TIDMVEIL
RNS Number : 5833U
Vietnam Enterprise Investments Ltd
02 August 2022
02 August 2022
Vietnam Enterprise Investments Limited
("VEIL" or the "Company")
Second Quarter 2022 Update
-20.5% in Q2 2022
Vietnam Enterprise Investments Limited is a closed-end fund
investing primarily in listed equity in Vietnam, and a FTSE 250
constituent. The Company's unaudited NAV performance for Q2 2022 is
set out in this notice.
Company Highlights
-- In Q2 2022, VEIL's NAV decreased 20.5% over the previous
quarter against a fall of 20.9% for its reference index, the
Vietnam Index, both in US dollar terms.
-- The Company's total NAV was US$2.0bn (GBP1.7bn) at the end of Q2 2022.
-- VEIL's NAV per share performance was -20.5% over three
months, -17.2% over one year and +62.5% over three years. Over the
same time periods, the performance of the Vietnam Index was -20.9%,
-14.9% and +32.3%, respectively.
-- The Company's share price decreased by 17.3% in Q2 2022 and
20.8% YTD, and its discount to NAV at the end of the quarter was
15.9%, compared with 19.1% at the end of Q1 2022 and 15.1% at the
beginning of the year.
-- The Company repurchased 2,121,468 shares in Q2 2022,
representing 1.0% of shares outstanding at the beginning of the
quarter. These shares will be held in treasury.
-- The Company repurchased a total of 4,907,168 shares in H1
2022. As of 30 June 2022, 2.3% of issued shares have been
repurchased since 1 January 2022.
Dien Vu, the Portfolio Manager of VEIL commented:
"Heightened risk aversion amongst domestic retail investors
hampered market performance during the second quarter. Neither
positive news on the domestic economic front nor robust results
from individual companies flowed through to prices. Instead,
domestic retail rotated liquidity out of equity and into money
markets and bank deposits. We believe this market dynamic could
persist until overseas volatility abates.
"Nevertheless, the Company benefitted from standout performance
during Q2 by Phu Nhuan Jewelry (+14.6%) and Duc Giang Chemicals
(+8.8%), the latter of which was an investment made in the first
quarter of the year.
"The Company cut back on several sectors in Q2, notably banks,
property, steel, and brokers, with the cash raised recycled into
energy, fertilisers, and chemicals. Over the course of Q2, VEIL's
concentration reduced, with its top ten holdings reducing from
71.6% of total NAV to 64.2%. VEIL has remained as good as fully
invested and has not sought to take cash to a higher level; it
currently stands at 0.6% of AUM, the same as at the start of the
year. With equity markets as they currently are, attempting to time
the market with substantial cash positions would be a risky
strategy.
"Overall, VEIL remains overweight in the banking sector because
of the compelling value for growth its investees offer based on the
Investment Manager's current earnings forecasts; for 2022 it
believes the sector could achieve over 30% net profit after tax
growth and around 20% return on equity, the highest in the market,
with valuations at just 8.0x PER on and 1.5x PBR. The Investment
Manager anticipates that the 2023 outlook is even more attractive,
this is despite its analysts revising down profits of certain banks
by 3-5% to factor in the possibility of higher NPLs from
corporate-bond issuers. The drivers are healthy credit growth (even
with loan quotas that are periodically imposed); steady net
interest margins; flat or falling provisions; and higher fees, led
by bancassurance deals. While we believe t he sector, like the
market, may still be vulnerable to further market declines, the
banks cheap ratings cannot be denied.
"VEIL retains its two retail names, Mobile World Group and Phu
Nhuan Jewelry, as major overweight positions based on their solid
fundamentals. Both delivered positive returns in H1 2022, with PNJ
rising 32.3% and MWG up 3.8%, essentially based on the reopening of
the economy and pent-up consumer that has not softened due to a
benign domestic inflation environment."
Selected Active Returns (Bloomberg Basis)
TR$% 1Q21 2Q21 6-MO 1-YR 2-YR 3-YR 5-YR
----- ------- ------ ------- ----- ------
NAV (net) 0.49 -20.46 -20.07 -17.22 66.84 48.33 74.91
Share Price -4.19 -17.30 -20.77 -15.10 59.91 47.95 66.36
VNI -0.33 -20.94 -21.20 -14.91 49.15 32.30 64.79
------------- ----- ------- ------ ------- ----- ------ -----
Active
Return 0.82 0.48 1.13 -2.31 17.69 16.03 10.12
------------- ----- ------- ------ ------- ----- ------ -----
Active Share Ratio: 60.69
Macroeconomic Commentary
-- Vietnam's GDP growth reached 7.72% in Q2 2022, the highest Q2
growth in over a decade, pushing H1 2022 GDP growth to a three-year
high of 6.4%, compared with H1 growth of 5.7% and 2.0% in 2021 and
2020, respectively.
-- Manufacturing remained the main growth driver, expanding
11.5% in Q2 2022 and for H1 2022 rose 9.7% year-on-year.
-- The service sector rose +8.6% year-on-year in Q2 2022 and reached +6.6% in H1 2022.
-- A trade surplus of US$1.2bn was recorded for H1 2022, a big
increase from the trade deficit of US$1.9bn in H1 2021.
-- Exports and imports in H1 2022 totalled US$186.1bn (+17.3% YoY) and US$184.8bn (+15.5% YoY).
-- Disbursed FDI hit an H1 record high of US$10.1bn (+8.6%
year-on-year) for the first six months of 2022.
-- The Vietnam Purchasing Manager's Index has recorded an
expansion for every month so far in 2022, recording 54.0, 54.7 and
51.7 in June, May, and April, respectively.
-- Inflation has stayed under control, rising 0.7% quarter-on-quarter and 3.4% year-on-year.
-- In Q2 2022, the Vietnamese Dong depreciated 0.4% against the
US dollar, year-to-date depreciation is 2.1%.
-- The tourism sector continues to recover, with domestic
tourism reaching 61m passengers in H1 2022 compared to 85m
passengers for the whole of 2019 and 40m in 2021.
Market Commentary
-- The Q2 2022 fall of 20.9% in Vietnam's equity markets was
caused by both investigations into market abuse, discussed in
previous VEIL announcements, and well-established global
pressures.
-- Total market capitalisation for Vietnam's three exchanges was
US$267bn at the end of Q2 2022, down from US$343bn at the beginning
of the quarter and US$296.8bn at the end of Q2 2021.
-- Average daily traded value across Vietnam's three stock
exchanges increased 14.1% year-on-year in H1 2022 to US$1.1bn.
-- Foreign investors bought net US$163m in Q2 2022, and US$124.9m in H1 2022.
-- New retail investor account openings increased significantly
in Q2 2022 despite the investigations into market abuse in March
and April. A record 477k accounts were opened in May and 466k in
June, far above 2021's average of 125k per month.
-- In total for H1 2022, new retail trading accounts reached
1.9m; more than the cumulative amount for the first 18 years
Vietnam's equity markets were in operation.
Q2 2022 Company Performances
Vietnam Prosperity Bank ("VPB") - 11.3 % of NAV
First invested in by VEIL in 1996, VPB is a commercial bank with
an asset management division, and owns 50% of a large microfinance
company, FE Credit (52% market share in Vietnam). VPB has put
significant resources into digitalisation, using modern
technologies to maximise customer acquisition and retention at a
low cost.
-- Consolidated results for H1 2022 showed profit before tax of US$ 655mn (+70% year-on-year).
-- This contained one-off income from an upfront bancassurance
fee from global insurance company AIA Group for more than US$ 200m
as VPB extended its exclusive deal from 15 to 19 years.
-- Strong H1 2022 credit growth was driven by retail banking
customers and SMEs, these segments together increased 30%
year-on-year even though credit growth itself was 14.3% against a
quota of 15% growth. TCB has resilient net interest margin and high
level & improving fee income.
-- Q2 Performance: -23.5%; 1-Year Performance: -23.8%, and 3-Year Performance: 176.4%.
Hoa Phat Group ("HPG") - 6 .4% of NAV
Held by VEIL since 2009, HPG is a fully integrated steel
producer and the largest private steel manufacturer in Vietnam.
HPG's organically funded expansion has enabled it to continually
gain market share and the Investment Manager anticipates the
company can benefit from both the reopening of the economy and
infrastructure projects generated by the government's fiscal
spending programme.
-- H1 2022 preliminary results announced revenue of US$3.5bn
(+23% year-on-year) and profit after tax of US$524.9m (-27%
year-on-year)
-- Margin compression from rising input prices (mainly coking
coal) and falling average selling prices meant Q2 2022 profit after
tax recorded a sharp decrease both year-on-year and quarter-on
quarter, although the former was due to a high base effect from Q2
2021, which had a profit after tax of US$418.2m, the second highest
quarterly profit after tax in HPG's history (the highest being Q3
2021).
-- A capacity expansion of HPG's main factory is in progress and
is expected to boost the long-term growth outlook from 2024, and
management are actively acquiring new coal and iron ore mines in
Australia to boost the vertical integration of HPG's supply
chain.
-- Q2 Performance: -35.9%; 1-Year Performance: -43.4%, and 3-Year Performance: 108.7%
FPT Corporation ("FPT") - 4.8% of NAV
A portfolio holding since 2008, FPT is a technology and telecoms
conglomerate with high levels of growth and ROE, stable dividends
generated from strong cashflow. FPT's results are achieved from
segments such as IT services, telecom services and education. With
the surge of technology adoption & Cloud migration globally,
the Investment Manager believes FPT is well positioned to
benefit.
-- H1 2022 results recorded revenue of US$862m and NPAT of
US$108m, up +22% and +31% year-on-year, respectively. New software
outsourcing contract value increased 40% to US$508m in H1 2022.
-- Software Outsourcing revenue rose 29%, with profit before tax
up 28% year-on-year as profit margins expanded by 10 bps
year-on-year to 15.8% in H1 2022, mainly due to a larger revenue
contribution from digital transformation services for which revenue
increased 65% year-on-year.
-- Telecom services look well-positioned to become a key
business driver over the next few years due to subscriber
acquisition and the capacity expansion of FPT's data centre, the
Investment Manager expects solid annual subscription growth for
fixed broadband and pay TV caused by rising demand for home
entertainment and an expansion to FPT Telecom's coverage.
-- Domestic digital transformation is expected to centre around
strong demand for cloud computing and data localisation.
-- Q2 Performance: -4.3%; 1-Year Performance: 18.6%, and 3-Year Performance: 228.4%.
Duc Giang Chemicals ("DGC") - 3.7% of NAV
A new portfolio holding in Q1 2022 following rigorous ESG
screening by the Investment Manager, DGC is Vietnam's leading
producer of phosphorus chemicals used in semiconductors, electronic
applications, and agriculture, among other uses. DGC is also
positioning itself to become Vietnam's leading firm in
chlor-alkali-vinyl chemicals used in general manufacturing and
construction.
-- Preliminary H1 2022 results recorded revenue of US$332m and
NPAT of US$136m, up +92% and +415% year-on-year, respectively.
-- This increase in earnings is attributed to record selling
prices and cost savings from a phosphate rock mine owned by DGC,
this is the key input material in phosphorus.
-- Phosphorus prices have proven to be stickier than many
commodities, and the Investment Manager believes this trend should
continue due to 1) China's strict control on exports of phosphorous
and phosphorous derivatives; and 2) greater penetration of
electronic devices.
-- Q 2 Performance: 8.8%; 1-Year Performance: 208.2%, and 3-Year Performance: 1182.4%.
Techcombank ("TCB") - 3.4% of NAV
Held since IPO in 2018, TCB utilises technology effectively to
penetrate market share as well as focusing on mortgages and debt
capital markets. TCB uses digitalisation to keep customer
acquisition and retention costs low, keeping cost of funds at a
minimum.
-- H1 2022 consolidated results showed pre-provision operating
profit of US$641m and net profit of US$492m, +13.5% and +24.1%
year-on-year, respectively.
-- TCB is one of Vietnam's largest mortgage providers and has
reaffirmed its commitment to its long-term strategy both mortgage
and bond markets, the bank has reiterated its view that it supports
the Government's investigations into bond market abuse and believes
this will benefit the bank over the long run.
-- TCB continues its focus on improving customer experience,
recently launching a new mobile phone application that
significantly reduces the number of clicks required per action,
with an upgraded user interface very similar one of Singapore's
largest banks. Additionally, TCB are assessing new financial
products to introduce to their customers, including electronic
certificates for gold (a popular asset class in Vietnam), and
direct FX exchange for tourists.
-- Q2 Performance: -29.6%; 1-Year Performance: -33.3%, and 3-Year Performance: 74.9%.
Top Ten Holdings (64.2% of NAV)
Company Sector VNI % NAV Q2 Perf. 3YR Perf. Market
% Cap
1 Mobile World Group Retail 1.1 11.9 -3.2% +136.8% US$ 4.5bn
=================== =================== ===== ==== ======== ========= ==========
Vietnam Prosperity
2 Bank Banks 2.9 11.3 -23.5% +176.4% US$ 5.5bn
=================== =================== ===== ==== ======== ========= ==========
Asia Commercial
3 Bank Banks 1.4 10.7 -11.0% +119.5% US$ 3.5bn
=================== =================== ===== ==== ======== ========= ==========
4 Hoa Phat Group Materials/Resources 2.2 6.4 -35.9% +108.7% US$ 5.6bn
=================== =================== ===== ==== ======== ========= ==========
5 Vinhomes Real Estate 5.9 5.3 -17.3% +7.6% US$ 11.6bn
=================== =================== ===== ==== ======== ========= ==========
6 FPT Corporation Software/Services 1.7 4.8 -4.3% +228.4% US$4.1bn
=================== =================== ===== ==== ======== ========= ==========
7 Duc Giang Chemicals Materials/Resources 0.4 3.7 +8.8% +1182.4% US$1.9bn
=================== =================== ===== ==== ======== ========= ==========
8 Techcombank Banks 2.7 3.4 -29.6% +74.9% US$ 5.4bn
=================== =================== ===== ==== ======== ========= ==========
9 Vietcombank Banks 7.8 3.4 -10.6% +39.5% US$ 15.2bn
=================== =================== ===== ==== ======== ========= ==========
10 PetroVietnam Gas Energy 4.8 3.3 +4.6% +31.2% US$ 9.5bn
=================== =================== ===== ==== ======== ========= ==========
For further information, please contact:
Vietnam Enterprise Investments Limited
Rachel Hill
Phone: +44 122 561 8150
Mobile: +44 797 121 4852
rachelhill@dragoncapital.com
Jefferies International Limited
Stuart Klein
Phone: +44 207 029 8703
stuart.klein@jefferies.com
Buchanan
Charles Ryland / Henry Wilson / George Beale
Phone: +44 20 7466 5111
veil@buchanan.uk.com
LEI: 213800SYT3T4AGEVW864
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