You are on page 1of 9

VIETNAM STRATEGY

INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

Contact
Phuong Hoang Director, Institutional Research & Investment Advisory
phuonghv@ssi.com.vn

FISCAL

EXPANSION

WITH

A

FOCUS

ON

INFRASTRUCTURE
In the 10 months of 2013, we saw minimal improvement in macroeconomic conditions, the only exception being FDI - the bright spot observed since the beginning of this year. Consumer demand displayed moderate improvement, as reflected by the FMCG sales in Vietnam (see below chart). Given the situation at the current moment, seemingly the Government can no longer postpone implementation of economic reforms any further. Notably, after the successful introduction of the VAMC, the government might consider fiscal expansion.

05 November 2013

Source: Kantar Worldpanel – Sep 2013

What transpired?

A new Resolution on attracting foreign direct investment in August. Since 2012, FDI has proved to be a decisive impetus for economic growth and the Government has placed greater emphasis on attracting more capital inflow to recapitalize the domestic economy. Specific measures include: (1) Improving infrastructure, (2) Administrative procedure simplification, (3) Consideration on FOL extension and (4) Preferential tax treatment for Foreign Direct Investors.

Sep 10, 2013

www.ssi.com.vn

1

3%). about USD 600 mil worth of government guaranteed bond will be issued (possibly through DATC) to swap with the current international bond. the Ministry of Transportation reported that the Vinashin’s bad debt resolution is expecting a break -through revelation soon. (4) Upgrading hospitals in Hanoi and HCMC.  Vast infrastructure improvement needs have spurred an important question for funding: Unsurprisingly.VIETNAM STRATEGY  INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY As part of the plan to attract foreign capital to recapitalize the economy.com. the government will need to implement a series of macro stability measures.  It would be impractical and difficult for the SOEs to issue new bonds without restructuring their existing debt. For its international debt.  Total Government investment funded by G-bond was estimated at VND 225tn for the period of 2011-2015. The primary reason behind a higher budget deficit is rooted in low budget collection amidst weak economic conditions while the Government wants to push growth via public investments. from 4. the Government plans to issue VND 100tn. so the impact on inflation is unavoidable during the period. 2013 www. 1. etc. VND 150tn is expected to be disbursed and the remaining amount of VND 75tn is set aside for 2014-2015.15tn worth of 10-year bond at a coupon rate of 10. Electricity of Vietnam (EVN) has another VND 10tn worth of bond issuance in the pipeline. By end of 2013. the Goverment proposes to the National Assembly to issue an additional VND 285tn which will be disbursed for the on-going projects (in total. (BIDV also provides financing for the huge National Highway project). in Sep 10.8% to 5.vn 2 . approximately USD 9 bn for 2013 and USD 10 bn for 2014). Recently BIDV issued VND 3. to effectively manage disbursements while maintaining macroeconomic stability. The government asserted that higher government spending would increase demand for related commodities and services. the on-going National Assembly meeting would approve for higher budget deficit for 2013-2014.092 projects need an additional VND 190tn to complete) and important projects such as National Highway 14. A number of large infrastructure projects in the pipeline include: (1) National Highway No 1 (total investment of VND 62.  SOEs are taking a page out of the Government’s fundraising notebook and are raising their own funds. Last month. Therefore. (5) 2nd 500KV electric grid.3% GDP (or in absolute number. (6) 2 new refineries.5% for the first 5 years and 11% for the last 5 years.7tn). In 2014 alone. infrastructure investments and allocations are constructive apparatuses to spur future growth . Please note that EVN has a massive investment project which is the 2nd 500KV electric grid. (2) National Highway No 14. In order to induce public investment. (3) Noibai Terminal 2.ssi. Vinacomin also succeeded in issuing VND 5tn worth of bond at 11% for the first year and a floating rate for the remaining years (average deposit rate + 3.

6 bn).  Last but not least. Coupon rate will be 1% pa.VIETNAM STRATEGY INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY this month. but as the SBV asserted. including power generation.  Who are the creditors? Given the aggressive bond issuance stated above. It was reported that Samsung has signed a MOU on a strategic partnership with Vietnam’s government in October on a number of sectors.. it had to place priority of satisfying electricity demand..84 trillion. therefore Vinashin’s debt would not be purchased by VAMC. As the effectiveness of public investments cannot improve Sep 10.ssi. there would be a haircut of 70% on the domestic debt. It was reported that Vinashin has already resolved about VND 12 trillion of domestic debt through this method. where EVN would pay VND 2. By July 2013. or simply.84 trillion (about USD 5.  Electricity of Vietnam (EVN) and PetroVietnam (PVN) has conceded on the debt restructuring plan (amounted to nearly VND 10 trillion). 2013 is marked as a milestone in Vietnamese diplomacy. Domestic bond holder could use this bond to borrow from the SBV in open market operation. for example. As compared with corporate loans. EVN is the largest state-owned enterprise with the largest amount of debt in the banking system.5% of EVN's loan). government guaranteed bond will also be issued (10-year bond). the efficiency of public investment remains the biggest concern in the medium term. possibly this week. The impact from these trade agreements could hold huge potential and could further boost FDI into the country. For its domestic debt. and the SBV admitted that they permitted 4 SOCBs to lend to EVN even though it exceeded the 25% limit of their capital. 2013 www. seemingly banks are the main buyers of Government and SOEs bonds. We expect that infrastructure disbursement will accelerate after the Government obtains approval on the new budget deficit target from the National Assembly.65 trillion to PVN in 2013. petrochemicals. telecom. Implication: Infrastructure will definitely benefit BUT. Although Government expenditure will prompt fruitful consequences on growth. however. we understand that bond issuance is easier to obtain. shipbuilding and city development. EVN’s total outstanding loan totaled VND 118. However. and we might see clear impact in 2014. Although the move by the SBV was indeed risky.45 trillion (out of VND 118.vn 3 . with a 12 year tenure. State-owned-commercial-banks (SOCB) accounted for VND 96. and another VND 17 trillion would be also resolved by the end of 1Q 2014. the requirement on the collaterals for bond issuance is less stringent than new loans. and interest plus principal is due on maturity. in addition to infrastructure development. or 81. Korea and Russia/Belarus in 2014. Vietnam is aspiring to become a member of the TPP and sign the Free Trade Areas (FTAs) with the Eurozone.com. Please note that as the government has designed an independent and singular program to resolve with Vinashin’s debt. and the following 7 year at VND 1 trillion/year at market interest rate.

Updates on earnings of listed companies: As mentioned in our previous reports.8 tn.com. we are inclined to the stock market and are more optimistic in the short and medium term. and those numbers for 2014 and 2015 are VND 152.when Circular 02 is finally enacted. What we recommend? For 2013. Undemanding valuation. With regards to the property sector. In addition to inflation risk. We vehemently believe that fiscal expansion will be the front page story for 2014. 1Y TP: VND 56.000 VND PVS: Low valuation (PER2014 at 6x).700 BMP: Strong core business.6tn and VND173tn VND. respectively. we remain cautious on the timing of the recovery in the physical property market. Sound earnings. At the moment our faith in the banking system remains doubtful and will revisit the sector around mid-2014. 2013 www. We favour the Industrial sector at this stage with large demand for construction/construction materials. however. Earnings are expected to improve across all of the business segments in 2014. 1-Y TP VND 18. Certain sector/companies also showed signals of bottoming out and as a result have presented attractive investment opportunities. reduced losses from the bank and better sales from consumer. high dividend yield. (3) The principle and interest payment of Goverment debt is estimated to accelarate in the coming years: in 2013 the Government would have to pay VND126. Our property team expects that the timing of recovery will not be earlier than 2H14.vn 4 . respectively.VIETNAM STRATEGY INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY overnight. A number of stocks we are inclined to: MSN: Buy for 2014 when earnings from the mine kick in. this doesn’t imply that property stocks are not bound for an earlier recovery. The effect of tax penalty is a one-off occurrence has created Sep 10. (2) Government expenditure is much higher than Government investment which exert pressure on the budget collection in the longer term. 1Y TP: VND 92.ssi. transportation and infrastructure/industrial zone. we expect the VNIndex will fall in the range of 515-540 by year-end. inflationary pressure is justifiable if Vietnam wants to enhance GDP growth. while 2H13 growth of listed companies benefited from lower lending rate as compared with 2H12. Limited downside. several preeminent issues are facing the state budget: (1) The percentage of State budget collection on GDP in Vietnam is very high as compared with other neiboughring countries. Disbursement of public investment will be the stimulant behind the economic recovery.7%. Despite the risks. Our updated estimates showed that 2013 & 2014 EPS growth would be 11% and 15.600 VND FPT: Sound fundamentals. we expect 2014 earnings to be resilient thanks to lower CIT and support from fiscal expansion.

670VND. 1Y TP VND 17.5% YoY increase). LCG: The stock might bottom out very soon and a recovery is expected in 2014. Low PBR (0. 2013 www. Some are concern over TDH’s convertible bonds of VND 209 bn which come due this November and very low probability that it will be converted. Decent growth outlook in 2014 given stable cotton price forecast (2014 sales and net profit will increase by 15. 1Y TP 12. JVC: High growth prospect in 2014 (forecasted 39. 1Y TP: VND 78.000 MBB: Buy 1Y TP: VND15. TCM: Positive outlook for the textile & garment sector in the short and medium term thanks to lower wage than China and possible benefit from TPP. Please contact us for updated list of recommendation.750 VND.34x @ price of 12. Better off among property developers. These land banks were acquired at low cost which may allow TDH to offer more affordable units than its peers and remain profitable in the long-term.000 TDH: Large land banks located along the Hanoi Highway and 1st Metro line (connecting the City Center to District 9 & Thu Duc District. Attractive Sep 10. We see that the story of LCG might reflect that of KBC. TP: 19. Buy at price weakness.com. Buy at price weakness.000VND). Low valuation. Lower valuation than peers. Better off among its peers. The payment of this amount may exert high pressure on the company in leveraging cash. BCI: Large land bank with rather good location in HCMC. Stable income from IP leasing and JV protected the Company during the real estate drought. The only listed company with yarn production.6% and 17.700. HCMC). valuation.VIETNAM STRATEGY INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY a Buy opportunity.8% YoY).ssi.vn 5 .

VIETNAM STRATEGY INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY Appendix: Vietnam fiscal status 25.vn 2012E 6 .ssi.00% 70% 60% Chart 2: Government expenditures and Government Investment as % of total Government spending 50% 40% 30% 20% 10% 0% 1997 1998 1999 Recurrent Expenditures (% Expenditures) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Trillion Dong 200 180 160 140 Chart 3: Repayment of Debt and Aids (including principal and interests) 120 100 80 60 40 20 - Sep 10. 2013 www.com.00% 15.00% Chart 1: Budget revenue/GDP (%) 10.00% 0.00% 20.00% 5.

vn 2011 20… 7 0% .VIETNAM STRATEGY INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY 70% Chart 4: Government expenditures and Government Investment and Repayment of Debt and Aid as % of total Government spending 60% 50% 40% 30% 20% 10% Recurrent Expenditures (% Expenditures) Development Investment (% Expenditures) 2001 1997 1998 1999 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 60% 50% Chart 5: Provincial budget expenditure (% Expenditure) 40% 30% 20% 10% 0% 200020012002200320042005200620072008200920102011 Trillion Dong 1. 2013 www.000 800 600 Chart 6: State budget deficit 200-2012 400 200 (200) State Revenue State Expenditures State budget deficit Sep 10.ssi.com.

89 7.7 -9.8 18. 2013 www.5 6.3 2.4 6.8 18.2 14.17 16.00% 20900 8 25 11.48 9.9 0 25.1 131 131.3 0.32% 18479 -6.8 -16.81 6.51 12.4 19.81 11.03 2.56 2.52 2.7 -2.7 10.44 72.7 5.63 14.81 13.3 -10.3 0.VIETNAM STRATEGY INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY APPENDIX: 2014 MACRO FORECAST 2014F 5.09 -0.99 22 6.7% 21400 3 32 12.2 84.61 2010 6.7 150.5 5.42 16 4.11% 21250 -0.8 6.89 2011 5.23 30.3 96.9 106.66 2012 5.99 9% 8% 2013 F 5.4 -3.com.8 -12.41 16.43 14.6 11.9 21.8 14.57 4.ssi.6 -17.24 24.3 12.88 29.56 5.5 5.5 146.6 114.6 2.38 51.80 25.3 5.98% 17483 -10.8 10.5 -0.35 -4.29 10.91 18.6 16.9 -0.32 1.5 7.79 58.03 37.8 24.1 114.9 8.1 4.97 6.3 62.8 2008 GDP growth (%) Agriculture (%) Industry & Construction (%) Construction (%) Service (%) Retail Sale (%) Industrial Production Index (%) CPI (%) PPI (Agriculture) (%) PPI (Industrial) (%) Exports (USD bn) Imports (USD bn) Trade Balance (USD bn) % of Export Exchange rate (USD/VND) Current Account Balance (USD bn) Foreign reserve (USD bn) Foreign reserve/imports (weeks) Credit growth (%) Deposit rate (VND -%) 6.73 5.52% 22050 2 15% 9% Sep 10.33 7.25 7.5 7.7 11.8 28.2 10.7 14 6.52 2.01 6.13 31.09 13.45% 18932 -4.9 -0.96 10.72 4.5 6.9 4 5.vn 8 .0 74.52 3.4 12% 8% 5.57 7.71 2009 5.9 7.73 8.

Member of the Ho Chi Minh Stock Exchange. statements forecasts and projections contained herein shall be at the sole discretion and risk of the user.com.vn giangntt@ssi. Expressions of opinion contained herein are subject to change without notice. The use of any information. Steel IT. SSI accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its content.com.vn * Tel (848) 3 824 2897.vn Sep 10.vn anhdtm@ssi. those Extension without * please dial (844) 3936-6321 DISCLAIMER The information. WWW. and in our opinion are fair and reasonable in the circumstances prevailing at the time.com. statements.vn kiennt@ssi.vn HANOI 1c Ngo Quyen Street. an offer or the solicitation of an offer to buy or sell any securities.com.VIETNAM STRATEGY INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY SSI CONTACTS Phuong Hoang Hung Pham Phong Tran Giang Nguyen Minh Dinh Kien Nguyen Huong Vu Huy Nguyen Thuy Nguyen Anh Dinh Kien T Nguyen Trang Pham Director Associate Director Research Manager Research Manager Senior Associate Senior Analyst Senior Analyst Analyst Analyst Analyst Analyst Analyst Strategy Macro Banking & Insurance Consumer Goods Pharmaceutical.com. forecasts and projections contained herein. directors and employees may have positions and may affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment-banking services for these companies.vn thuyntt@ssi.vn kiennt1@ssi.vn huynd@ssi. This document is for private circulation only and is not for publication in the press or elsewhere.VN SAIGON SECURITIES INC. 2013 9 .SSI.COM.com.com. and should not be construed as.vn huongvl@ssi. including any expression of opinion. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best information then known to us. District 1 Ho Chi Minh City Tel: (848) 3824 2897 Fax: (848) 3824 2997 Email: info@ssi. Jewelries. SSI and other companies in the SSI and/or their officers. Fertilizer Real Estate Agriculture Hospitality.vn trangph@ssi.vn Phat Cao Viet Luong Analyst Team Assistant phatct@ssi. This document is not. Regulated by the State Securities Commission HO CHI MINH CITY 72 Nguyen Hue Street.com.com.vn vietlt@ssi. Electricity Real Estate Infrastructure Oil & Gas.com.com.com.vn hungpl@ssi.com.vn minhdd@ssi. Tires.com.vn phongtt@ssi. Natural Rubber Macro 775 526 670 679 537 409 637 1951* 430 2148* 510 phuonghv@ssi. Ha Noi City Tel: (848) 3936 6321 Fax: (848) 3936 6311 Email: info@ssi. are based upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed.com.com.