STRATEGY REPORT

POST-PANDEMIC NORMALIZATION

» Vietnam economy in January 2022 review

 By the end of January 2022, Vietnam's fully-vaccinated rate reached 73%. As Vietnam has
accelerated Covid-19 vaccinations, along with the ”Living With Covid” policy, we believe
that Vietnam will have stronger "resistance" to Covid in 2022 than in 2021, and is less
likely to implement strict social distancing measures.
 Thanks to the ”Living With Covid” policy, combined with vaccination promotion, Vietnam's
economy was able to maintain its recovery momentum in January 2022. Specifically,
consumption sustained its recovery momentum for a second consecutive month, and the
number of newly-established and re-operated enterprises rallied over the same period.  
Inflation and exchange rates have remained stable. However, both industrial production
and exports grew at a slower pace, while registered FDI decreased over the same period.
 We maintain Vietnam's 2022 GDP forecast within a range of between 5.7%−6.2%, where
Vietnam successfully reopens the economy. Key growth engines for Vietnam’s economy in
2022 include the following: 1) Vietnam continued status as an attractive destination for
the global wave of FDI; 2) the government’s promotion of public investment; and 3)
renewed export momentum, thanks to improvement in domestic production and recovery
in external demand. In addition, implementing policies to support the economy,
maintaining low lending interest rates, stabilizing the macroeconomy, and promoting the
digital transformation of governments and businesses all play an important role in the
economic recovery.
 Key obstacles to Vietnam’s economic recovery to watch for include: 1) a possible increase
in the number of community infections following the easing of social distancing
measures, as well as a resurgence of the Covid-19 pandemic on a global scale; 2) an
extended period until Travel and Aviation return to pre-pandemic levels.

» Vietnam stock market January 2022 review

 With the possibility of a reversal of global monetary policies toward tightening, fueled by
hawkish signals from the Fed, many stock markets around the world saw significant
corrections in January, including Vietnam’s stock market. Specifically, the VN-Index set a
 new historic high of 1,536 points in early January, subsequently corrected more than 7%
from the all-time high to 1,424 points before rebounded to 1,479 points (-1.3% MoM).
Remarkably, Banks provided the biggest boost to the market, but it was not enough to
offset the reductions of other sectors.
 Daily average trading value in January was more than VND25tr (+2% MoM). Of note,
trading value dropped during the second half of the month, as the Lunar New Year
holiday approached. According to our liquidity measure, most industries traded at neutral
or negative levels. Against this backdrop, market cash flow shifted toward Banks.
 Foreign investors maintained their net selling strategy in January, while domestic
individuals were net buyers, with a nearly equal amount of VND3tr. Meanwhile, domestic
institutions’ net-buying value was insignificant. Of note, apart from the put-through
transaction of MSN, worth nearly VND5tr, overseas traders turned into net buyers,
focusing on Banks, Real Estate, and Utilities.
 As for ETFs, more than US$45mn was injected in January, mainly from Fubon FTSE
Vietnam ETF.

» Vietnam stock market prospect revision

 Most economic activities have been fully restored, thanks to a higher pace of vaccinations
and increasing adaptability to the new normalcy. That said, uncertainty is higher than
normal because of the pandemic, fiscal and monetary policy, pandemic-driven bad debts,
and inflation. Therefore, we expect the stock market to be more volatile in 2022.
 According to our projection, VN-Index’s EPS growth is expected to expand by 39% and
19% YoY, respectively, in 2021 and 2022. With our projection of 2020–2022 EPS CAGR of
28.6% pa (i.e., similar to the Bloomberg consensus) and a reasonable P/E of 16x, we keep
our base-case projection that the VN-Index is likely to conquer the 1,700-point level in
2022. Under a more volatile market, we expect the VN-Index to fluctuate within the range
of 1,420–1,950 points in 2022 in response to EPS growth and P/E varying within the ranges
of 26–30% and 14–18x, respectively.
 On the valuation front, the VN-Index has been corrected from the 10-year P/E average
plus a standard deviation (i.e., 17.3x) to 16.7x as of end-January, but this is still higher than
the 10-year average (i.e., 14.9x). Compared with other regional peers, Vietnam’s stock
market boasts a relatively high ROE and reasonable P/E. Furthermore, with this economic
growth and corporate earnings, Vietnam is likely to maintain a relatively attractive
valuation. According to the Bloomberg consensus, VN-Index's EPS is expected to grow
19% YoY in 2022, higher than most markets in the region. Therefore, we believe that the
Vietnamese market still has a relatively attractive valuation compared with its peers.

» Sector outlook

 Oil & Gas: Oil supply is forecast to increase slowly, as: 1) the US and China reached an
agreement at COP26 to reduce the use of fossil fuels; and 2) OPEC+ have agreed to stick
 to their oil production plan and not boost production levels. At the same time, oil demand
is recovering strongly. We anticipate that oil prices will remain high in 2022. At the current
price, we expect exploration and exploitation projects to be restarted in 2022.
 Residential Real Estate: We forecast that the apartment market in Hanoi will slowly
recover in 2022. Apartment prices in the North in each segment are expected to increase
by 5–10% YoY in 2022. There will be 2,600 units added to the market in 4Q21, bringing the
total supply in 2021 to 11,400 (-25.3% YoY). In the South, there will be an acceleration in
the apartment market, with nearly 10,000 products opened for sale in 4Q21 or 1Q22
(mainly from the Vinhomes Grand Park project), equal to that of 9M21.
 Industrial Real Estate: Industrial parks (IPs) are active again, as distancing measures
have been eased. According to Savills Vietnam, IPs in the North showed high occupancy
rates at the end of 2021, namely Bac Ninh (95%), Hanoi (90%), Hung Yen (89%), Hai Phong
(73%) provinces. In the South, Binh Duong province recorded the highest occupancy rate
of 99%, followed by Dong Nai (94%) and Ho Chi Minh City (88%). On the ground of
competitive price, Northern Vietnam’s industrial land experienced a market boom in the
last quarter of 2021.
 Steel: The output and value of the steel industry in 2021 recorded outstanding results.
Construction steel output in December 2021 reached 2.5mn tons (+4% YoY). Galvanized
steel increased to 570,470 tons (+38% YoY), thanks to export orders. Finished steel output
in FY21 reached 30.85mn tons (+33% YoY), of which HRC maintained its impressive growth
of 112% YoY to reach 12.3mn tons.
 Construction: The construction market for Vietnam has an expected CAGR of 8.7% per
year in the 2021–2026 period. Over the next 3–to–5-year period, public investment’s
highest priority will be the financing of major infrastructure, which will lay the foundation
for economic growth. In 2021, the public investment capital allocated to the Ministry of
Transport (MT) was VND43,401bn, with the ministry expected to complete disbursement
at a rate of 96% by January 2022.
 Banks: FY22 credit growth is expected to remain at 13% (FY21: +14%). In comparison with
regional peers, Vietnam banks are trading at a premium, thanks to exceptional
profitability and high growth.
 Retail & Consumer: The sharp contraction in the last two years creates a low base for
momentum. There are a number of factors that could improve consumption in both the
short- and long-term. Retail sales are expected to recover, thanks to huge shopping
demand for the Tet holiday. During 2020 and 2021, domestic consumption was depressed
by economic turbulence, which is expected to end in 2021. We expect the FY22 profits of
food and beverage enterprises to recover to pre-epidemic levels in 2019, showing high
growth rates in 2022, from the low base of 2021.
 Utilities: EVN targeted Vietnam’s electricity consumption output to recover by 7.6% YoY to
242.35bn kWh in FY22, in line with our base case expectation. The output of renewable
energy will increase by 12% YoY and maintain the share of overall production at 13.3%
(FY21F: 12.7%. The volume of thermal power is expected to surge by 19% YoY, with the
 proportion of gas-fired power of 11.4% (FY21F: 10.2%) and coal-fired power of 50.3%
(FY21F: 45.4%). We expect hydropower to decline by 15% YoY in production volume and its
proportion to drop to 24.5% in FY22 (FY21F: 30.8%).
 IT: Information technology spending has recovered. Enterprises with the advantages of
consulting capacity and technology products and solutions will maintain and promote
orders from both domestic and foreign markets. Enterprise software and IT services are
forecast to record the strongest growth in the industry.
 Textiles: In 2021, Vietnam's textile exports to North American market recorded good
growth. Exports to the US market reached more than US$16bn (+15.1% YoY), with the
highest growth rate since 2016. The export value to Canada and Mexico respectively
reached US$934mn (+17.8% YoY) and nearly US$104mn (+18.2% YoY). We forecast that in
2022, Vietnam's textile and garment exports to the North American market, especially the
US and Canada markets may grow at 5–8% YoY.
 Seaports: In 2021, Vietnam's export-import turnover was estimated at US$670bn (+22.9%
YoY), a sharp increase compared with +16.1% YoY in 11M21. Of these, export value was
estimated at US$336bn (+19% YoY) and import value of about US$332mn (+26.5% YoY).
Total customs clearance volume in 2021 was estimated at 703mn tons (+2% YoY). For
container clearance, the total volume was estimated at 23.8mn TEUs (+7.5% YoY). Major
support elements continued to be positive.

» Stock recommendations
Source: Mirae Asset Vietnam Research (closing prices on January 24, 2022)

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