VEIL Vietnam Enterprise Investments Limited

TIDMVEIL

RNS Number : 3440F

Vietnam Enterprise Investments Ltd

04 November 2022

4 November 2022

Vietnam Enterprise Investments Limited

("VEIL" or the "Company")

Third Quarter 2022 Update

-9.9% in Q3 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 Q3 2022 is set out in this notice.

Company Highlights

-- In Q3 2022, VEIL's NAV decreased 9.9% over the previous quarter against a fall of 7.3% for its reference index, the Vietnam Index, both in US dollar terms.

-- The Company's NAV per share was US$8.79 as of 30 September (-28.0% YTD) and its total NAV was US$1.8bn.

-- In GBP terms, the Company's NAV per share was GBP7.87 as of 30 September (-2.1% for the quarter and -12.7% YTD) and its total NAV was GBP1.6bn.

-- VEIL's NAV per share performance in USD terms is -23.3% over one year, +23.8% over three years and +49.0 over five years. Over the same time periods, the performance of the Vietnam Index was -18.4%, +15.7% and +45.8%, respectively.

-- The Company's share price decreased by 12.6% in Q3 2022, a fall of 31.5% YTD, and its discount to NAV averaged 19.0% or the quarter and ended it at 19.2%, compared with 15.9% as of 30 June 2022.

-- The Company repurchased 1,831,001 shares in Q3 2022, to be held in treasury, compared with 2,121,468 shares repurchased in Q2 2022. As of 30 September 2022, 3.1% of issued shares have been repurchased since 1 January 2022.

-- In the first nine months of the year, US$60.5mn was spent on share repurchases, which at 6,738,169 shares for the first three quarters of 2022 is higher than the 6,046,031 shares bought back over the previous three years (2019, 2020 and 2021) combined.

Dien Vu, the Portfolio Manager of VEIL commented:

"Despite impressive third quarter GDP growth of 13.7% year-on-year and an 8.8% increase YTD, the highest in over a decade, we maintain our cautious market view due to the freezing of bond issuance, lack of new credit quota at banks, and resultant lack of financing for companies - especially property developers.

"In September, Federal Reserve rate hikes began to bite, and the State Bank of Vietnam ("SBV") felt obliged to follow, not only to guard the country against inflation but also in an attempt to protect the currency, which was down 4.3% for the year as at the end of the third quarter (and 8.2% YTD at the time of this release). The SBV raised the policy rate by 100 basis points in late September, the first increase since 2011, and has pushed this up a further 100 basis points since the end of Q3; deposit and lending rates have increased accordingly. The Investment Manager expects another 100-basis point rise by the end of Q1 2023 although this will likely depend on the Federal Reserve.

"VEIL was flat against the Vietnam Index on a YTD basis going into September but ended the quarter behind its reference benchmark following a difficult month in which the market dropped 13.1% and the Company's NAV fell 14.2%. This was led by the Company's overweight positions in banks, materials, and retail stocks, and exacerbated by underexposure to defensive sectors such as food & beverage and energy.

"In the third quarter, the Company reduced marginally its holdings in banks although the Investment Manager maintains its positive assessment on their growth versus value proposition. Within the portfolio's property holdings residential sector exposure was trimmed down while leaving industrial park holdings intact due to the anticipation that strong FDI flows will continue. Additionally, steel exposure was reduced due the ongoing pressures in the sector globally. Daily liquidity across Vietnam's three exchanges in the first nine months of the year averaged US$942mn, while this is down only 7% year-on-year, third quarter liquidity of US$678 was down 42% compared to the same period last year. Net foreign buying YTD has been marginal at US$9.2mn across the three exchanges.

"The Investment Manager has further revised 2022 earnings growth forecasts downwards from 11% to single-digits. After averaging a solid 23% in H1 2022 profits have been dragged down by the global macro situation and rising interest rates, as well as domestically by ongoing corruption probes and capital market reforms. By extension, as we look ahead to 2023, the Investment Manager expects corporate earnings to remain positive but with flat to single-digit average EPS growth across the market, putting valuations between 8-9x on a forward basis. The Investment Manager also anticipates a base-case GDP growth for 2023 of 6.0%, below average for Vietnam but attractive in a global context."

Active Returns (USD)

 
                 3Q21     2Q21    1Q21     9M     1-YR    3-YR    5-YR 
               -------  -------  ------  ------  ------  ------ 
 NAV (net)       -9.94   -20.46    0.49  -28.01  -23.30   23.80  48.98 
 Share Price    -12.59   -17.30   -4.19  -13.52  -31.48   14.31  35.10 
 VNI             -7.29   -20.94   -0.33  -26.95  -18.41   15.66  45.74 
-------------  -------  -------  ------  ------  ------  ------  ----- 
 Active 
  Return         -2.65     0.48    0.82   -1.06   -4.89    8.14   3.24 
-------------  -------  -------  ------  ------  ------  ------  ----- 
                      Active Share Ratio: 58.66% 
 

Source: Bloomberg

Macroeconomic Commentary

-- GDP growth in Q3 2022 reached a record high of 13.7% year-on-year, largely due to a low base following lockdowns in Q3 2021.

-- GDP growth is 8.8% YTD, the highest in over a decade. The service sector led the way, expanding 18.9% year-on-year in Q3 2022 and 10.6% year-to-date and contributing 54.2% so far in 2022.

-- The industry and construction sector grew 12.9% in Q3 2022 and 9.4% year-to-date, contributing 41.8% overall to GDP growth for the first nine months of 2022.

-- The Vietnamese dong depreciated 2.4% over the third quarter and 4.3% YTD against the US dollar as at the end of September. The Vietnamese dong appreciated 5.2% against the GBP in Q3 and 13.8% YTD as at the end of September.

-- September's CPI rose 3.9% year-on-year, average inflation for the first nine months of the year remained low, at 2.7% year-on-year.

-- A trade surplus of US$6.8bn was recorded for the first nine months of 2022, a big increase from the trade deficit of US$3.4bn at the same stage of 2021.

-- Exports and imports in Q3 2022 totalled US$93.1bn and US$91.5bn, increasing 9.9% and 4.9% year-on-year, but a fall of 14.6% and 8.6% quarter-on-quarter.

-- Vietnam's largest export market in the first nine months of the year was the US, amounting to US$86.3bn, an increase of 25.4% year-on-year.

-- Disbursed FDI reached US$15.4bn in the first nine months of 2022, a record for this stage of the year and up 16.2% year-on-year.

-- Registered FDI was US$18.8bn YTD at the end of September, a decline of 15.3% year-on-year which the Investment Manager believes is due to the disruption of feasibility studies for new projects during the pandemic. However, registrations to expand existing FDI projects currently in Vietnam did increase 30% year-on-year.

-- State budget revenue reached US$56bn YTD against $45.8bn of expenditures, creating a fiscal surplus of $10.2bn for the year to end of September.

Q3 2022 Company Performances

Mobile World Group ("MWG"): 11.7 % of NAV; down 12.7% over the quarter

VEIL has held MWG since its IPO in 2014. The Investment Manager likes MWG because of its excellent management team with proven track record who have led and inspired Vietnam's transition to modern trade, displaying exceptional execution and customer-centric ethos. MWG now has more than 5,300 stores nationwide covering mobile phones and accessories, consumer electronics and groceries.

-- Consolidated revenue for the first nine months of 2022 was US$4.0bn and NPAT US$142mn, +18% and +4% year-on-year, respectively. Q3 2022 revenue was US$1.3bn and NPAT was US$37mn, +32% and +15% year-on-year respectively

-- Total online sales totalled US$578mn YTD to end of September, an annual increase of 52% from which US$562mn came from MWG's mobile phones and consumer electronics segments, an increase of 60% year-on-year

-- MWG's grocery store chain has now finished the restructuring process that it began in April of this year, and having closed 19% of its stores has seen average revenue per store rise of than 25%. The company has managed to uphold gross margins by easing up on discount offers for customers and further automating its back-end operations as well as optimising its logistics systems.

Asia Commercial Bank ("ACB"): 10.8 % of NAV; down 9.8% over the quarter

Held by VEIL continuously since 1996, ACB is a commercial bank primarily focused on retail and SME segments and display prudent risk management, the Investment Manager believes this is one of the best banks in Vietnam in terms of asset quality.

-- ACB recorded total operating income of US$815.6mn and net profit of US$441.6mn in the first nine months of 2022, up 18.6% and 50.8% year-on-year, respectively

-- Net-interest income rose 20.7% and net fee income rose 21.1% (mainly from bancassurance and card services), as well as large gains from net other income and a reversal of provisions for restructured loans.

-- ACB reported YTD loan growth of 11.6% against a quota of 12.7%, with consumers and SMEs accounting for 94% of total loans and 93% of total deposits. ACB has no exposure to corporate bonds, which is significant given the challenges this market currently faces, and is instead 85% in government bonds and 15% in bonds issued by financial institutions

Hoa Phat Group ("HPG"): 5.7% of NAV; down 7.3% over the quarter

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 urbanisation and the subsequent infrastructure projects generated by the government's fiscal spending programme, although pressures with key commodity prices currently exist.

-- For the first nine months of 2022, HPG reported revenue of US$4.7bn and NPAT of $428mn, up 10% and down 61% year-on-year, respectively.

-- HPG announced third quarter revenue of US$1.4bn (down 9% quarter-on-quarter) and a net loss of US$72.4mn, down both annually and quarterly from a very high base of US$423mn NPAT in Q3 2021 and US$165mn in Q2 2022.

-- Despite positive steel sales volume growth in the first nine months of 2022, HPG's weak Q3 results are due to unfavourable movements in input material prices and output selling prices, as well as foreign exchange losses.

Vinhomes ("VHM"): 4.2% of NAV; down 20.4% over the quarter

Held by VEIL since its IPO in 2018, Vinhomes is the largest property developer in Vietnam and has the biggest land bank in the country (over 100 million sqm). Vinhomes specialises in affordable housing and creating large-scale 'mini cities' including malls, sports facilities, schools and clinics.

-- In the first nine months of 2022 VHM posted NPAT of US$804mn, down 27% year-on-year off a high base. Underlying property sales were US$1.7bn, down 29.4% over the year, while down payments under sale and purchase agreements totalled US$2.4bn.

-- VHM posted third quarter NPAT of US$592mn, up 30% year-on-year due to the beginning of handovers of new projects and the recognition of bulk sales transactions of two major projects

-- VHM's cash and cash equivalents were US$602mn at the end of Q3 2022, more than triple the size of the end of 2021 although down 50% compared to Q2 2022, with the expenditure going toward construction costs for a major project (5,300 low-rise units) as well as development costs for other upcoming projects.

Top Ten Holdings (64.1% of NAV)

 
    Company             Sector               VNI %  NAV %  Q3 Return  One-year 
                                                               %       Return % 
1   Mobile World Group  Retail                2.1   11.7     -12.7      -3.8 
    ==================  ===================  =====  =====  =========  ========= 
    Vietnam Prosperity 
2    Bank               Banks                 1.8   11.4     -9.2       -29.7 
    ==================  ===================  =====  =====  =========  ========= 
    Asia Commercial 
3    Bank               Banks                 1.7   10.8     -9.8       -16.1 
    ==================  ===================  =====  =====  =========  ========= 
4   Hoa Phat Group      Materials/Resources   2.8    5.7     -7.3       -49.5 
    ==================  ===================  =====  =====  =========  ========= 
5   FPT Corporation     Software/Services     2.0    4.9     -7.9        1.2 
    ==================  ===================  =====  =====  =========  ========= 
6   PetroVietnam Gas    Energy                4.7    4.2     -4.5       11.2 
    ==================  ===================  =====  =====  =========  ========= 
7   Vinhomes            Real Estate           5.0    4.2     -20.4      -36.5 
    ==================  ===================  =====  =====  =========  ========= 
8   Vietcombank         Banks                 7.8    3.9     -4.5       -7.2 
    ==================  ===================  =====  =====  =========  ========= 
9   Dat Xanh Group      Real Estate           0.3    3.8      1.5        1.4 
    ==================  ===================  =====  =====  =========  ========= 
10  Becamex IDC         Real Estate           2.1    3.5     31.9       95.2 
    ------------------  -------------------  -----  -----  ---------  --------- 
 
    Vietnam Index                -                           -7.3%     -18.4% 
    ==================  ===================  =====  =====  =========  ========= 
 

Source: Bloomberg, Dragon Capital

NB: All returns are given in USD terms

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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