Thomas McMahon
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Updated 19 Sep 2024
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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Vietnam Enterprise Investments. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

  • Vietnam Enterprise Investments’ (VEIL) NAV per share rose by 6.9% in the first half of 2024 in GBP terms, matching the Vietnam Index (VNI), supported by strong GDP growth and supportive government policies.
  • New manager Le Anh Tuan strategically rebalanced the portfolio during the period, reducing highly concentrated positions in some banking and steel firms, while increasing exposure to retail, software & services, and manufacturing sectors.
  • Some of these moves were helpful, with the retail and software & services sectors home to major contributors to portfolio returns, as the companies benefitted from low interest rates, growing credit, and global demand for AI and semiconductors.
  • Tech company FPT Corporation, a key holding, rose 49.9% due to a partnership with NVIDIA and a major acquisition in Japan, contributing significantly to VEIL's overall performance.
  • Meanwhile, investments in Mobile World Group and FPT Retail capitalized on recovering domestic consumption, driving profit and market share growth, with stocks rising 40.1% and 57.7%, respectively.
  • On the other hand, the real estate and materials sectors underperformed in the first half. However, Tuan Le argues that the implementation of significant land law reform in August should stimulate a recovery in the real estate market which should benefit the materials sector – as well as banks and other economically-sensitive sectors.
  • Dragon Capital’s analyst team continues to expect profit growth for 2024 to come in at c. 15-18% across the largest 80 stocks they cover, reflecting a year of economic recovery which looks unlikely to be derailed by some weakness in the global economy.
  • The board repurchased 2.9% of the share capital over the period, at an average discount of 18.7%, adding 0.7% to NAV per share. From 01/07/2024 the management has been charged at a lower flat rate of 1.5% of NAV.
  • Chairman of the board Sarah Arkle commented: " Earnings per share are expected to grow in the high teens in 2024, putting the market on a forward price/ earnings ratio of around 12x, which is cheap both relative to Vietnam’s recent history and also relative to other Asian and global markets. At current valuations the Directors believe that the large and experienced team of research analysts and the emphasis on high quality companies with clear earnings visibility should reward investors over the longer term.”

Kepler View

Vietnam Enterprise Investments’ (VEIL) first half results are encouraging, with the market rebounding as the Vietnamese economy has grown at a healthy annualized rate of 6.4%. Dragon Capital’s analysts were confident on the outlook for earnings coming into the year, and their optimism seems to have been proven well-founded, with strong results reported by key holdings in the retail and banking sectors.  

The second half of the year could see the recovery broaden and get extra impetus if the Land Law reform has the expected effect. This reform has been hastened into law earlier than originally planned as the authorities look to encourage the residential and commercial development the country needs. The Law should liberalise the pricing of land and facilitate changes of use, amongst many other things. It also sets a framework for the compensation of existing land users in respect of land for project development. Tuan Le argues developers with existing pipelines and land banks should be in the best position to benefit, and have taken positions on this basis. Additionally, he expects the trust’s two key holdings in the materials sector, steel producers Hoa Phat Group and Hoa Sen Group, to benefit from increased development and infrastructure spend. Notably, some of the key underperformers in the first half came from these sectors, with Tuan Le taking positions in anticipation of these reforms.

The Land Law is one tangible example of how the authorities in Vietnam remain committed to supporting industry and economic growth. This is one of a number of structural factors supporting the growth outlook in the country over the medium to long-term. In our view, Vietnam’s strong trading links with both the largest and second largest economies in the world, the US and China, is a key factor, and its young, cheap and well-educated workforce makes it an attractive place to site manufacturing. We think it’s notable that the US is supportive of NVIDIA partnering with a Vietnamese firm, VEIL holding FPT. This speaks to the potential for Vietnam to play a role in high value-add industries in future, while there is still clear growth potential in the development of more basic infrastructure and urbanization.

VEIL’s shares continue to trade on an attractive discount. Emerging markets as a whole have been out of favour this year, and it seems that Vietnam is no different. This is even though the country’s economy has been more resilient in a period in which fears of a slowing US economy and high US rates have weighed on the emerging markets. We note that US rate cuts would likely relieve pressure on the Vietnamese currency which has weakened this year, and so the current market expectation of a “soft landing” would arguably be an ideal outcome for emerging markets and for VEIL.

The board has been highly active with buybacks in the face of the discount, repurchasing 2.7% of the shares over the first half and continuing to buy back since the end of June, adding to NAV per share for remaining shareholders. This focus on shareholder value is also shown by the cut to the management fee as of the beginning of the second half which should see the reported OCF start to fall.

Overall we think that VEIL looks like a more attractive position, with a new manager who has made his mark on the portfolio, lower fees and a board focussed on closing the discount. Meanwhile the underlying investment case for Vietnam looks as strong as ever as it continues to deliver high GDP growth in a world struggling to achieve this.

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