REG - Vietnam Enterprise - Second Quarter Update

Vietnam Enterprise InvestmentsAnnouncement

01/08/2024 07:00

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RNS Number : 7511Y  Vietnam Enterprise Investments Ltd  01 August 2024

1 August 2024

 

Vietnam Enterprise Investments Limited

("VEIL" or the "Company")

 

2024 Update - Second Quarter

 

VEIL is a London listed investment company investing primarily in listed
equities in Vietnam and a FTSE 250 constituent. The Company's unaudited NAV
performance for Q2 2024, in which NAV per share declined 4.3% compared to a
decrease of 5.4% in its reference index (in USD terms), is set out in this
notice.

 

Tuan Le, Lead Portfolio Manager of VEIL, commented:

 

"Vietnam's 6.4% GDP Growth in H1 2024 (and 6.9% in Q2 2024) exceeded
expectations, mainly driven by the processing and manufacturing sectors
(+8.7%).  Overall domestic consumption rose 8.8% in H1 2024, supported by
international arrivals surging by 58.4% YoY to 8.8 million, 4.1% higher than
the same period in 2019. Consumption rose 7.7% and F&B services jumped
17.5%. The government has revised up its full-year GDP target by 50 bps to
6.5%-7.0% based on improving global macroeconomics and strong domestic
economic data.

 

"However, we are mindful of several challenges that could cause near-term
volatility. The Vietnamese dong ("VND") depreciated by 4.9% against the USD in
H1 2024, exceeding our January forecast of 3.5%. Expected delays in Federal
Reserve rate cuts and domestic political movements have influenced this. In
response, the State Bank of Vietnam ("SBV") has sold US$6.5bn in currency
reserves. The SBV also withdrew excessive money in the interbank system,
resulting in some banks raising their deposit rates by 0.5-1.0%. We expect the
VND will continue to face further pressure against the USD, and while a
Federal Reserve rate cut would help ease this, we believe 12-month deposit
rates in Vietnam might rise by a further 0.5% to around 5.3% before the end of
the year. Despite this, we do not foresee macroeconomic headwinds derailing
Vietnam's current growth trajectory. Stimulus measures, including tax
reductions, a 30% increase in the base salary for state employees, and a 6%
hike in the minimum wage, are expected to boost consumer purchasing power.

 

"VEIL's NAV per share decline of 4.3% in Q2 2024 outperformed the Vietnam
Index (VEIL's reference index) by 1.1%, although both the Company and the
Vietnam Index returned 6.0% in H1 2024.Foreign net selling across Vietnam's
equity markets totalled US$2.1bn in H1 2024, this is in contrast with the
US$82mn of net buying at the same stage last year, although is in line with
the regional sell-off in general: Thailand registered US$3.2bn of outflows in
H1 2024, The Philippines US$527mn and Indonesia US$427mn. However, local
investor sentiment has been resilient, and in H1 2024 average daily trading
across Vietnam's three exchanges reached US$967mn, which is 1.8 times higher
than in H1 2023.

 

"We have been restructuring VEIL's portfolio to reduce its concentration and
are nearing the end of this process. We have increased exposure to sectors
such as banks, retail, manufacturing, property, and industrial parks with
companies we believe are well-positioned to benefit from Vietnam's core growth
drivers and outperform the market.

 

"The retail sector was the largest alpha contributor to the Company in Q2
2024. The increased position in Mobile World Group ("MWG") and new investment
into FPT Retail ("FRT") proved fruitful, seeing returns of 20.1% and 9.8%,
respectively. We remain confident in the outlook for the sector, supported by
increases in domestic consumption and the aforementioned fiscal stimulus.

 

"FPT Corporation's ("FPT") share price rose 25.6% in Q2, which we believe
benefitted from the US$200mn AI partnership signed with NVIDIA and optimism
following the March acquisition of the Japanese IT services company Next
Advanced Communications NAC Co, Ltd. ("NAC"). FPT reported solid H1 2024
results, with revenue of US$1.2bn and NPAT of US$145mn, up 21.4% and 22.3%
year-on-year, respectively. Revenue and NPAT in the company's global IT
services division rose 30% and 25% year-on-year, with revenue in Japan rising
35.2% compared to H1 2023, in part attributed to the NAC acquisition.

 

"The property sector faced challenges with a 14.6% average share price decline
in Q2 2024 due to slow pre-sales and subdued earnings. We remain optimistic
about a potential recovery in the second half of the year as the new land law
takes effect, which we expect will reinvigorate delayed projects. We have
increased our holdings in select residential developers such as Khang Dien
House ("KDH") and added Nam Long Group ("NLG") to the portfolio, both have
substantial clean land banks and promising new project pipelines.

 

"Two of VEIL's main bank positions, MB Bank ("MBB") and VietCombank ("VCB"),
experienced double-digit share price declines in Q2 2024. The key reasons for
this weak investor sentiment were thought to be concerns regarding credit
growth for VCB and non-performing loans for MBB. Both banks, however, reported
positive Q2 results, with VCB's NPAT increasing 17.2% year-on-year and MBB's
growing 36.5%."

 

"Strong Q2 results from Techcombank ("TCB") are encouraging, with revenue
reaching US$530mn (+43.9% year-on-year) and NPAT rising to US$245mn (+39.0%).
Robust credit growth of 5.4% quarter-on-quarter and 12.9% year-to-date was
driven by a disbursement recovery in mortgages and SMEs (especially FMCG and
property developers).

 

"The General Secretary of the Communist Party Central Committee, Nguyen Phu
Trong, passed away on 19 July due to old age and serious illness, at the age
of 80. The previous day, the Politburo assigned President To Lam to oversee
the work of the Central Committee, the Politburo, and the Secretariat.

 

"Vietnam's Central Party Committee will now vote for the General Secretary
position and is expected to convene in October 2024 to address this matter. A
smooth transition is anticipated, as only a few candidates meet the criteria
to be elected as General Secretary. Vietnam has experienced a number of
political transitions this year (including the resignation of the President in
March and Chair of the National Assembly in April), and it is important to
note throughout the various changes in the Politburo the government has
continued to reiterate its commitment to pro-business policies. Noting the
limited number of candidates for the position of General Secretary, we expect
the commitment to continue. Nevertheless, Vietnam may incur some policy
implementation delays until the formal succession of the next General
Secretary."

 

Company Highlights

All quoted data from 28 March to 28 June 2024 due to UK public holidays.

 

·    In Q2 2024, VEIL's NAV decreased 4.3% over the previous quarter
against a decrease of 5.4% for its reference index, the Vietnam Index ("VNI").

·    The Company's NAV per share was US$9.19 as of 28 June, and its total
NAV was US$1.8bn.

·    The Company's share price decreased 0.4% over the quarter and rose
4.9% year-to-date, both in USD terms.

·    VEIL's one-year NAV per share performance is +6.1%, -22.1% over
three-years and +39.7% over five years. Over the same periods, the performance
of the VNI was +4.9%, -16.2% and +30.4%, respectively (all in US dollar
terms).

·    In GBP terms, the Company's NAV per share was £7.27 as of 28 June
(-4.3% for the quarter and +6.9% year-to-date), and its total NAV was £1.4bn.
The Company's share price decreased 0.5% for the quarter and 5.8%
year-to-date.

·    The Company's discount to NAV averaged 18.6% for the quarter. As of
28 June 2024, the discount to NAV was 19.0%, compared with -22.1% at the end
of Q1 2024 and -18.1% as of 31 December 2023.

·    The Company spent US$24.0mn purchasing 3,179,702 shares in Q2 2024,
compared with US$20.0mn purchasing 2,723,307 shares in Q1 2024.

·    A total of 5,903,009 shares were purchased in H1 2024 for US$44.0mn.
This is 2.9% of shares outstanding as of 1 January 2024. The indicative
accretion to NAV per share from the share purchases is 0.71%.

·    The Vietnamese dong ("VND") depreciated 2.7% against the US dollar in
Q2 2024 and depreciated 4.9% year-to-date. The VND depreciated 3.0% against
the GBP pound sterling during the same period and depreciated 4.3%
year-to-date.

 

Top Ten Holdings (60.4% of NAV)

     Company               Sector                    NAV %  VNI %  Weight vs Index %  Q2 2024 Return %  One-year Return %
 1   Mobile World Group    Consumer Discretionary    8.8    1.8    +7.0               20.1              33.8
 2   Hoa Phat Group        Materials                 8.6    3.6    +5.0               -0.8              8.3
 3   FPT Corporation       IT                        8.3    3.8    +4.5               25.6              89.0
 4   Asia Commercial Bank  Financials (Banks)        7.1    2.1    +5.0               -2.7              17.6
 5   VP Bank               Financials (Banks)        7.1    2.9    +4.2               -2.5              -5.6
 6   Vietcombank           Financials (Banks)        6.1    9.4    -3.3               -13.3             -7.9
 7   Techcombank           Financials (Banks)        4.8    3.2    +1.6               -2.3              33.9
 8   MB Bank               Financials (Banks)        3.5    2.3    +1.2               -13.4             16.6
 9   SSI Corporation       Financials (Diversified)  3.1    1.0    +2.1               -15.6             18.3
 10  Khang Dien House      Real Estate               2.9    0.6    +2.3               -5.2              19.4

     Vietnam Index         -                                -                         -5.4              4.9

 

Source: Bloomberg, Dragon Capital

NB: All returns are given in USD terms as of 28 June 2024

 

 

For further information, please contact:

 

Vietnam Enterprise Investments Limited

Rachel Hill

+44 122 561 8150

+44 797 121 4852

rachelhill@dragoncapital.com (mailto:rachelhill@dragoncapital.com)
 

 

Jefferies International Limited

Stuart
Klein

+44 207 029 8703

stuart.klein@jefferies.com (mailto:stuart.klein@jefferies.com)

 

h2Radnor

Iain Daly

+44 20 3897 1830

idaly@h2radnor.com (mailto:idaly@h2radnor.com)

 

 LEI: 213800SYT3T4AGEVW864

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