospitality projects including the large-scale NovaWorld
project in Vung Tau.
More focus on the underserved affordable to mid-end segment?
We see growing demand in the affordable to mid-end segment driven by fast growing income per
capita, “golden” demographics and high urbanization rates. Moreover, we expect demand will be
further supported by a shift in culture: Vietnam’s household size has been shrinking, as we see
an increase in the number of new households forming as the concept of multi-generations living
under one roof fades away.
Currently, and going forward, we see a high take-up rate of affordable and mid-end segment
units, mainly consisting of real home occupiers rather than investors/speculators. In HCMC,
Lovera Vista’s first phase recorded a 100% take up rate due to its affordability. The project is
located outside the CBD but still within the city environs of HCMC. Thus, we favor developers
that can successfully capture the potentially huge demand for affordable to mid end property.
Regulations: Time to do it properly
In the long-term, we see that the residential property segment will and should be heavily
governed by proper regulations both via credit limits and completion frameworks. The aim would
be to sustain a healthy development cycle for the market in order to avoid a bubble.
The SBV issued Circular 22/2019/TT-NHNN in replacement of Circular 36/2014/TT-NHNN, in

which the government focuses on trying to establish an orderly real estate market. Consumer
loans, either secured or unsecured, sized above VND4bn will receive a risk weighting ratio (RW)
of 150% starting 1 January 2021, from the current RW of 50% for secured loans (with property
as collateral) and a RW of 100% for unsecured loans.
The purpose of the move is to cool down recently observed speculative activities in the real
estate market by preventing banks from ‘hiding’ real estate loans in consumer loans, which
receive a lower risk weighting ratio. Another notable part of Circular 22 is that it sets a new cap
on short-term funding used for medium- and long-term loans at 30%, from the current weight of
40%. This might be also interpreted as aiming to limit credit to the real estate sector, in which
loans are normally long-term in nature.
Figure 148: Some new regulations in banking system
Source: SBV
Retail real estate: Well positioned as Vietnam develops

In our view, retail real estate is a great way to participate in the broader real estate market due to
its less cyclical nature (versus the residential property segment) and its connectivity to fast
growing retail sales in Vietnam. Going forward, we still see Vietnam as being an attractive
destination for international retailers, which view Vietnam as a true opportunity in the emerging
middle-class market, while several local chain retailers have started to emerge as well.
We also favor the retail leasing business in terms of macro perspectives: Vietnam has seen
middle class income growth; the proportion of middle-class citizens is expected to reach 26% of
the population by 2026 from 13% currently (source: World Bank). Shopping centers such as
Vincom, Lotte and Aeon Mall have long been the favored destinations for a family night out,
combining food experiences, shopping and entertainment.
Although e-commerce has grown in prominence lately, we think digital retail will not yet have a
negative impact on traditional brick-and-mortar shopping in Vietnam given the “entertainment”
value provided and prevailing supply and demand characteristics. However, we remain
cognizant of the impact of digital retail in developed markets
Figure 149: International brands entering Vietnam in 2019 or announcing their intentions
All this points to strong demand for retail space leasing in the future. Vacancy rates will continue to
drop while modern retail formats will increase penetration across the country thus benefiting the
whole segment.
Industrial Parks: ‘Sweet spot’ still there, but mind the headwinds
2019 will likely be the second consecutive year where we see industrial leases benefiting from
both rental price increases and rising leasing area. Average rental price (ARP), across all
industrial areas of Vietnam, increased 6.7% y/y in 9M19 per the estimates of industry consultancy
JLL. Our calculation, however, suggested a much higher 13.5% rise in ARP for our covered, listed
players for the period up to 9M19.
This difference could possibly reflect a premium achieved by coverage names as they have better
execution records (like KBC) and more favorable positions (like LHG’s zones). All in all, we expect
these positive trends to continue, or even improve, in 2020. The rewards now will come to those
who are well-prepared.
Figure 150: Estimated increase in ARP YTD in 9M19 Figure 151: 11M19 monthly disbursed FDI (VNDmn)
140 30%
25.0% 2,500
120 25%
100 16.7% 20% 2,000

$/m2/motnh
13.6% 13.3%
80 12.3% 15%
10.7%
VNDmn
9.6%
1,500
60 7.1% 10%
40 5%
1,000
20 0%
KBC VGC LHG PHR IDC SZC KSB BCM
ASP at end-FY18 Est. increase in 9M19 % increase 500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
11M17 11M18
Source: HSC Research Source: MPI
We expect Vietnam to remain an attractive FDI destination, thereby strengthening demand in

2020. We have long argued that the US-China trade tension was an accelerator rather than a
prerequisite for the exodus of assembly and manufacturing businesses out of China. Rising labor
costs and unfavorable geopolitical conditions in China along with Augmented value chains in
Vietnam are important factors in this shift of activity. Below we consider the key factors which will
continue to underpin the shift of manufacturing from China to Vietnam:
• Minimum wages in China continued to grow. Current minimum wages in some key
industrial regions of China reported to be around USD318 per month, equal to 1.76x that of
Vietnam’s. However, this is just part of the labor cost story in China as a major part of
workers employed by foreign companies have been paid three to four times the minimum
wages, according to some research.
• Rental price is much higher than that of Vietnam. We understand that current ARPs in
key zones in China may range from USD180-300 per sqm (CEIC) while current ARP in
Vietnam’s more dynamic manufacturing areas range from USD90-120 per sqm. Lower ARPs
are a significant plus in attracting tenants out of China and into Vietnam.
• Political uncertainty in China remains a factor. In addition to the current trade war, key
political events include government transition in 2022 or early 2023; and/or the US elections
in late 2020.
For Vietnam FDI remains strong, seeing a 3.1% y/y increase in registered FDI (versus 2018’s
high base) and an average of 12.2% increase in disbursed FDI on a monthly basis up until
November 2019. We expect Vietnam’s stable macro environment, it’s cost advantages and build
up of supply chains to be a key driver for growth in key industrial hubs.
However, Vietnam’s infrastructure system is still relatively poor compared to China – significant
investment is required. We anticipate this to kick start again in 2021 which will provide long-term
stimulus to industrial park demand.
… However, there are some headwinds to contend with

We identify the following concerns industrial property:
• A prolonged approval process is our current greatest concern. This might lead to
delays of new supply such as Nam Tan Uyen 3 (NTC), Nam Son Hap Linh and Trang Due 3
(KBC). Opportunities can be missed as a result. While regulatory easing will continue to
occur, the speed and timing is difficult to ascertain.
• At present of the total available area for industrial park development (7,118 ha) only 33.0%
(2,364 ha) is currently approved for development and of that only about 18.0% (428 ha) is
located in prime locations. This suggests a temporary shortage of supply – an acceleration in
approvals while play an important role in driving the industrial park sector.
Figure 152: Estimated current and new leasable supply (ha)
• Surging development costs is our major second concern. Delays in development

suggest higher compensation and land use rights costs – this puts pressure on margins. Our
calculations show an average of 4.9% y/y and 4.2% y/y decrease in gross leasing margins in
9M19 and 9M18, respectively. Looking ahead, we expect gross leasing margins of listed
players to range between 45-55% on average. This assumption the net effect of increasing
ARPs and increasing development costs.
Figure 153: 9M19 leasing revenue growth Figure 154: 9M19 gross leasing margin
53.6%
79.3%
64.3%
18.4%
15.2% 13.8% 51.9% 54.2% 53.0%
13.2% 49.3%
10.5% 16.8% 46.2%
7.0%
2.8% 33.6% 33.3%
KBC NTC LHG SZC IDC SZL SIP D2D KBC VGC NTC LHG SZC IDC SZL SIP D2D
9M19 leasing sales y/y growth 9M19's avg. growth 9M19 9M18
We prefer companies that have significant land bank in prime locations and/or have, in our view,
a higher possibility of bringing new zones into play from a development standpoint.
Consequently, we like KBC (one of our top picks), given its huge land bank and good leasing
track record; and PHR which, following a strategic shift, is leveraging its underperforming rubber
land bank into low cost industrial land. Meanwhile, VGC remains interesting given its large land
bank in the north (although in less favorable locations). We also think BCM, the southern
region’s largest player, has potential on a longer-term view when considering its enormous
assets and possible listing on HSX in Jan. 2020.
Real estate sector: Top picks

Khang Dien House – A strong brand name with a prudent strategy
(KDH, TP VND30,100, upside 14%)
• KDH possesses the competitive advantage of a reputable high-end developer that

expanded into the mid-end segment, and it follows a prudent strategy of development that
helps reduce legal risk in launching projects.
• KDH is benefiting from limited supply in HCM City. The company successfully launched
three projects in 2018-2019 amid a stringent regulatory environment with very good take up
rates and higher selling prices than expected.
• Prospects for FY20 look strong, and we forecast bottom line growth of 19.3% y/y mainly
driven by the recognition of units in Venita Park and Safira apartments.
• KDH has a large remaining land bank in the southwest region of HCMC (600 ha).
• The company is well positioned financially with VND1,005bn cash on hand and a low total
debt/equity ratio of 0.11x (as of 3Q19) compared to 0.33x for its peers.
• On valuation we apply a DCF methodology to calculate the value of projects that are under
development while we use comparative valuation methods for projects that we don’t yet
have detailed development plans for.
• We note that those projects which currently lack development plans provide large upside to
our target price given the limited available land bank in HCMC.
Figure 155: KDH selected financials Figure 156: KDH revenue breakdown from key projects
Market Cap, USDmn 625
VND mn FY19F FY20F FY21F
KDH 2018 2019F 2020F
Sales VNDbill 2,917 2,614 2,935 Sales 2,189,003 3,424,617 6,096,374
Sales Growth % -4.5% -10.4% 12.3% Jamila 874,800 - -
Net Profit VNDbill 805 914 1,090
Safira - 1,186,920 1,824,890
EPS VND 1,485 1,604 1,903 The Venita Park 1,314,203 2,237,697 -
EPS Growth % 5.0% 8.0% 18.6% Lovera Vista - - 1,218,000
P/E X 17.8 16.5 13.9
Binh Trung - - 3,053,484
P/B X 2.1 2.0 1.9
ROE % 13.3% 13.0% 14.5% Gross profit 1,286,962 2,103,002 2,956,570
Div Yield % 1.9% 3.8% 3.8% Jamila 349,644 - -
Safira - 507,029 779,557
The Venita Park 937,318 1,595,973 -
Lovera Vista - - 517,139
Binh Trung - - 1,659,874
Nam Long Group – Affordable housing always in high demand

(NLG, TP VND39,700, upside 49%)
• NLG has been highly successful in the affordable housing segment, and offers a range of
products that includes apartments, townhouses and land plots for sale.
• As central HCMC gets more competitive and less affordable, the NLG’s strategy is to
develop new townships in adjacent provinces which is likely to prove to be very fruitful, in our
view.
• Access to more capital thanks to the cooperation with a handful of Japanese investors
should lead to an increased ability of NLG to do more launches while still maintaining a low
gearing ratio and a strong financial position.
• Sound corporate governance as we see an effective BOD structure and a transparent and
effective information sharing process.
• Most of the projects are developed under JVs with Japanese investors helps reduce
cashflow management risk. NLG also has a good corporate social responsibility in the way
that they are one of very few large corporates that develop social housing products.
• Sales of stakes in several projects are expected to boost the bottom line in 2020 – we are
forecasting a 16.6% net profit growth.
• The company is in a healthy financial situation, with VND1,530bn cash on hand and a low
total debt/equity ratio at 0.16x (as of 3Q19) compared to 0.33x of average peer.
• Our rating on NLG is Buy, and our TP of VND39,700. Valuation looks cheap with a forward
P/E of 7.7x and a 48.7% discount to our RNAV. However, FOL is full.
Figure 157: NLG selected financials Figure 158: NLG revenue breakdown from key projects
NLG 2018 2019F 2020F
Sales VNDbill 3,480 3,345 4,081
Sales Growth % 10.1% -3.9% 22.0%
Net Profit VNDbill 763 919 1,071
EPS VND 3,253 3,587 4,255
EPS Growth % 32.7% 10.3% 18.6%
P/E X 8.2 7.4 6.3
P/B X 1.4 1.3 1.1
ROE % 20.3% 19.0% 19.5%
Div Yield % 3.1% 2.8% 2.7%
Dat Xanh Group – Flexibility shines in tough times

(DXG, TP VND35,400, upside 85%)
• DXG is the leading property broker in Vietnam with an approximate 30% market share in its
core segment.
• The company has successfully branched out into development projects mostly focused on
the affordable and mid-end segments.
• DXG has shown an ability to translate their brokerage know how into building and selling
products carefully tailored to what the market likes.
• DXG now has a solid project pipeline in HCM City and adjacent provinces, with a total of
around 132 ha for primary development.
• The successful development of the newly acquired land bank (92 ha) near the Long Thanh
New Airport in HCMC should prove to be a significant catalyst for earnings and for the stock,
in our view.
• For FY20, we are forecasting 25.3% y/y growth in the bottom line to VND1,636bn.
• Although, along with other developers in HCMC, the company has been facing tougher
regulatory and legal issues, leading to longer than expected times to complete legal
procedures before launching, we think that the stock is oversold.
• Our rating on DXG is now a Buy, and TP is VND25,400 or 85.4% upside.
Figure 159: DXG selected financials Figure 160: DXG’s pipeline for FY20
DXG 2018 2019F 2020F
Sales VNDbill 4,645 4,851 5,778
Sales Growth % 61.3% 4.4% 19.1%
EPS VND 3,221 2,704 2,959
EPS Growth % 38.3% -16.1% 9.4%
P/E X 4.3 5.1 4.6
P/B X 1.3 1.0 0.9
ROE % 21.7% 17.6% 17.0%
Div Yield % 7.2% 3.6% 3.6%
Vincom Retail – Great exposure to both real estate and retail

(VRE, TP VND42,800, upside 27%)
• VRE is Vietnam’s largest and fastest growing retail developer, owner, and operator and is
the only stock in the VN30 that offers exposure to the retail real estate sector.
• A proven track record in developing malls has helped VRE attract a diversified and high-
quality portfolio of tenant-customers, now consisting of over one thousand international and
local brands.
• VRE’s multi-format model provides flexibility for expansion to provinces across the country; it
is now present in 39 of 63 provinces around the country.
• VRE plans to add approximately 250,000-275,000 sqm per annum in GFA into their system
of malls in the next two years, including those from the three Vincom Mega malls that stand
as integrated parts of Vingroup’s next mega residential projects.
• We forecast that revenues and net profit will increase at a CAGR of 15.3% and 20.6%,
respectively, over FY19F-FY22F.
• Our rating on VRE is Buy, and our TP of VND42,800. Prospects for FY20-22F look great and
at the current price, the stock offers decent upside at 27.2%.
Figure 161: VRE selected financials Figure 162: Leasing revenue and NOI margin
9 73.0%
VRE 2018 2019F 2020F
Sales VNDbill 9,124 9,042 10,218 8 71.0%
Sales Growth % 65.3% -0.9% 13.0%
7 69.0%
Net Profit Growth % 18.6% 15.0% 19.9% 6 67.0%
EPS VND 1,032 1,187 1,423
VND trn
5 65.0%
EPS Growth % 56.6% 15.0% 19.9%
P/E X 32.6 28.3 23.6 4 63.0%
P/B X 2.8 2.7 2.6
3 61.0%
ROE % 8.8% 9.6% 11.3%
Div Yield % 0.0% 0.0% 0.0% 2 59.0%
1 57.0%
- 55.0%
FY17 FY18 FY19F FY20F
VMM VC VP VC+ NOI margin
Kinh Bac City – Obvious beneficiary from trade tensions

(KBC, TP VND17,500, upside 16%)
• KBC is one of Vietnam’s largest industrial park developers, with 2,282 ha of total site area, of
which 1,415 ha is leasable. It has a very good track record of leasing out industrial area for
foreign electronics and high-tech companies in the industrial heartland of the north.
• KBC’s zones are well located in Bac Ninh & Hai Phong provinces. The company is favored
for FDI given its proven workforce & specialized input providers.
• Booming demand has led to a 15-20% increase in rental prices. Recently, we’ve learned that
Foxconn is expanding and Goertek is starting up in KBC’s zones.
• Upcoming projects include Trang Due 3 industrial park (687 ha), Trang Due Urban area (42
ha) and Phuc Ninh phase 2 (26 ha sellable); these will underpin long-term earnings.
• KBC’s capital structure has improved, though there is still some work to do. The company’s
total debt/equity ratio decreased to 0.21x at the end of 3Q19, from 0.3x at the end of FY17,
thanks to healthier cash received from IP leases in the past two years.
• We are forecasting for 15.1% and 7.8% growth in net profit in FY19 and FY20, respectively.
• Our current rating on KBC is Add, and our TP of VND17,500 offers upside of 13.3% using
the RNAV method.
Figure 163: KBC selected financials Figure 164: Leasing revenue and NOI margin
KBC 2018 2019F 2020F
Sales VNDbill 2,491 3,447 3,329
Sales Growth % 97.7% 38.4% -3.4%
Net Profit VNDbill 746 859 926
EPS VND 1,588 1,828 1,970
EPS Growth % 27.7% 15.1% 7.8%
P/E X 9.5 8.3 7.7
P/B X 0.8 0.8 0.7
ROE % 8.6% 9.3% 9.6%
Div Yield % 0.1% 6.7% 6.7%
Consumer sector: ‘Noise’ expected to offset demographics in

2020
We rate the consumer sector a Market Weight, as two out of our three big covered names
have either slowing earnings growth or unclear prospects. Despite this somewhat muted
view, we note that demographics and several other key fundamentals remains solid.
We have a strong Buy call on Saigon Beer-Alcohol-Beverage Corporation (SAB; TP

VND314,597), suggesting upside of 41%. In our view that it is successfully being transformed
from a relatively stodgy SOE to a professionally run company with a solid earnings outlook.
In terms of other stock views, Vietnam Dairy Products JSC (VNM; Hold, VND129,600 TP) looks
to be slowing, as a consequence of slower top line growth and rising raw milk costs, while
prospects relating to Masan Group (MSN; Hold, VND60,800 TP) look uncertain. Meanwhile,
KIDO Group (KDC; Hold, VND21,893 TP), a smaller player, will likely see lots of improvement in
its core business but it may have to book a big loss related its investment in Lavenue JSC, a
property developer, which could weigh negatively on the share price.
Figure 165: Consumer sector comps

Company Ticker Market cap Price Rating TP Up/(down) side P/E (x) EV/EBITDA (x) Div. yield (%)
(VNDbn) (USDmn) (VND) (VND) (%) 2019F 2020F 2019F 2020F 2019F 2020F
Saigon Beer-Alcohol-Beverage SAB VN 143,519 6,178 223,800 Buy 314,579 40.6% 29.1 20.7 21.6 21.6 2.2% 2.6%
Vietnam Dairy Products VNM VN 204,438 8,801 117,400 Hold 129,600 10.4% 21.3 20.2 14.3 13.4 3.8% 3.8%
Masan Group (*) MSN VN 66,162 2,848 56,600 Hold 60,800 7.4% 13.4 15.1 9.4 7.7 0.0% 0.0%
Quang Ngai Sugar QNS VN 9,637 415 27,000 Add 34,400 27.4% 6.4 5.8 5.4 4.9 5.1% 5.1%
Kido Group (**) KDC VN 3,938 171 19,150 Hold 21,893 14.3% 34.7 19.5 6.7 5.5 0.0% 0.0%
Market cap weighted average 22.5 19.2 15.7 15.0 2.7% 2.8%
(*) MSN earnings does not include impact from the merger of VinCommerce to Masan Consumer Holdings
(**) KDC earnings does not include potential loss from the investment in Lavenue JSC
Recent trading: Improving trends

Industry sales have been picking up for more than 12 months. We saw an unexpected
slowdown in 2018 sales in the fast moving consumer goods (FMCG) segment y/y sales growth
of just 2.3% in urban areas and 6.4% in rural). This was due to negative twin impacts on
purchasing power of a pig price collapse and natural disasters. In the 12-month period through to
September 2019 sales picked up nicely (5.5% y/y in urban and 8.8% y/y in rural areas).
All key F&B segments within the broader category saw better sales growth during this period. In
2Q19, meanwhile, ‘beverage’ was the fastest-growing segment at 11.9% y/y, while ‘milk-based’
had the slowest growth, at 4.3% y/y.
Figure 166: FMCG sales growth Figure 167: Key F&B segments saw good growth
Urban (4 cities) Rural Title:

14.8 15.0%
Source:
11.9%
12.3 12.0 10.0% 9.5%
8.5%
10.4
9.8 Please fill in the values above to have them entered in your report
8.8 5.0%
8.5 4.3%
6.4
0.0%
5.3 5.5
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
4.8
4.4
3.8
2.7 2.7 -5.0%
2.3
-10.0%
2012 2013 2014 2015 2016 2017 2018 Oct18-

Sep19 Beverage Beer Food Milk-based
Source: Kantar World Panel Source: Nielsen
Looking ahead: Several supportive trends

FMCG sales growth is expected to remain at a mid-to-high single digit level in 2020.
Growth should be supported by rising income (GDP per capita is expected to grow at 5.3% y/y),
increasing urbanization (37% of the population currently reside in urban areas) and growth in
‘modern retail’ (trends point to growth of c.25%+ in terms of store count and c.18% in terms of
sales value).
Figure 168: GDP per capita maintains healthy growth Figure 169: Urbanization brings rural consumer closer
to urban
100% Title:
2021F 3142
Source:
2020F 2929 31.8% 32.2% 33.1% 33.9% 34.4% 35.0% 35.7%
80% 40.0%
2019F 2728
60.0%
2018 2,590 60%
Please fill in the values above to have them entered in your report
2017 2,389
2016 2,215 40%

68.2% 67.8% 66.9% 66.1% 65.6% 65.0% 64.3%
60%
2015 2,089
20% 40%
2014 2,043
2013 1,898
0%
2012 2013 2014 2015 2016 2017 2018 2025E 2040E
2012 1,755
0 500 1,000 1,500 2,000 2,500 3,000 3,500 Rural Urban
Source: GSO, IMF forecasts Source: GSO, Nielsen
Average growth in our coverage universe of listed consumer stocks should grow stronger
than the industry in 2020. We forecast that the five listed consumer stocks (SAB, VNM, MSN,
QNS and KDC) in our coverage will have weighted average net sales growth of 10.2% in 2020,
higher than the whole FMCG industry. Amongst them, SAB, MSN and QNS are expected to
perform better than the others. For MSN, we expect its new chilled meat product will contribute
VND5,527bn of net sales, helping it to achieve a net sales growth of 23.1%. For SAB, we expect
it will gain market share in key business areas and deliver a net sales growth of 8.9%.
Meanwhile, due to the slowdown of dairy segment, VNM’s net sales is forecast to grow at 6.9%,
underperforming the sector.
EPS is forecast to grow at an average of 10.1% for our coverage (before considering
impacts from the Masan-VinCommerce transaction). Excluding KDC, which is expected to
see dramatic growth of 77% from a very low base in 2018, we expect SAB will be the best
performer, and a key driver of sector performance, with EPS growth of 25% y/y. At the other end,
VNM’s EPS growth will likely be modest – we estimate just 5.1% – following only single-digit top
line growth and rising raw milk costs.
Meanwhile, MSN is a special case. We forecast that MSN’s EPS will drop by 11.4%, due to lack
of extraordinary profit. We note that our forecasts on MSN do not incorporate the impact from its
recent combination with VinCommerce; these are presently unknown, but more likely to result in
near-term reductions in earnings, in our view. Therefore, it is possible that the sector average
EPS growth, taking into account the likely negative impact of VinCommerce consolidation on
MSN earnings, will fall below 10.1%.
Reasonable rather than exciting valuations. The average FY20 P/E of the five consumer
stocks looks only reasonable at 19.2x on a background of high ROE (average ROE of 34.2%)
and moderate dividend yield (at 2.8% on average). Our top stock picks are SAB and QNS.
Figure 170: Consumer sector – Earnings growth

Ticker Net sales growth EPS EPS growth
2019F 2020F 2019F 2020F 2019F 2020F
SAB 9.4% 8.9% 7,917 9,921 +27.9% +25.3%
VNM 6.4% 6.9% 5,560 5,841 +5.0% +5.1%
MSN (*) -1.5% 23.1% 4,237 3,752 -6.3% -11.4%
QNS 3.2% 11.4% 4,218 4,670 +1.0% +10.7%
KDC (**) -2.0% 6.4% 548 972 +185.6% +77.4%
Market cap weighted average +6.0% +10.2% 6,063 6,806 +12.5% +10.1%
(*) MSN earnings does not include impact from the merger of VinCommerce to Masan Consumer Holdings
(**) KDC earnings does not include potential loss from the investment in Lavenue JSC
Consumer Sector: Top picks

Sabeco – A solid earnings outlook
(SAB, TP VND314,500, upside 41%)
• Beer demand is on the rise, driven by higher income.
• Other industry drivers: Drinking age population growth of 3% p.a; eating out habits; more
restaurants/pubs/bars; long-established drinking culture.
• We forecast the beer industry to grow at 5.3% p.a in volume terms and 7.5% in value terms
from 2019-2021.
• We believe that SAB can gain market share thanks to rising investment in brands. Selling
expenses will increase by 37% in 2020, according to our forecasts.
• Profit margins will improve significantly due to a better product mix, a higher ASP and
efficiency gains in several areas of the business.
• We forecast that gross margins will improve from 22.5% in 2018 to 31.2% in 2021.
• Consequently, net profit will grow strongly at a CAGR of 25.4% from 2019-2021.
Figure 171: SAB selected financials Figure 172: SAB margin expansion
Market Cap, USDmn 6,218 31.2%
SAB 2018 2019F 2020F 28.7%
Sales VNDbill 35,949 39,344 42,838
25.6%
Sales Growth % 5.1% 9.4% 8.9%
Net Profit VNDbill 4,177 5,402 6,770 22.5% 22.2%
Net Profit Growth % -11.3% 29.3% 25.3% 19.6%
EPS VND 6,190 7,917 9,921 16.7%
EPS Growth % -13.4% 27.9% 25.3% 14.1%
P/E X 36.2 28.3 22.6
P/B X 9.5 8.5 7.4
ROE % 29.4% 33.8% 37.1%
Div Yield % 2.7% 2.2% 2.7%
FY18 FY19F FY20F FY21F
Gross margin EBITDA margin

Quang Ngai Sugar – cheap valuations, double digit earnings growth

(QNS, TP VND34,400, upside 27%)
• Having 84% market share, QNS is the leading player in packaged soy milk with two well-
known brands: Fami and Vinasoy.
• Soy milk generates 77% of the company profit and we expect this segment can maintain
double-digit earnings growth in 2020 and 2021, due to active product launches.
• The sugar business, which contributes 5% to the company profit, should recover in 2020 as
selling prices will move up from a very low base in 2019.
• Hence we forecast QNS net profit to increase by 10.7% in 2020.
• The stock is cheap with a forward P/E of 6.3x and a dividend yield of 5.1%.
Figure 173: QNS selected financials Figure 174: Sales breakdown by business line
QNS 2018 2019F 2020F 6,000
Sales VNDbill 8,029 8,283 9,225
Sales Growth % 5.2% 3.2% 11.4% 5,000
Net Profit Growth % 20.6% 2.2% 11.3% 4,000
EPS VND 4,175 4,218 4,670
EPS Growth % 22.6% 1.0% 10.7% 3,000
P/E X 6.5 6.4 5.8
2,000
P/B X 1.2 1.3 1.2
ROE % 25.2% 22.1% 21.6%
1,000
Div Yield % 5.5% 5.5% 5.5%
0
FY20F
FY18
FY19F
Soymilk Sugar Others
Retail sector: Modern retail leading the way

We rate the retail sector Overweight, on the back of expected strong headline growth and
inexpensive valuations. Mobile World (MWG; Buy, VND164,400 TP) is our top pick, offering
upside of 43%.
Figure 175: Retail sector comps

Mobile World Investment Corporation MWG VN 50,782 2,186 114,700 Buy 164,400 43.3% 13.9 11.3 8.3 6.7 1.4% 1.4%
Phu Nhuan Jewelry JSC PNJ VN 19,321 832 85,800 Add 94,700 10.4% 17.0 13.5 12.5 9.7 1.6% 2.2%
FPT Digital Retail JSC FRT VN 1,738 75 22,000 Hold 23,837 8.3% 5.8 5.6 7.8 7.1 4.5% 4.5%
Market cap weighted average 14.5 11.7 9.4 7.5 +1.5% +1.7%
Vietnam retail sales have grown steadily, and this trend is expected to continue. From
2012 to 2019, Vietnam’s retail sales grew at a CAGR of 11.5% y/y. We believe retail sales will
continue to grow at double digit rates in 2020 and 2021.
Consumers’ preference for convenience has been supporting ‘modern retail’. Notably,
household size in Vietnam has become smaller (at 3.5 persons in 2020, down from 4.6 persons
in 2000), while average wages have risen nearly six times during that same period. We are also
seeing longer working hours and a higher female labor force participation rate (at nearly 80%).
All these factors have been contributing to strong demand for convenience products and
shopping. Modern retail, represented by supermarkets, minimarts, convenience stores and
specialty stores, has benefited from this trend. These retail formats are considered as
“convenient to get to, easy to find what consumers want and always available in stock”.
Given this, modern retail has been outgrowing traditional retail. FMCG sales through the
modern channel rose at 18% y/y, outpacing sales growth via traditional channels at 4% y/y,
based on Nielsen retail audit data from July 2018 to June 2019.
Modern retail has been seeing strong store expansion, driven by minimart. As of June
2019, modern retail stores totaled 5,598, up 25.6% y/y – a booming of the minimart concept was
the key driver here. From July 2018 to June 2019, minimart store count grew by 40.2% y/y and
accounted for 57.9% of total modern trade store count. This was because shoppers were looking
too “little” and “often” shopping.
Figure 176: Vietnam retail sales of goods Figure 177: Modern retail store expansion
4,000 5,594 5,551 5,598
3,729 Title: 5,267 5,312 5,399
5,136
3,329 4,593
Source:4,721 4,832
3,500 4,458 4,526
2,967
3,000 991 908 878
2,649 972 974 977
969
2,404 943 966
2,500 915 916 927
Please fill in the values above to have them entered in your report
VND trillion
2,189
1,965
2,000 1,740 2,980 3,137 3,172 3,239
2,793 2,891 2,911
2,311 2,358 2,405 2,492 2,534
1,500
1,000
May-19
Jul-18
Oct-18
Feb-19
Mar-19
Apr-19
Nov-18
Dec-18
Aug-18
Sep-18
Jan-19
Jun-19
500
0
2012
2013
2014
2015
2016
2017
2018
2019E
Supermarket Minimart CVS

H&B + Drugstore Mom & Kids chain Total MT chain
Source: GSO Source: Nielsen
We forecast that the listed retail companies in our coverage will continue to see strong
sales growth in 2020. We forecast the three listed retail companies will have average net sales
growth of 23.0% next year. Amongst them, MWG will likely be the best performer in terms of
sales, as it is gaining market share in consumer electronics (through its Dien May Xanh chain)
and opening a great number of minimarts (its Bach Hoa Xanh chain).
Phu Nhuan Jewelry (PNJ; Add, TP VND94,700) is also expected to be a beneficiary of

‘premiumization’ and the convenience trend, and we also expect this jewelry retailer to deliver
solid sales growth. Against this, FPT Retail (FRT; Hold, TP VND23,837) seems to be struggling
with the mature mobile retail business and should see only modest growth.
EPS growth forecast to be 23.7% y/y, in-line with sales growth. We expect to see stable
profit margins within the retail companies.
Attractive valuation for a fast-growing sector. Retail stocks are trading at an average FY20
P/E of 11.7x which is cheap for an average EPS growth of 23.6%. However, the setback is that
foreign ownership for MWG and PNJ is full and foreign investors have to buy them at premiums.
Our top stock picks are MWG and PNJ.
Figure 178: Retail Sector – Earnings growth

2019F 2020F 2019F 2020F 2019F 2020F
MWG 16.9% 24.1% 8,244 10,173 +30.8% +23.4%
PNJ 12.8% 21.3% 5,050 6,367 +21.7% +26.1%
FRT 9.1% 8.7% 3,889 3,963 -9.9% +1.9%
Market cap weighted average +15.6% +23.0% 7,280 8,999 +27.4% +23.6%
Retail Sector: Top picks

Mobile World Investment Corp – Best in class
(MWG, TP VND164,400, upside 43%)
• Leading retailer in Vietnam with 1,000 mobile phones stores (TGDD chain), 937 consumer
electronics stores (DMX chain) and 866 groceries stores (BHX chain).
• Near-term growth will be supported by the DMX consumer electronics chain with strong
earnings growth in 2019-2021, given operational optimization and continued store openings.
• Long term growth driver is the BHX groceries chain. BHX is expanding rapidly and we expect
to see profitability by 2020.
• We anticipate that the BHX groceries chain will have 1,000 stores opened by end of 2019,
1,800 stores by end of 2020 and 2,640 stores by end of 2021.
• From 2021 BHX will become a major earnings driver.
• Consequently, we believe MWG will continue to see double-digit earnings growth in the next
five years.
• We forecast 2019 and 2020 net profit growth at 32.8% y/y and 28.0% y/y, respectively.
Figure 179: MWG selected financials Figure 180: Net profit by chain (in VNDbn)
MWG 2018 2019F 2020F
7000
Sales VNDbill 86,516 102,758 124,634
Sales Growth % 30.4% 18.8% 21.3% 6000
Net Profit Growth % 30.5% 32.8% 27.0% 5000
EPS VND 6,301 8,245 10,163
EPS Growth % 17.3% 30.8% 23.3% 4000
P/E X 18.2 13.9 11.3
P/B X 5.7 4.2 3.2 3000
ROE % 38.7% 35.8% 33.3%
2000
Div Yield % 1.3% 1.3% 1.3%
1000
0
2013 2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F
(1000)
The Goi Di Dong Dien May Xanh Bach Hoa Xanh
Phu Nhuan Jewelry – Simply golden

(PNJ, TP VND94,700, upside 11%)
• Unique and leading position in Vietnam’s jewelry market with a vertically integrated business
model from manufacturing to retailing.
• PNJ is in an excellent position for the foreseeable future, as demand for branded jewelry is
rising following the emergence of high- and middle-income earners, and the consequent
demand for premium products.
• PNJ has no serious competitors in the branded jewelry retail space in Vietnam in term of
retail store count, sophisticated designs, skillful handicraft, new collections, and brand
awareness.
• The new ERP (enterprise resource planning) system that was applied since April 2019 will
help PNJ to optimize efficiencies and improve margins.
• A store expansion plan to 500 stores by 2022 from current 348 stores supports future growth.
• We expect a net profit CAGR of 24% over 2019-2021.
Figure 181: PNJ selected financials Figure 182: Net profit by chain (in VNDbn)
PNJ 2018 2019F 2020F
7000
Sales VNDbill 14,571 16,443 19,945
Sales Growth % 32.7% 12.8% 21.3% 6000
Net Profit VNDbill 960 1,183 1,492
Net Profit Growth % 32.4% 23.3% 26.1% 5000
EPS VND 4,148 5,050 6,367
EPS Growth % 28.5% 21.7% 26.1% 4000
P/E X 20.7 17.0 13.5
P/B X 3.8 3.8 3.0 3000
ROE % 28.7% 26.9% 26.1%
2000
Div Yield % 1.9% 1.6% 2.1%
1000
0
2013 2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F
(1000)
The Goi Di Dong Dien May Xanh Bach Hoa Xanh
Agriculture: Dragged down by global trends

We rate the Agriculture sector as Underweight. In general, prices and volumes are being
held back by global trends and the impact of the US / China trade wars. Low growth
expectations justifies what are currently cheap-looking valuations, in our view.
Figure 183: Agriculture sector comps

Vinh Hoan Corporation (*) VHC VN 7,096 305 39,000 Add 45,100 15.6% 5.8 5.8 5.7 5.4 0.0% 5.1%
Loc Troi Group (**) LTG VN 1,628 70 20,200 Add 27,024 33.8% 3.7 4.2 4.7 4.0 6.8% 6.8%
Dong Phu Rubber DPR VN 1,625 70 40,500 Hold 38,297 -5.4% 10.9 9.9 9.4 8.3 13.4% 13.4%
PetroVietnam Fertilizer and Chemicals Corporation DPM VN 4,970 214 12,700 Add 14,700 15.7% 21.9 13.5 5.1 3.8 7.6% 7.6%
Market cap weighted average 11.3 8.6 5.8 5.0 4.6% 7.0%
Market cap weighted average excluding DPM 6.2 6.2 6.1 5.6 +3.2% +6.7%
(*) and (**) VHC and LTG EPS growth are based on core earnings
Rice volumes and prices are expected to remain flat. We expect that Vietnam rice sales will
be stable at around USD2.6-2.7mn, with flat volume (6mn tonnes) and prices. We have observed
some short-term dynamics in the world market, such as the on-going release of inventories in
China (estimated at 111.6mn tonnes, equivalent to 70% of world rice stocks) that has led to
short-term price decreases.
Going forward, we expect that China will again build-up its inventories and prices will recover
accordingly but this is likely to be let more in 2021. In general, we expect not much change in
global supply and demand of rice in 2020. Vietnam is the world’s second largest rice exporter
and we believe that its export volume and pricing will stay at historically relatively low 2019 levels.
In terms of our covered companies, we expect Loc Troi Group (LTG; Add, TP VND27,024 – one
of our top picks), operating in rice and crop protection chemicals (CPC), will see flat rice sales in
2020.
Figure 184: Price forecasts of key agri-commodities in Figure 185: Vietnam average export prices of rice and
the world market rubber from 2014 to 2019
450 2.1 1,800 Title: 520
1,600
Source:
500
400 2
1,400
480
1,200
US$/metric tons
350 1.9
US$/ton
1,000 Please fill in the values above to have them entered in your report 460
US$/kg
300 1.8 800 440

600
250 1.7 420
400
400
200 1.6 200
0 380
2014
2015
2016
2017
2018
9M2019
150 1.5
2014
2015
2016
2017
2018
2019
2020
2021
2022
Rice, Thailand, 5% Urea, E. Europe, bulk Rubber, Malaysian Rubber (US$/ton) Rice (US$/ton)
Source: World Bank Commodity Outlook, October 2019 Source: Ministry of Agriculture and Rural Development
Both prices and volumes of fertilizers are suffering. Prices of fertilizer and other chemical
agriculture inputs in the world market are expected to be lower in 2020 as prices of natural gas
and coal, their key raw materials, are likely to fall on a weaker global economic outlook.
In this context, the fertilizer industry in Vietnam will likely see another tough year with (1) weak
selling prices and (2) declining demand for fertilizer which will be dragged down by low rice
prices and less cultivated area due to the increasing trend of switching agriculture land to
residential, industrial, and/or commercial land use.
Petrovietnam Fertilizer and Chemicals Corporation (DPM; Add, TP VND14,700), the fertilizer
player may be best placed in 2020. They will likely have a strong y/y increase of 33.3% in sales
volume this year as its factory will have a full year of operations (in 2019, it was shut down for 72
days for a major overhaul). We expect DPM’s sales volume of urea in 2020 at 800,000 tonnes,
back to its normal level.
Prices of natural rubber should increase slightly on supply shortages. Global sales of
passenger vehicles are expected to continue to fall in 2020, with particularly large declines in
China, due to trade tensions and a weaker economy outlook. Thus, we will see less the demand
for natural rubber, especially in China. This said, we may also see lower supply from key export
countries – including Thailand, Malaysia and Indonesia – who are witnessing a serious disease
on their rubber plantations. Given all this, we expect Vietnam’s natural rubber price will increase
slightly, at 3% y/y. Dong Phu Rubber (DPR; Hold, TP VND38,297), the major listed rubber
company, will benefit from this.
Our covered agriculture companies are forecast to generate average sales growth of 8.2%
in 2020. We have excluded DPM, the fertilizer player, in this calculation due to the abnormal
increase in sales. Growth for the remaining companies are quite similar, ranging from 5.6% to
10.7%, and reflect the industry picture. LTG’s sales is forecast to grow at 5.6% thanks to new
product introduction in the CPC segment while its rice sales is looking flat. VHC will likely see
sales growth of 8.3% with better demand in key markets. DPR sales growth, meanwhile, is
forecast at 10.7%, supported by a price increase of 3% and higher production volumes in
subsidiaries.
Excluding DPM, average EPS growth of our covered agriculture companies is forecast at
3.5% in 2020, and this justifies low valuation. Agriculture stocks are trading at average FY20
P/E of 6.2x and EV/EBITDA of 5.0x, while they offer an average dividend yield of 6.7% (DPR has
the highest yield, at 13.4%). In our view, even at such low valuations, an EPS growth of 3.5% in
2020 is not attractive enough for a cyclical and risky sector. All in, we recommend Underweight
for Agriculture sector; our top stock picks are VHC and LTG.
Figure 186: Agriculture Sector – Earnings growth

2019F 2020F 2019F 2020F 2019F 2020F
VHC (*) -11.8% 8.3% 6,759 6,728 +1.0% -0.5%
LTG (**) -2.0% 5.6% 5,510 4,845 +26.9% +14.4%
DPR -9.6% 10.7% 3,705 4,081 -25.6% +10.2%
DPM -21.5% 27.1% 580 942 -62.6% +122.0%
Market cap weighted average -13.7% +14.4% 4,298 4,370 -19.7% +42.0%
Market cap weighted average excluding DPM -9.9% 8.3% 6,083 6,016 0.9% 3.5%
(*) and (**) VHC and LTG EPS growth are based on core earnings
Agriculture Sector: Top picks
Vinh Hoan Corp. – A global player

(VHC, TP VND45,100, upside 16%)
• Leading Vietnamese pangasius exporter with 13.3% global market share and 50% US
market share in 9M 2019.
• Pangasius business will recover in 2020 thanks to more orders from the US, where
inventories have been cleared, and rising demand in China and Europe.
• Collagen and gelatin sales has been improving significantly since 2018. This business
carries high gross margin at 35% and we expect it will contribute 14% to VHC bottom line in
2020.
• We expect in 2020 the capacity of collagen and gelatin will be expanded by 75% to 3,500
tons per year from current level of 2,000 tons per year.
• Given that we forecast VHC net operating profit will grow by 7.4% y/y in 2020. VHC has a
one-off gain of VND104bn from selling stake in its affiliate Van Duc Tien Giang. Hence EPS
2020 will be almost flat y/y (-0.5% y/y).
• VHC is cheap with a FY20 P/E of 5.9x and dividend yield of 5.0%.
Figure 187: VHC selected financials Figure 188: 13.3% Export market Share
VHC 2018 2019F 2020F
Sales VNDbill 9,271 8,174 8,851
Sales Growth % 13.7% -11.8% 8.3%
Net Profit Growth % 138.5% -12.0% -0.5%
EPS VND 7,817 6,865 6,833
EPS Growth % 23.5% -12.2% -0.5%
P/E X 5.0 5.7 5.7
P/B X 1.8 1.6 1.4
ROE % 41.5% 29.7% 26.4%
Div Yield % 10.3% 0.0% 10.3%
Loc Troi Group – Top agriculture player with a complete value chain
(LTG, TP VND27,000, upside 33%)
• The foremost provider of crop protection chemicals (CPC) domestically and has a market
share of 20%.
• LTG is also the largest fully-vertically-integrated producer and distributor of rice in Vietnam.
• LTG ranks first in the commercial corn seed and watermelon seed segments and second in
the overall seed sector with a 9.2% market share.
• We expect the company will maintain revenue growth of 4.5% pa and NPAT growth of 3.4%
pa over the next 5 years.
• The company also plans to list on HoSE, the main exchange, in early 2020.
• DPS has remained high the over last few years and we expect to see a sustained dividend
yield of over 6.5% in the next couple of years.
• Stock is trading cheaply at FY19 P/E of 4.3x and FY20 P/E of 4.9.
Figure 189: LTG selected financials Figure 190: Competitive positioning

LTG 2018 2019F 2020F
Sales VNDbill 9,031 8,852 9,344
Sales Growth % 4.0% -2.0% 5.6%
Net Profit Growth % -0.7% 27.1% -12.1%
EPS VND 4,341 5,510 4,845
EPS Growth % -17.2% 26.9% -12.1%
P/E X 4.7 3.7 4.2
P/B X 0.7 0.6 0.5
ROE % 17.1% 19.4% 15.1%
Div Yield % 9.8% 7.9% 7.9%
Manufacturing: An improving outlook for 2020

Manufacturing had a rather mixed year in 2019 due to adverse movements of (1) generally
higher material input prices and (2) a deceleration in demand, particularly towards the end
of the year. We believe that the leading players, who generally have economies of scale,
the lowest production costs, nationwide distribution networks, and strong brand names,
will benefit from likely underlying trends in 2020.
Construction materials: Underlying trends turning positive
Figure 191: Construction materials sub-sector comps

Market cap. Price TP Up/(down) P/E (x) EV/EBITDA (x) Div. yield (%)
Ticker (VNDbn) (USDmn) (VND) Rating (VND) side (%) 2019F 2020F 2019F 2020F 2019F 2020F
Hoa Phat Group HPG VN 66,265.8 2,871.1 24,000 Buy 28,288 17.9 9.0 7.5 7.3 5.5 4.2 6.3
Hoa Sen Group (*) HSG VN 3,377.6 147.1 8,020 Hold 7,492 (8.2) 10.1 9.6 5.4 6.0 0.0 0.0
Nam Kim Group NKG VN 1,406.9 61.0 7,730 Reduce 5,611 (15.8) 23.6 11.4 9.8 6.3 0.0 0.0
Binh Minh Plastic BMP VN 3,659.2 158.5 44,700 Add 63,096 41.2 9.2 8.6 3.7 3.4 8.9 10.1
An Phat Plastic AAA VN 2,105.8 91.2 12,300 Add 17,000 38.2 6.3 4.9 5.7 4.0 2.9 8.1
(*) fiscal year from Oct 1 to Sep 30
Source: HSC Research estimates
Construction material producers, including steel and plastic manufacturers, both experienced
solid growth in sales volume in the early months of the 2019 before sales decelerated towards
the later months of the year. Indeed, in some specific months, such as September and October,
both of these construction materials sub-sectors delivered a negative growth rate y/y (though this
was mainly due to a slowdown in disbursements of public investment and a delay in the
construction of several new real estate projects).
Besides the slowdown in demand for construction materials in recent months, an adverse
movement in prices of input materials for the steel sector also negatively impacted margins in the
period. This said, we note that the difference in technologies of factories amongst the various
construction steel producers in Vietnam means that impacts are not uniform.
In Vietnam, 60% of steel production is done using EAF (electric-arc furnace) technology with
scrap as a key input material; producers here include Pomina and Vinakyoei. Meanwhile, HPG
employs a BOF (blast oxygen furnace) as its primary technology in its facilities, with iron ore and
coking coal as key input materials.
Given this, the rocketing iron ore price has clearly had a negatively impact on margins of HPG in
2019. For example, iron ore prices (62% Fe) jumped to USD126/tonne in July (due to an
accident at miner Vale, which happened in 1Q19) from just USD70/tonne in the beginning of the
year. Currently, iron ore is trading at about USD92/tonne, recovering from a recent low of
USD79/tonne in November.
Coking coal prices, in the meantime, declined to USD135/tonne from USD190/tonne. The
decline in coking coal prices were partly offset by the surge in iron ore. Meanwhile, the selling
price of construction steel products declined by 8.1% YTD. As is normal, the construction steel
price was positively correlated with scrap prices in 2019. During this period, scrap prices
declined to USD240/tonne in October from USD344/tonne, before recovery to USD290/tonne
currently.
Figure 192: Construction steel sales volume (tonne) Figure 193: Steel sheet and steel pipe sales volume
(tonne)
Source: VSA Source: VSA
Thanks to the correction in iron ore prices, as well as the relatively stable coking coal price and a
recovery of 10% in scrap prices, the selling price of construction steel has recovered somewhat.
For 2019, we forecast total construction steel and steel sheet & steel pipe consumption of
10.4mn tonnes (+4.3% y/y) and 6.1mn tonnes (-1.6% y/y), respectively. The recovery in both
demand and selling prices will boost the earnings for steel producers (which use BOF
technology) in 4Q this year, we believe, and also suggests at least a good start to 2020.
Outlook for 2020 and beyond

The trend of single digit growth of construction steel volume will likely continue in 2020 on the
delay of license approvals for new real estate projects in big cities including HCMC, Hanoi, etc.
and still-slow public investment disbursement. Faced with this prolonged issue, we expect total
sales volume of construction steel and steel sheet & steel pipe will increase by 3-4% y/y to
10.8mn tonnes (+4.0% y/y) and 6.3mn tonnes (+3.0% y/y), respectively, in 2020.
As a reminder, ‘safeguard taxes’ for long steel (including billet and construction steel) will expire
in March 2020. This said, we believe that the government will continue to protect the local
products by extending the protection scheme for long steel products. Consolidation will likely
continue, and this should allow the ‘winners’ to gain further market share in the future.
On 16 December 2019, the US Department of Commerce (DOC) announced five affirmative final
anti-dumping duty (AD) and countervailing duty (CVD) circumvention determinations involving
steel products produced in Korea and Taiwan. These products are shipped to Vietnam for minor
processing, before being exported to the US as corrosion-resistant steel products (CORE) and
cold-rolled steel (CRS) – in circumvention of an existing order. The applicable cash deposit rates
will be as high as 456.2%, depending on the origin of the substrate and the type of steel product
exported to the US. Recall that, DOC also imposed AD and CVD taxes on CORE and CRS
products, which both used materials originating in China, of 238.48% and 456.2%, respectively,
on May 16th 2019.
This most recent DOC decision was not surprising news. Faced with the potential of this
situation, Vietnamese CORE and CRS producers have found alternative production strategies in
order to avoid significant impacts. To meet the standard of origin for US orders, Vietnamese
producers of CORE and CRS products must also ensure that they source materials that do not
originate from China, Korea and Taiwan for use in their steel products.
Among listed companies, HSG and NKG are the two biggest players to export these products to
the US market. However, their exposure to the US market accounts for a small portion of their
total export sales volume (around 10%). As a result, we expect the impact to be minimal at this
stage. Meanwhile, the potential demand for Vietnamese hot-rolled coil (HRC), which still meets
requisite US origin standards, may be another positive catalyst for HPG (Buy, TP of VND28,288)
once they successfully launch their first HRC products in 2H20.
In conclusion, we believe that the leading players, who have economies of scale, the lowest
production costs, nationwide distribution networks and strong brand names, will benefit from
likely underlying trends in 2020. We like HPG and BMP (Add, TP of VND63,096) on the
consolidation theme.
Meanwhile, for the steel sheet segment, more and more entrants are participating in the market,
including both HPG and POM. This will increase the competition for the existing players such as
HSG and NKG, which are on restructuring programs.
The delay in license approvals nationwide and the still-slow disbursements of public investments
for infrastructure have put the market demand on construction materials under pressure for
years. Based on this issue, we believe that once the progress of license approval is solved and
disbursement for infrastructure projects is back to normal, the consumption of construction
materials (including steel and plastic products) will rebound strongly.
Automobiles and supporting industries: Expected to perform well in 2020
Figure 194: Autos sub-sector comps

VEAM Corp (*) VEA VN 58,865.8 2,560.8 44,300 Add 60,929 37.5 8.4 7.7 (954.9) 232.8 8.2 10.2
Da Nang Rubber JSC DRC VN 2,880.7 124.8 24,250 Buy 30,074 24.0 14.5 12.7 5.8 5.2 4.1 6.2
Pinaco JSC PAC VN 1,161.8 50.3 25,000 Add 30,080 20.3 7.5 7.6 7.3 6.9 6.0 6.0
(*) EV/EBITDA is not applicable for VEA as a holding company with majority of earnings come from JVs
Automobiles segment:
2019 has been a strong turnaround year for autos, and underlying trends and demographics
point to a good 2020 as well. Through 11M19, total Vietnam sales volumes of autos were posted
at 274,613 units (+12.4% y/y), according to the Vietnam Association of Auto Manufactures
(VAMA). Breaking this down:
• Passenger cars performed strongly, showing a growth of 21.5% y/y to 205,475 units.
• Commercial vehicles sales volume, on the other hand, declined by 5.2% y/y to 66,129 units.
This was mainly due to a 20.2% decrease in buses, a 45.5% drop in special purpose
vehicles, and a flat sales volume of trucks.
We forecast FY19 auto sales volume of 310,000 units (+12.0% y/y). For FY20, we forecast total
auto consumption will increase by 10% y/y to 341,000 units. In FY19, the CBU (completely built-
up) sub-segment doubled y/y thanks to the 0% import tax from ASEAN countries (including
Indonesia, Thailand, etc.)
Meanwhile, CKD (completely knocked-down) vehicles, on the other hand, decreased by 12.4%
y/y. Looking at FY20, we expect the CKD sub-segment will turnaround to deliver positive growth
as we understand that Toyota and Honda will begin assembling some popular models
domestically in Vietnam. CKD margins are normally higher than those for CBU products. Based
on these assumptions, we expect the business of auto companies – those that have better
product mixes (with a higher contribution from CKD products) – will improve going forwards.
Figure 195: Auto sales volume (units) Figure 196: Motorbike sales volume (units)
Source: VAMA Source: VAMM
Demand for cars among young families and car consumption is expected to increase strongly. A
strongly growing middle class, increases in per capita income, a low penetration of car
ownership, and infrastructure improvements will all be the key drivers for the automobile industry
going forward. With an increase in income, a ‘golden demographic’ could be emerging, with the
number of people having good earnings now accounting for 52% of the population.
With respect to the outlook for commercial vehicles, we believe that the demand for road
transportation cargo services has been impacted negatively to a degree by very strong demand
for air transportation services over the past three years. The launch of the low-cost carrier (LCC)
segment has clearly helped to reduce the cost of shipping through air transport.
Thanks to inherent ‘time’ advantages that air transport has versus road transportation, special
cargo (that which are light in weight, luxury in value, time sensitivity) will likely shift further away
from road transportation going forward. This said, following three consecutive years of
contraction (from 2016’s record sales volumes), the launch of more efficient Euro4-model trucks
should lead to positive growth gradually returning in the next 2-3 years.
Motorbikes segment:
Sales volume through 9M19 experienced a 4.8% y/y decline to 2,334,890 units and, for FY19 as
a whole, we forecast total motorbike sales volume will be at 3,250,000 units (-4.0% y/y). Notably,
this is the first year of contraction after four consecutive years with a decent growth (rates ranged
from 3.5% to 9.5% in the FY15-FY18 period).
Despite the drop in sales volumes of motorbikes in 2019, scooter sales volumes continued to
increase their proportion of total motorbike sales volume – to 52-55%, from 45% in the past –
and this better product mix is also leading to an improvement in the overall margins of the
motorbike makers. Amongst the five biggest players in this segment, Honda continued to expand
its market share to 78.9% in 9M19 from 75.9% in FY18. For FY20, we forecast a 2% y/y increase
in sales to 3,315,000 units, and we expect that Honda’s market share will exceed 80%.
Supporting industries:
Industry supporting the automotive sector remains underdeveloped in Vietnam, and this –
together with a low localization ratio and ineffective tax policies – is helping to lead to too-high
car prices in the country, in our view. This has negatively affected the development of the whole
automobile industry. Currently, local suppliers only make simple accessories such as body
shells, cabin shells, gear boxes, car seats, brakes, storage batteries and tires – generally, with
low technology content and value-added. A consequence of this has been that the automotive
supporting industry sector is poorly represented on the stock markets .
Nevertheless, with the bright prospects of automobiles, we expect the listed companies which
produce storage batteries and tires to deliver better earnings in 2020. Tire producers had a
turnaround year in 2019, thanks to strong demand from export markets and favorable
movements in input materials prices (mainly natural rubber). With huge orders made from the
US, Brazil and India, together with recovering demand for truck tires domestically, we expect
local tire producers will have a good year in 2020. With this expectation, we like DRC (Buy, TP of
VND30,074) with its turnaround story.
The storage battery is another accessory that local companies can produce for cars and
motorbikes; PAC (Add, TP of VND30,080) is the only listed company in this sub-sector. While a
fire in its Dong Nai 2 factory impacted production and sales activities in 3Q19, PAC should be
back to normal business from 4Q19 and beyond. This said, capacity constraints will likely limit
the growth for both top line and the bottom line of the company in FY20.
Textiles: Moderate growth prospects for 2020
Figure 197: Textiles sub-sector comps

Thanh Cong Textile Garment Investment Trading JSC TCM VN 1,135.2 49.2 19,600 Add 24,200 23.5 6.4 5.9 5.9 5.3 6.2 6.2
Century Synthetic Fiber Corporation STK VN 1,181.1 51.2 16,700 Hold 19,870 19.0 5.7 6.3 3.8 3.5 7.0 7.0
Song Hong Garment MSH VN 2,212.9 95.9 44,250 Not rated n/a n/a 5.1 4.3 3.8 3.5 9.0 n/a
According to Vietnam Textile & Apparel Association (Vitas), the export value of Vietnam’s textile
& apparel industry in 2019 is estimated to have been USD39bn (+7.6% y/y), below the target of
USD40bn (+10.3% y/y). Growth was slower compared to the two previous years – 10.8% y/y in
2017, and 16.4% y/y in 2018 – due to the global economic slowdown and trade war
consequences, in our view.
Prospects are looking better for 2020
We expect that the EU-Vietnam Free Trade Agreement (EVFTA) will come into force from July
2020, after being ratified by the EU Parliament in February 2020 and Vietnam National Assembly
in May-June 2020. Under the EVFTA, there are to be four categories of tariff reductions on
Vietnamese textiles and clothing exports to the EU, including A, B3, B5 and B7. These
categories set out different implementation timelines; i.e., the customs duties on A category good
are to be eliminated from the date of entry into force (we assume July 2020), while other
categories’ import tariffs will be removed gradually over a 3-7 year period.
Despite long-term opportunities, we see insubstantial benefits from the FTA to Vietnam’s
textile and apparel industry in 2020. The reasons are set out as below:
• In 2020, goods in A category will benefit the most from EVFTA thanks to tariff elimination.
However, goods in B category will have negligible benefit with a small reduction in import
tariff to 9.0% from 9.6%. Moreover, goods in group B5 and B7 will gain no benefit from
EVFTA. This is because Vietnam is currently benefiting from the so-called Generalized
Scheme of Preferences (GSP), an arrangement of the EU for low and lower-middle income
countries. Therefore, main tariffs on Vietnamese clothing imported to the EU is currently at
9.6%, which is lower than the rates applied under EVFTA for B5 and B7 categorizes in the
first year of entry into force (10.0% and 10.5% respectively). As a result, group B5 and B7
will still apply the old tariff rates under GSP and have no benefit from EVFTA in 2020.
• Key export products of Vietnam’s textile and garment industry are t-shirts, jackets and
trousers. While a few types of the products are arranged in the A category, most of the
products are classified into B3 and B5 categories. Therefore, in general Vietnam’s textile and
garment industry will not gain much benefit from EVFTA in 2020. The industry will start
gaining more considerable benefits from the FTA from January 2021, when all import tariffs
will be lower than the current rates.
Figure 198: Tariff reduction process on major Vietnamese textile and clothing products under
the EVFTA
Type Base rate under EVFTA Main rate under GSP Entry into force (2020) 1/1/2021 1/1/2022 1/1/2023 1/1/2024 1/1/2025 1/1/2026 1/1/2027
A 12% 9.6% 0% 0% 0% 0% 0% 0% 0% 0%
B3 12% 9.6% 9.0% 6.0% 3.0% 0% 0% 0% 0% 0%
B5 12% 9.6% 10.0% 8.0% 6.0% 4.0% 2.0% 0% 0% 0%
B7 12% 9.6% 10.5% 9.0% 7.5% 6.0% 4.5% 3.0% 1.5% 0%
Source: Foreign Trade Association, HSC Research
On the other hand, in February 2020, the EU Commission will take a decision on whether or not
to temporarily withdraw Cambodia’s ‘Everything But Arms’ (EBA) trade preferences. Losing the
privilege would mean that the majority of Cambodia’s textile and apparel exports to the EU will
face a tariff rate of approximately 12% instead of their current duty-free access. As Cambodia is
the 5th largest textile and apparel exporter into the EU, with 3.5% market share in 2018, Vietnam
would be a potential beneficiary from the EBA withdraw. In 2018, Vietnam held 3.3% market
share of textile and apparel exports into the EU, making it the 6th largest exporter.
Taking all this into account, we are looking for moderate (single digit) growth in the
industry in 2020. We saw a decreasing growth trend in the export value of Vietnam’s textile and
garment industry in the last months of 2019. Moreover, according to Vitas, many Vietnam
garment companies are experiencing a decline in orders for 2020. Coupling with sluggish
demand prospects in Vietnam’s main importing countries (the US, the EU, Japan) due to
economic slowdowns, we forecast export value of Vietnam textile and apparel industry in 2020
will grow by 7.0% y/y to USD41.7bn. However, if Cambodia’s EBA is withdrawn, we would
expect a higher growth of 8.0-9.0% y/y thanks to the market share gained in the EU market.
Among listed companies in Vietnam’s textile and garment industry, we like TCM (Add, TP of
VND24,274 – a top pick) the most, while unrated MSH may also be interestingly positioned. TCM
is one of a few companies in Vietnam that has a full supply chain, from yarn to garment.
Therefore, TCM will likely be a direct beneficiary from the FTAs thanks to their origin
requirements. MSH, meanwhile, is one of the largest garment companies in Vietnam; it has good
earnings prospects thanks to a strategy to shift from CMT (cut – make – trim) to FOB (free on
board), thus should be able to improve profit margins in the coming years.
Manufacturing Sector: Top picks
Da Nang Rubber – Strong operational turnaround, improving export

demand
(DRC, TP VND30,074, upside 24%)
• Recent turnaround in earnings were mainly thanks to the higher demand from export
markets with sharp expansion in margins.
• Higher utilization rate and better cost management helped DRC to expand its Radial tire
margins.
• New products, namely LTR, which will be launched next year. Solid demand from auto
makers will be the key driver for DRC in the upcoming years.
• Machinery installed at Radial factory (Phase 1) will be fully depreciated by the end of FY20.
The depreciation decline will translate directly to the bottom line.
• Dividend yield is expected to improve for the upcoming years especially after FY21 once the
depreciation cost drops.
• We forecast the company will pay FY19-23 cash dividend in range of VND1,000-2,500/share
and giving us a dividend yield range of 4.4-11.0% in the same period.
Figure 199: DRC selected financials Figure 200: Margins and sales
Market Cap, USDmn 125 GPM (%) 1Q FY19 2Q FY19 3Q FY19
DRC 2018 2019F 2020F
Sales VNDbill 3,551 4,024 4,383 Bias tires 20.7% 25.3% 26.6%
Sales Growth % -3.2% 13.3% 8.9% Radial tires 1.2% 6.8% 12.0%
Bicycle 5.2% 12.4% 11.5%
Net Profit Growth % -15.1% 55.2% 14.0%
EPS VND 1,080 1,676 1,911 Motorbike 10.0% 16.0% 14.9%
EPS Growth % -16.9% 55.2% 14.0% GPM 9.7% 14.4% 16.7%
P/E X 22.5 14.5 12.7
P/B X 1.9 1.8 1.7
ROE % 9.3% 14.0% 15.3% Export activities 1Q FY19 2Q FY19 3Q FY19
Div Yield % 4.5% 4.1% 6.2% Export sales (US$ '000) 14,871 19,879 19,947
Radial export value (US$ '000) 10,424 15,038 15,824
Radial export volume (tires) 70,556 104,304 105,355
Growth (%) 1Q FY19 2Q FY19 3Q FY19
Export sales (US$ '000) 20.6% 28.7% 48.5%
Radial export value (US$ '000) 39.4% 55.9% 69.7%
Radial export volume (tires) 45.2% 69.6% 71.3%
Hoa Phat Group – Earnings bottomed out; cheap valuations

(HPG, TP VND28,300, upside 18%)
• We believe that negative sentiment regarding the bottom line in FY19 has been discounted.
• Structurally we continue to see HPG as the main beneficiary of: (1) the expansion in
Vietnam’s industrial space which is leading to demand for new types of steel, (2) an import
substitution strategy, especially in flat steel products and (3) ongoing consolidation in the
industry where they remain the lowest cost producer.
• HSC expects that the company to resume double-digit profit growth in 2020 thanks to a full-
year contribution from the Dung Quat factory, coupled with tax incentives that start from this
year.
• The Dung Quat factory will be the key driver for HPG in the next 3 years.
• Valuation is cheap. Cash dividend will resume being paid next year.
Figure 201: HPG selected financials Figure 202: Capacity and sales
Market Cap, USDmn 2,871 Capacity (tonne) FY17 FY18 FY19F FY20F
HPG 2018 2019F 2020F Construction steel 2,150,000 2,960,000 4,860,000 4,860,000
Sales VNDbill 55,836 62,941 81,080 % y/y 7.5% 37.7% 64.2% 0.0%
Sales Growth % 21.0% 12.7% 28.8% Steel pipe 600,000 700,000 800,000 900,000
% y/y 20.0% 16.7% 14.3% 12.5%
Net Profit Growth % 7.1% -9.4% 20.4%
Steel sheet 400,000 400,000 400,000
EPS VND 3,835 2,672 3,216
% y/y 0.0% 0.0%
EPS Growth % -32.8% -30.3% 20.4%
P/E X 6.3 9.0 7.5 HRC 2,500,000
P/B X 1.3 1.4 1.3 % y/y n/a
ROE % 23.6% 17.6% 18.9% Sales volume (tonne) FY17 FY18 FY19F FY20F
Div Yield % 0.0% 8.3% 8.3% Construction steel 2,180,566 2,377,788 2,689,124 3,199,517
% y/y 20.9% 9.0% 13.1% 19.0%
Steel pipe 581,000 653,900 751,985 827,184
% y/y 21.0% 12.5% 15.0% 10.0%
Steel sheet 200,000 156,000 150,000 200,000
% y/y -3.8% 33.3%
HRC 500,000
% y/y n/a
Binh Minh Plastic – Leading player with positive strategic initiatives

(BMP, TP VND63,000, upside 41%)
• Leading plastic pipe company with highest quality of products and lowest cost of production.
Nationwide distribution network.
• Strategic focus is to continue improving quality of products.
• Automation in production will be the key driver in the future for BMP to gain further market
share and improve its efficiency of operation.
• Despite seeing single-digit growth in both FY19 and FY20, we believe that BMP will remain
the main beneficiary of: (1) the long term requirement to increase infrastructure investment in
Vietnam, (2) some economies of scale, and a strong balance sheet, coupled with a very solid
management team and (3) industry consolidation.
• We have seen several positive influences from its controlling stake in Nawaplastics - BMP’s
position in the market is being enhanced.
• Valuation looks reasonable with an attractive dividend yield, which are expected to be stable
at 7.5%. This underpins solid returns for value investors over the long-run.
Figure 203: BMP selected financials Figure 204: Dividend policy

Market Cap, USDmn 159 Cash dividend policy FY18A FY19F FY20F
BMP 2018 2019F 2020F Cash dividend payment (VND/share)
4,000 4,000 4,500
Sales VNDbill 3,920 4,355 4,706 Dividend yield (%) 7.9% 7.5% 8.5%
Sales Growth % 2.5% 11.1% 8.1% Payout ratio (%) 76.6% 74.3% 77.7%
EPS VND 4,802 4,846 5,216
EPS Growth % -6.0% 0.9% 7.6%
P/E X 9.3 9.2 8.6
P/B X 1.5 1.5 1.4
ROE % 17.4% 17.7% 18.6%
Div Yield % 8.9% 8.9% 10.1%
Vietnam Engine and Agricultural Machinery Corp. – Value and dividends

(VEA, TP VND60,900, upside 37%)
• Earnings from associates (including Honda, Toyota and Ford) are the key contributors to
VEA.
• VEA holds a dominant position in both the motorbike market (via Honda) and the automobile
market (via the combination of its joint ventures with Toyota, Honda and Ford).
• In the short-term, a weakening in the motorbike market will have a negative impact on the
top line of the Honda JV, but continued expansion in margins thanks to a better product mix
will be the key driver for the bottom line.
• Toyota businesses are improving steadily thanks to a very strong increase in sales volume
coupled with an expansion in market share. Earnings are expected to continue grow nicely in
the next 3 years.
• VEA’s valuation is reasonable with an attractive cash dividend yield of 8.1%.
Figure 205: VEA selected financials Figure 206: Motorbike marketshare

VEA 2018 2019F 2020F 800,000 84.0%
80.6% 82.0%
Sales VNDbill 7,070 4,596 5,055 700,000
Sales Growth % 7.7% -35.0% 10.0% 80.0%
600,000
Net Profit VNDbill 7,010 7,051 7,705 78.0%
500,000 76.0%
EPS VND 5,223 5,253 5,740 400,000 74.0%
EPS Growth % 37.5% 0.6% 9.3% 300,000 70.9% 72.0%
P/E X 8.5 8.5 7.7 70.0%
200,000
P/B X 2.4 2.3 2.3 68.0%
100,000 66.0%
ROE % 32.3% 28.0% 29.8%
Div Yield % 0.9% 8.5% 10.1% - 64.0%
1Q FY18
2Q FY18
3Q FY18
4Q FY18
1Q FY19
2Q FY19
3Q FY19
Motorbike sales volume Honda market share
Thanh Cong Textile – Earnings recovery in 2020

(TCM, TP VND24,300, upside 24%)
• We forecast FY19 net profit will decline 22.0% y/y due to the poor performance of yarn
segment given low demand from China as a result of trade war.
• Low productivity of the new factory (Trang Bang factory) which was put into operation from
October 2018 has been corrected – this will lead to improved margins.
• For FY20, we are forecasting 11.6% growth in net profit thanks to growth in sales volumes of
garment (+7.0% y/y) and fabric segments (+5.0% y/y).
• The Thanh Cong Tower 1 project will be another catalyst for TCM as the revaluation process
could bring around VND130bn in non-cash gains for the company.
• In the long-term, TCM is one of a few Vietnamese companies that can satisfy the rules of
origin under free trade agreements. Thus, it will be a direct beneficiary from the FTAs.
Figure 207: TCM selected financials Figure 208: A rebound in the share price?
Market Cap, USDmn 49 TCM Common (TCM)
TCM 2018 2019F 2020F Closing price Relative To VNIndex (RHS)
Sales VNDbill 3,662 3,700 4,011 34,500 141
Sales Growth % 14.1% 1.0% 8.4%
Net Profit VNDbill 259 202 226 29,500 105
Net Profit Growth % 35.2% -22.0% 11.6%
EPS VND 4,069 3,046 3,305 24,500 69
EPS Growth % 28.7% -25.1% 8.5%
P/E X 4.8 6.4 5.9 19,500 33
P/B X 0.8 0.8 0.7
ROE % 22.1% 15.2% 15.5% 14,500 -3
Div Yield % 2.5% 6.1% 6.1%
9,500 39
15
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8/16
6/17
4/18
2/19
Transportation & Logistics: Building a base for long-term growth

The air and seaport transportation industries in Vietnam both appear to feature positive
drivers to growth. Regarding air, the government’s support of industry developments
should lead to more capacity, better fares and a ‘cycle of growth’ over at least the medium
term – though it must also improve airport infrastructure for longer-term growth.
Meanwhile, continued, strong growth in FDI and higher trade flows should help seaports.
Figure 209: Aviation sub-sector comps

Airports Corporation of Vietnam ACV VN 161,533.3 6,978.3 73,900 Buy 95,000 28.6 24.0 22.0 12.1 11.2 1.2 1.2
Vietnam Airlines JSC HVN VN 47,512.7 2,058.6 33,500 Add 40,443 20.7 16.8 20.0 6.8 6.9 2.4 2.4
Vietjet Aviation JSC VJC VN 76,480.4 3,313.7 146,000 Hold 126,710 (13.2) 14.8 13.9 11.1 10.7 3.6 3.6
Saigon Cargo Services SCS VN 6,079.5 251.2 122,000 Not rated N/a N/a 14.7 13.0 10.4 9.2 2.3 3.7
Air transportation: Benefitting from higher demand

The increase in income per capita of Vietnam resulted in higher ‘in-country’ demand for the
tourism industry in 2019. Moreover, Vietnam welcomed a record high of international visitors into
Vietnam in FY19 thanks to strong growth from Chinese, Korean, Taiwanese and Japanese
visitors.
In 11M19, total international visitors into Vietnam increased by 15.4% y/y to 16.3mn pax. For
FY19, we expect international visitor arrivals to have reached 17.9mn pax (+15.6% y/y). Day by
day, more direct flights to Vietnam are being scheduled, especially from China, Korea, Japan
and Taiwan.
Going forward, we believe that the relaxation for the establishment of new airlines – decree No
89/2019/ND-CP – will lead to increased industry growth. Currently, Vietnam has a total of five
carriers, including Vietnam Airlines, Vietjet, Jetstar, Bamboo Airways and Vasco. In 2H20, we
expect to welcome four new players, including Vietstar Airlines, KiteAir, Vinpearl and Vietravel
Airlines.
More competition in the aviation industry should result in lower ticker fares and more capacity for
new potential passengers to shift from railway and car transportation to air transportation. Based
on this assumption, we can expect to see a sharp increase air transportation around the country.
With help from the apparent shift of preference of Chinese tourists away from traditional hot
spots such as Hong Kong and Taiwan, Vietnam is expected to welcome more international
visitors in 2020. We expect to see an overall 10% growth in international visitors into Vietnam in
2020 to 19.7mn arrivals for the full year.
Figure 210: Number of accumulated tourist arrivals
Source: Vietnam National Administration of Tourism
As mentioned above, air traffic will continue to be supported by a combination of local and
international visitors. However, the sharp rise in the number of air passengers within, and to,
Vietnam has put enormous strain on Tan Son Nhat (TIA) and Noi Bai (NIA) international airports.
The country’s aviation facilities are not at a level to match the growth of the industry. This leaves
the facilities in a serious state of degradation. The upgrading of two main runways in TIA and
NIA for four months over August-October 2020 will have a short-term impact on aviation traffic.
However, once the maintenance is done, we believe that double digit growth in air traffic will be
restored.
Figure 211: Vietnam tourism industry
Source: Vietnam National Administration of Tourism
In the air aviation area, ACV (Buy, TP of VND95,000) is our top pick for the time being due to its
monopoly position in air transport and strong fundamentals.
Seaports: Promising long-term prospects
Figure 212: Seaports sub-sector comps

Gemadept Corporation GMD VN 6,606.6 286.2 22,250 Add 28,300 27.2 12.3 13.1 7.0 7.3 6.7 6.7
Vietnam Container Shipping Corporation VSC VN 1,515.9 65.7 27,500 Buy 33,099 20.4 7.4 6.7 2.9 2.5 9.1 10.9
The US-China trade war and global economic slowdown has had a negative short-term impact
on Vietnam’s seaport industry in 2019. For the first nine months of 2019, the total throughput of
Vietnam’s container seaports grew only 6% y/y, well below a CAGR of 16.1% seen over the
2015-2018 period; this was a result of decelerating growth in total Vietnam exports and imports.
For FY19 as a whole, we estimate throughput volumes of Vietnam’s container seaports will grow
5.6% y/y to 19.1mn TEUs.
We maintain our positive view regarding the long-term prospects of Vietnam’s seaport industry
thanks to likely strong growth in FDI inflows. Notably, in FY19 FDI commitments grew strongly -
this growth mainly came from the trend towards factory relocations – out of China and into
Vietnam – to avoid the trade war and to take advantage of cheaper costs for assembly.
Therefore, we expect that once the new wave of factories commence their operations (mostly, in
2H20), throughput volumes for Vietnam’s seaports should recover strongly. Indeed, for 2020, we
forecast Vietnam’s container seaport throughput volumes will increase by 10% y/y to 20.9mn
TEUs.
Figure 213: Vietnam container throughput volumes Figure 214: Container throughput by port
Source: Vinamarine, HSC Research Source: Vinamarine, Maritime Administration of Haiphong, HSC Research
The potential beneficiaries from the recovery in seaport throughput volume in FY20 including
VSC (Buy, TP of VND33,099) and GMD (Add, TP of VND28,372).
We view VSC as a value stock instead of a growth stock. The company is expected to pay back
total long-term debts by mid-FY20 at the latest, therefore it should have very strong cash flows in
coming years. Moreover, despite a contraction in net profit in FY19, we forecast earnings will
turnaround in FY20 thanks to lower interest expenses and an absence of one-off expenses
relating to tax arrears and penalties.
We like GMD’s long-term prospects thanks to its seaport projects, including Gemalink (expected
to commence operations by end-FY20) and Nam Dinh Vu phase 2. GMD has the best location
among container terminals in the Cai Mep Thi Vai area, which has experienced strong growth in
throughput volumes in recent years given its ability to accommodate large vessels up to 200,000
DWT. Furthermore, Nam Dinh Vu phase 2, with expected operations from 2Q21, will help GMD
sustain growth in the north as the Phase 1 project will likely reach full capacity from FY21.
Transportation Sector: Top picks
Airports Corporation of Vietnam – Monopoly positioning

(ACV, TP VND95,000, upside 25%)
• ACV operates 21 key airports across Vietnam and has a monopoly position in this industry.
• The air traffic sector will continue to deliver a strong growth in the future thanks to a
increasing demand from both international visitors and local travelers.
• We see a lot of room for ACV to improve its efficiency in operations. The possible removal of
the cap on non-aeronautical charges will give ACV a great opportunity to improve its margins.
• Tan Son Nhat Terminal 3 and Long Thanh International Airport will be the key driver for ACV
in the next 5 years.
• The valuation looks attractive in comparison with regional peers.
Figure 215: ACV selected financials Figure 216: Vietnam tourism growth
Market Cap, USDmn 6,978 100,000 60.0%
ACV 2018 2019F 2020F Vietnam tourism industry
Sales VNDbill 16,090 17,711 19,408 50.0%
Sales Growth % 16.3% 10.1% 9.6% 80,000
Net Profit VNDbill 6,135 7,212 7,851 40.0%
Net Profit Growth % 49.6% 17.5% 8.9% 60,000
EPS VND 2,630 3,081 3,354 30.0%
EPS Growth % 54.8% 17.1% 8.9% 40,000
P/E X 28.1 24.0 22.1 20.0%
P/B X 5.2 4.5 3.9
ROE % 21.1% 21.7% 20.5% 20,000 10.0%
Div Yield % 1.2% 1.2% 1.2%
- 0.0%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Domestic trippers ('000) International visitors ('000)
Dom visitor growth rate (%) Int'l visitor growth rate (%)
Vietnam Container Shipping – Leaving 2019 behind

(VSC, TP VND33,000, upside 20%)
• We are forecasting that FY19 net profit will decline 27.1% y/y due to one-off expenses from
tax arrears and associated penalties and that gross margins will have declined to scheduling
issues at VSC’s ports.
• We are forecasting FY20 net profit growth of 15.0% y/y thanks to an absence of the one-off
expenses as booked in FY19, decrease in interest expenses as bank borrowings will drop
significantly in FY20 and a slight improvement margins thanks to a decline in outsourcing
volumes.
• VSC will pay total long-term debts by mid-FY20 at the latest, in our view.
• We forecast cash dividend payment will be at least VND2,500 per share in the 2020-2023
period, equivalent to a dividend yield of 10.3% on the current share price.
• We believe the negative sentiment relating to poor performances in FY19 has been
discounted in stock price.
Figure 217: VSC selected financials Figure 218: Bad news discounted
Market Cap, USDmn 66 VSC Common (VSC)
VSC 2018 2019F 2020F Closing price Relative To VNIndex (RHS)
Sales VNDbill 1,694 1,815 1,842 56,000 200
Sales Growth % 30.1% 7.1% 1.5%
Net Profit VNDbill 300 219 252 51,000 171
Net Profit Growth % 26.6% -27.1% 15.0% 46,000 143
EPS VND 5,575 3,718 4,114
EPS Growth % 15.4% -33.3% 10.7% 41,000 114
P/E X 4.9 7.4 6.7 36,000 86
P/B X 0.8 0.8 0.8
ROE % 19.3% 12.6% 13.3% 31,000 57
Div Yield % 7.3% 9.1% 10.9% 26,000 29
21,000 0
6
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Gemadept – Bright long-term prospects

(GMD, TP VND28,300, upside 18%)
• Large investment projects while come onstream in FY20-FY21.
• Gemalink will commence operating from the end-3Q20 while Nam Dinh Vu phase 2 broke
ground in November 2019 and is expected begin operating from 2Q21.
• We are forecasting core PBT will see CAGR of 6.9% in the period FY19-FY21. Single-digit
growth will reflect the ramp up in utilization rates of new projects.
• However, the outlook is good: Gemalink will be the key driver for long-term growth of GMD
as it has the best location among container terminals in the Cai Mep Thi Vai area and while
strong growth in throughput volumes of this area (CAGR of 27.1% in the previous 5 years
are set to continue.
• Nam Dinh Vu phase 2 will help GMD sustain growth in the North as Phase 1 will reach full
capacity from 2021.
• Valuations are inexpensive and yields are solid.
Figure 219: GMD selected financials Figure 220: Increasing activity

GMD 2018 2019F 2020F Haiphong and CMTV container throughput
Sales VNDbill 2,708 2,799 3,021 6,000 50.0%
Sales Growth % -32.0% 3.4% 7.9% 40.0%
Net Profit VNDbill 1,848 585 550 5,000 28.3% 40.0%
Net Profit Growth % 263.8% -68.3% -6.0% 24.6%
4,000 30.0%
EPS VND 6,207 1,812 1,704 16.6% 26.0%
EPS Growth % 216.4% -70.8% -6.0% 3,000 20.0%
9.3%
P/E X 3.6 12.3 13.1 12.0% 6.6% 7.9%
2,000 10.0%
P/B X 1.1 1.1 1.1
ROE % 30.2% 9.9% 9.1% 1,000 -0.80% 0.0%
Div Yield % 43.0% 6.7% 6.7%
- -10.0%
2015 2016 2017 2018 6M19
Hai Phong throughput ('000 TEUs) Cai Mep Thi Vai throughput ('000 TEUs)
Hai Phong growth Cai Mep Thi Vai growth
Energy: Challenges abound, but big players remain well-

positioned
Vietnam’s oil & gas sector is facing a difficult time with low production, low capex and
energy security uncertainty.
We believe that the key ‘big picture’ themes in Vietnam’s energy markets include: the (negative)
impact that Vietnam’s aging oil fields are having on production; the (negative) impact that
slowing/declining capex – exacerbated by the China-Vietnam territorial dispute – is having on
proven reserves; the fact that key oil and gas projects are being delayed; the fact that Vietnam’s
self-sufficiency in gas has come to an end; and the likelihood of more electricity shortages.
In spite of these largely negative headlines, we expect that the country’s leading players –
including PVS, PVD and PVT – will still find their way through the tough seas and enjoy some
stock price recovery from current low levels.
Figure 221: Energy and utilities sector comps

Listed Current Market cap. Price TP Up/(Down) P/E (x) EV/EBITDA (x) Div. yield (%)
Stock
Ticker shares shares out Rating
Exchange (VNDbn) (USDmn) (VND) (VND) side (%) 2019F 2020F 2019F 2020F 2019F 2020F
(m) (m)
Oil & gas
PetroVietnam Gas Joint Stock Corporation GAS VN 1,895.0 1,914.0 HSX 179,337.1 7,730.0 93,700 Hold 107,300 14.5 16.7 15.5 11.7 10.8 3.2 3.2
Petrovietnam Drilling & Well Service Corporation PVD VN 421.1 421.1 HSX 6,338.0 273.2 15,050 Buy 20,400 35.5 116.3 37.5 10.9 8.9 0.0 0.0
PetroVietnam Technical Services Corporation PVS VN 478.0 478.0 HNX 8,364.4 360.5 17,500 Buy 22,818 30.4 9.1 8.5 2.5 1.5 - 0.0
PetroVietNam Transportation Corporation PVT VN 281.4 281.4 HSX 4,728.2 203.8 16,800 Buy 22,000 31.0 7.0 6.4 4.2 3.5 6.0 6.0
Vietnam National Petroleum Group PLX VN 1,293.9 1,170.8 HSX 65,565.5 2,826.1 56,000 Add 64,800 15.7 18.1 18.6 9.9 8.8 5.4 5.4
PetroVietnam Oil Corporation OIL VN 201.4 1,088.4 UpCom 9,033.9 389.4 8,300 Add 10,000 20.5 24.9 23.2 11.3 11.0 0.0 0.0
Power
PetroVietnam Power Corporation POW VN 2,341.9 2,341.9 HSX 26,814.4 1,155.8 11,450 Buy 16,200 41.5 10.9 9.8 4.9 4.6 0.0 2.6
Pha Lai Thermal Power Joint Stock Company PPC VN 326.2 320.6 HSX 8,624.5 371.7 26,900 Reduce 22,910 (14.8) 8.1 9.2 8.3 9.7 11.2 10.4
Gia Lai Electricity Corporation GEG VN 203.9 203.9 HSX 5,505.1 237.3 27,000 NR n/a n/a 11.3 9.0 8.3 6.6 3.7 3.7

Source: Companies, HSC Research
Production output is declining as existing fields are aging

Since 2015, Vietnam's oil & gas production has declined by around 10% per year (Figure 1) as
Bach Ho – the largest oil field in Vietnam, accounting for 60% of production – is running out of oil
and will be completely depleted in the next 4-5 years.
Indeed, PetroVietnam (PVN), the state-owned corporation in charge of oil & gas exploration and
production on behalf of Vietnam government, estimates that crude oil production will continue to
decline during 2020-2025 due to the aging of existing production fields, declining proven
reserves, and investment shortages. Such declining production output together with unstable
crude oil prices then leaves oil & gas operators a thin cash position to invest in further
exploration for new oil & gas reserves.
Figure 222: Oil production
30.0
25.0
20.0
15.0
10.0
5.0
-
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20F
Crude oil (mn toe) Natural gas (mn toe)
Source: PVN, HSC Research
Proven reserves are declining due to lower investment in upstream

activities
Vietnam has a large oil & gas potential with estimated geological reserves coming in at around
10bn tonnes of oil equivalent (toe), with proven reserves coming at 1.3bn toe as of early 2019.
Vietnam is currently the third largest holder of proven reserves in Asia, behind China and India.
However, since 2015, Vietnam’s oil & gas proven reserves have been declining as the reserves
of new oil & gas discoveries have been lower than production output. This is the direct
consequence of lower investment in upstream activities in Vietnam waters over the last few
years, in our view.
During 2016-2019, PVN spent only USD3.6bn on exploration and production (E&P) activities,
about 80% lower than that for the 2011-2015 period (Figure 2). Following this, PVN was able to
add only 25.6mn toe to the country's proven reserves, compared to a total of 207.5mn toe added
to proven reserves during 2011-2015.
The territorial dispute between Vietnam and China is also preventing upstream activities.
Recently, China increased its maritime militia activities in and around Vietnamese territorial
waters. This is unsettling for oil & gas operators in Vietnam waters and makes it difficult for
Vietnam to call for investment in its oil & gas projects.
The decline of E&P capex during 2016-2019 was mainly because three years of low crude oil
prices during 2015-2017 had cleaned out domestic oil & gas producers’ retained earnings. This
meant there was little re-investment in exploration given that the sustainable break-even price,
i.e. the price that covers production costs and all other costs prior plus post production costs was
around USD55/bbl.
With the oil price level forecasted to be stable around USD60 for 2020, we believe total E&P
capex in Vietnam water will remain small as domestic oil & gas operators don’t have the money
to restart any important E&P programmes.
Figure 223: Vietnam upstream capex and new reserves
60 5
5
50
4
4
40
3
30 3
2
20
2
1
10
1
- -
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20F
New proven reserve added (million toe) Total E&P capex (USD bn)
Source: PVN, HSC Research
Key oil & gas projects are delayed
Vietnam’s key upcoming upstream projects, Block B and Blue Whale (see table below), have
been delayed for an extended period. The Block B project has been delayed for about five years
now, mainly due to disagreements between the Vietnamese government and the gas field
owners over natural gas prices.
This has led to delays in gas field development, the laying of gas transportation pipelines, and
the building of downstream facilities, including the O Mon gas-turbine thermal power plants III
and IV.
The Blue Whale project, meanwhile, has been delayed for more than a year as Exxon Mobile,
the biggest stakeholder with a 64% working interest in the project, is putting pressure on PVN
(which has a 36% interest and is the gas buyer at the same time) to increase gas selling price
from what was previously offered. No information about gas prices or annual volumes has been
confirmed.
Figure 224: Vietnam’s key oil & gas projects

Production time
Reserves Capex
Project Stake holders Key output Facilities Actual
(mn toe) (USD bn) Planned
(est.)
PVN (42.9%), PVEP Transportation pipelines, gas
Block B (22.8%), MOECO 105 10 Natual gas processing plant, gas-turbine 2020 2024
(22.6%), PTTEP (7.7%) thermal power plants
Transportation pipelines, gas

Exxon Mobile (64%),
Blue Whale 140 13 Natual gas processing plant, gas-turbine 2023 2025
PVN (36%)
thermal power plants
Thi Vai LNG LNG warehouse, LNG receiving
GAS (100%) n/a 0.57 LNG 2021 2023
Terminal port
Source: PVN, (F): HSC Research
Vietnam's self-sufficiency in gas has come to an end

Due to delays in key gas projects, Vietnam’s gas production can no longer cover domestic
consumption. Starting from 2020, Vietnam will have to import natural gas from Malaysia using
the PM3-Ca Mau pipeline before accelerating its LNG imports when new LNG facilities in the
country are ready (we expect the import volume would come to around 1bn cubic meter per
year).
The limited availability of domestic gas resources, and the projected dependence on gas
imports, has been changing the pricing of domestic natural gas – it is becoming more market
driven.
Prior to January 2019, the price of natural gas at take-or-pay volumes for power plants was
regulated by the Ministry of Industry and Trade (MOIT), and a price above take-or-pay volumes
was floated at 46% of monthly average furnace oil prices in the Singaporean market (MFO) plus
transportation fees and distribution fees. Now all natural gas for power plants is floated based on
46% MFO plus transportation fees and distribution fees.
As a consequence of the abovementioned matter, all six of the gas-turbine thermal power plants
approved in the Vietnam Power Development Plant VII have been delayed due to the delay of
related gas projects (see table below).
Figure 225: Gas-fired power projects 2018-‘25, as scheduled in revised PDP VII
Timeline as
Possible
Capacity scheduled in
# Project Investor deployment Reason for delay
(MW) the revised
time
PDP VII
1 Nhon Trach gas-turbine plant III & IV 2x750 PVN 2020 - 2021 2023 - 2024 Delay of LNG import facility
2 Son My gas-turbine plant I, II, III 3x750 PVN 2023 - 2025 2026 - 2028 Delay of LNG import facility
3 Kien Giang gas-turbine plant I & II 2x750 PVN 2020 - 2021 N/A No natural gas supply
4 Central gas-turbine plant I & II 2x750 PVN 2023 - 2024 2024 - 2025 Delay of Blue Whale project
5 O Mon gas-turbine plant III & IV 2x750 EVN 2020 - 2021 2024 - 2025 Delay of Block B project
6 Dung Quat gas-turbine plant I & II 2x750 EVN 2023 - 2024 2024 - 2026 Delay of Blue Whale project
Source: MOIT (revised PDP VII)
Electricity shortages will be more severe

Due to delays of gas-turbine power plants and other coal-burning power projects, Vietnam’s
electricity shortages will likely be more severe as demand is projected to grow faster than new
generation capacity is added.
We forecast that in FY20 Vietnam will be short of 8.2bn kWh, compared to the shortage of about
5.4mn kWh in FY19 (chart below). To manage the electricity shortage, EVN will have to: (1)
encourage existing power plants to produce more by increasing its purchasing price in the
competitive generation market; (2) import electricity from Laos and China; and (3) limit power
supply for residential uses during peak hours.
Figure 226: Vietnam electricity shortages projected to 2025

million kWh
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
-
FY18
FY19F
FY20F
FY21F
FY22F
FY23F
FY24F
FY25F
(50,000)
Gross demand Generation output Shortage
Source: MOIT, HSC Research
Thoughts on stocks
We believe that Vietnam’s leading oil & gas players, including PVD, PVS, and GAS, should be
able to safely navigate their way through this tough time. We also expect some stock price
recovery as these stocks are trading quite far below their regional peers.
PVD aims to focus on getting jobs for its rigs in foreign waters, instead of Vietnam offshore, to
avoid any potential troubles when operating in the disputed areas. The company will also benefit
from the recovery in regional upstream markets. For FY20, we forecast PVD will enjoy a net
profit growth of 70.3% y/y, driven by a 5.4% increase in the daily rate for jack up rigs.
PVS just dissolved its loss making seismic survey services business and now relies on on-shore
projects to support its earnings. For FY20, we forecast PVS will post a net profit growth of 7.4%
as there will be no loss incurred from seismic survey services which has been a great burden for
several years.
Meanwhile PVT will enjoy strong FY20 supported by higher charter fees as from January 1, 2020
Sulphur limits for all marine vessels will be reduced to 0.50% m/m from current 3.50%. All PVT’s
vessels for international routes are compliant. For FY20, we forecast PVT will post a net profit
growth of 10.1% thanks to improved charter fee as mentioned above.
Power stocks like POW will likely benefit from the electricity shortage of Vietnam. Earnings of
power companies like POW should be supported by higher sales volumes and better average
selling prices as EVN must encourage power plants to generate more output during times of
electricity shortage. For FY20, we forecast POW will post a net profit growth of 12.0%, driven by
3.0% growth in sales volumes and 0.5% increase in ASP.
Energy Sector: Top picks
PetroVietnam Transportation Corp. – An undisputed leader

(PVT, TP VND22,000, upside 33%)
• Characterized by a stable business model and healthy profitability despite significant

fluctuations in oil prices.
• Strong medium-term prospects supported by higher charter fees as from 1 January 2020.
Sulphur limits for all marine vessels will be reduced to 0.50% m/m from current 3.50%. All
PVT’s vessels for international routes are compliant.
• PVT’s longer-term prospects will be supported by increased demand from new refinery
capacity including Nghi Son, Dung Quat (expansion), and Long Son and thermal power
capacity following Power Development Plan VII.
• PVT’s capex spend is expected to be in the region of USD300-350mn for the 2019-2021
period. Funds will be used to purchase additional shipping capacity while also replacing
older vessels.
• PVT will have to raise funds by raising debt and retaining a high level of earnings by
reducing payout ratios and/or paying stock dividends instead of cash dividends.
• Our NPAT forecast suggests 10.1% growth in FY20.
Figure 227: PVT selected financials Figure 228: Revenue by segment (VNDbn)
PVT 2018 2019F 2020F 10,000
Sales VNDbill 7,523 7,891 8,779 9,000
Sales Growth % 22.4% 4.9% 11.3% 8,000
7,000
EPS VND 2,183 2,371 2,611 6,000
EPS Growth % 44.7% 8.6% 10.1% 5,000
P/E X 7.6 7.0 6.4 4,000
P/B X 0.9 0.8 0.8 3,000
ROE % 13.3% 13.2% 13.3%
2,000
Div Yield % 6.0% 6.0% 6.0%
1,000
-
FY19F
FY20F
FY21F
FY17
FY16
FY18
Transportation Offshore technical Trading Others
PetroVietnam Power Corp. – Size and independence

(POW, TP VND16,200, upside 43%)
• Positive FY20 outlook: Current constraint on coal supply for power generation will be solved
as POW will import coal directly from 2020. Sales volume will increase by 3.0%.
• However, FY21 is challenging: Overhaul of Ca Mau 1&2 and Vung Ang 1 will lead to a 3.6%
decline in sales volume.
• Longer term prospects are positive: new capacity of 1,500MW will come online in 2022 and
2023, adding about 9,000mn kWh to POW’s output, an increase of about 40% from current
levels.
• Total capex for the two plants is estimated at USD1.4bn, 70% of which is to be funded with
debt, with construction expected to be completed in 2023 and 2024.
• POW will have to raise funds for this new capacity, including raising debt, as well as using
retaining more earnings. This will result in the payment of stock dividends instead of cash
dividends during 2019 - 2023.
• Our NPAT forecast calls for 12.0% growth in FY20.
Figure 229: POW selected financials Figure 230: Sales volumes by plant (kWh)
POW 2018 2019F 2020F
25,000
Sales VNDbill 32,662 35,550 36,893
Sales Growth % 9.9% 8.8% 3.8%
20,000
EPS VND 820 1,037 1,162 15,000
EPS Growth % -20.0% 26.5% 12.0%
P/E X 13.8 10.9 9.8 10,000
P/B X 1.0 0.9 0.8
ROE % 7.0% 8.6% 8.8% 5,000
Div Yield % 3.9% 0.0% 0.0%
-
FY19F
FY20F
FY21F
FY16
FY17
FY18
Ca Mau 1 & 2 Nhon Trach 1 Nhon Trach 2 Nam Cat
Hua Na Dakrinh Vung Ang 1
PetroVietnam Technical Services Corp. – Best in class

(PVS, TP: VND22,800, Upside 20%)
• The only domestic provider of technical services (excluding drilling services) for the oil & gas
industry with majority market shares in all segment.
• Medium-term prospects are dull: E&P activities offshore Vietnam are uncertain due to
territorial disputes between Vietnam and China and the thin cash position of PVN.
• Delayed or pending projects: Su Tu Trang phase 2, Ca Voi Xanh, Block B-O Mon.
• For FY20, we forecast PVS will post a net profit growth of 7.4% as there will be no losses
incurred from the seismic survey services (shut down in FY19) which has been a drag on
earnings for several years.
Figure 231: PVS selected financials Figure 232: Revenue by segment (VNDbn)
25,000
PVS 2018 2019F 2020F
Sales VNDbill 14,667 17,569 18,205
Sales Growth % -12.8% 19.8% 3.6% 20,000
EPS VND 2,076 2,093 2,248 15,000
EPS Growth % 28.9% 0.8% 7.4%
P/E X 9.2 9.1 8.5
P/B X 0.7 0.7 0.7 10,000
ROE % 8.4% 8.3% 8.6%
Div Yield % 5.6% 5.3% 5.3%
5,000
-
2016 2017 2018 2019F 2020F 2021F 2022F
Offshore vessels FSO/FPSO EPC/EPCI Port-base Others
Technology: Everything is becoming digital

The fast-paced advancement of technology is changing the world and opening
opportunities for IT services providers. In Vietnam, like in a lot of other places,
opportunities are evolving for players to develop businesses capitalizing on the still-
nascent trend around digital transformation (DX). FPT, our top pick for 2020, is such a
company, and it starts from a strong position given its leading role in the country’s
broader IT services segment.
We talk through our ‘big picture’ themes below; these touch on ‘the rise of digital’, growth in the
DX market, opportunities in the DX market for various players, and the Vietnam advantage in IT
services and DX. Our top pick in the sector, FPT Corporation (HSX: FPT, Buy).
Figure 233: Technology sector comps

Market cap. Price TP Up/(Down) P/E (x) EV/EBITDA (x) Div. yield (%)
Rating
Ticker (VNDbn) (USDmn) (VND) (VND) side (%) 2019F 2020F 2019F 2020F 2019F 2020F
FPT Corporation FPT VN 39,543.5 1,704.5 58,300 Buy 78,100 34.0 11.3 9.0 8.3 6.6 3.4 3.4

Source: Companies, HSC Research estimates
A changing world
Organizations are making enormous strides and realizing the benefits of new digital business
models and processes. We see examples of this everywhere – in how people shop, work, learn,
communicate, decide, respond and even elect leaders. This also changes the world and the way
companies are doing business; it’s now a world where products, services, and even people’s
surroundings are customized.
Companies now need to cater to the individual in every aspect of their lives. The imperative of
digital transition, therefore, continues to press on various levels in society, including within
corporations. According to IDG, the world’s leading technology media, data and marketing
services company, in its 2018 survey, 90% of organizations and enterprises have planned,
developed and implemented digital transformation (DX) into their daily business operations; we
believe that much opportunity remains to deepen and broaden this.
The DX services market is growing fast
According to Gartner, the world’s leading research and advisory company in technology, the DX
services market is currently worth USD1.2trn, and this will rise to USD2.3trn by 2023; this implies
an annual growth rate of 18%, approximately 4x higher than that of the regular IT service market.
Figure 234: Global IT services spending by segment (USD bn)

2500
2000
1500
1000
500
0
FY17
FY18
FY19
FY20
FY21
FY22
FY23
DX services Regular IT services Linear (DX services) Linear (Regular IT services)
Source: Gartner (2018)
Opportunity is open for all players
The findings drawn from the latest report of Forrester, one of the most influential research and
advisory firms in technology in the world, revealed the fact that DX projects have gradually
shifted from time-consuming and large-implementation in orientation into small-scale, result-
oriented and consecutive transitions.
This opens opportunities for all IT services companies, regardless of scale or experience, to
launch digital transformation initiatives and offer digital transformation solutions/products to the
business world. In the DX world; the only things that matter are the DX products and solutions.
The domestic landscape is favorable for IT services companies
Vietnam has a strong IT engineer labor pool. According to estimates from the Ministry of
Education and Training, the number of graduated IT engineers will be around 100,000 in 2020,
with 10% annual growth in each of the coming five years.
Meanwhile, salaries for IT engineers in Vietnam are about 40% lower than a same-level engineer
in India, and about 30% lower than that in China – this is a key competitive advantage for
Vietnam’s IT services companies.
Moreover, IT services companies are granted long tax holidays; they are free of corporate
income tax (CIT) in the first four years, pay CIT of just 5% for the next nine years, pay CIT of
only 10% for next two years after this, before paying normal CIT of 20% from that point forward.
Technology: Top pick
FPT Corp. – Vietnam’s first global service provider

(FPT, TP VND78,100, upside 37%)
• FPT is shifting from being an IT service provider to a global digital transformation service
provider.
• FPT enjoys major competitive advantages due to its low-cost base, strong IT systems, a
well-integrated business model with a presence in almost every major IT segment and
visionary management.
• Digital transformation is the driver for growth and margins going forward.
• Strong growth prospects are expected for the 2018-2021 period: 3-year CAGR of 19.3% in
sales, 3-year NPATMI CAGR of 26.7%, while overall margins are forecast to increase to
43.2% in FY21 from 37.6% in FY18.
• We are forecasting net profit growth of 23.2% in FY20.
Figure 235: FPT selected financials Figure 236: Revenue by segment (VNDbn)
Market Cap, USDmn 1,675 8,000
FPT 2018 2019F 2020F
7,000
Sales VNDbill 23,214 27,707 32,919
6,000
Sales Growth % -45.6% 19.4% 18.8%
Net Profit VNDbill 2,615 3,405 4,274 5,000
Net Profit Growth % -10.8% 30.2% 25.5% 4,000
EPS VND 3,897 5,062 6,323 3,000
EPS Growth % -24.0% 29.9% 24.9%
2,000
P/E X 14.6 11.3 9.0
1,000
P/B X 2.8 2.4 2.1
ROE % 21.9% 25.4% 27.1% -
FY19F
FY20F
FY21F
FY15
FY16
FY17
FY18
Div Yield % 2.6% 3.5% 3.5%
Outsourcing Project-based segment Telecom serives

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Vietnam Strategy 2020

Strategy Report 13 January 2020

“Patience is bitter, but its fruit is sweet”

Figure 2: What happens next and why?

Source: HSC, Bloomberg

www.hsc.com.vn Powered by the EFA Platform Page 1

Sector Reviews – Stock selection is key ......................................................................................................................... 64

HSC Institutional Research

Research Financial Institutions Consumer

Huynh Thi Kim Khue

Investment Summary: a great long term story

• We have a supportive macro environment with a stable currency outlook.

• Vietnam’s geopolitical position is good, domestic politics are stable.

• Corporate behavior is steadily improving – we introduce the first of a series of pieces

Figure 3: Vietnam: A window of opportunity

Source: Bloomberg, HSC Research

Figure 4: Key structural changes will drive long term performance

Source: HSC Research

The key challenges we see are highlighted below:

• Rapidity of regulatory change, especially around capital markets liberalisation.

PER (X, LHS) EPS Growth %

Source: HSC, Bloomberg

• Transport: Airports and seaports primarily – ACV, GMD, VSC.

We believe that a multi-year bull run could be in the offing.

Figure 6: … so what happens next, and why?

Source: Bloomberg, HSC Research

Figure 7: HSC’s top picks

Source: HSC Research

The macro outlook: Reasons to be cheerful

We talk through our views on the economy in more detail below.

Figure 8: HSC’s economic forecasts

Source:GSO, SBV,CEIC, World Bank, HSC Research

Figure 9: Recent data trends

1) GDP growth looks solid and steady

Figure 10: GDP growth: ASEAN economic performance

Vietnam Thailand Philippines Indonesia Malaysia

Source: CEIC, GSO, HSC Research

Figure 11: GDP growth by sector

Agriculture, Forestry and Fishing Industry and Construction Services

Source: CEIC, SBV, HSC Research

Currently urbanization is 37% but accelerating. Agriculture remains a significant employer in

…. As will a young, well Figure 12: Vietnam: Components of GDP

7.4 7.7 7.5 7.5

Agriculture, Forestry and Fishing Industry and Construction Services

Products taxes less subsidies GDP growth (y/y%)

Source: CEIC, HSC Research

Figure 13: Industrial production

Note: Green = high value, yellow =neutral; red = low value

Source:GSO, SBV, HSC Research

Re-evaluating GDP Data – 2010 to 2017

Three main factors drove this re-evaluation:

2) Inflation: Limited pressure for the next few quarters

contribution to headline inflation in %

6.0 5.2 6.0

Source: GSO, CEIC & HSC Research

3) Vietnam government bond yields expected to remain low

Source: Bloomberg, HSC Research Source: VBMA, HSC Research

Figure 22: VGB holdings by investor type

Source: MOF, HSC Research

Source: SBV, MOF, CEIC, HSC Research

Figure 24: Budget deficit coverage by short-term bond issuances

Source: MOF,HNX,HSC Research

Source: HSC Research Source: HNX, Bloomberg, HSC Research