4th Quarter and End Of Year Update

RNS Number : 2783A

Vietnam Enterprise Investments Ltd

01 February 2022

 

1 February 2022

Vietnam Enterprise Investments Limited

("VEIL" or the "Company")

Annual and Quarterly Update

+47.1% Return for 2021 and +6.5% in Q4 2021

Vietnam Enterprise Investments Limited ("VEIL") is a closed-end fund investing primarily in listed equity in Vietnam, and a FTSE 250 constituent. The Company's unaudited NAV performance for Q4 2021 and FYE2021 is set out in this notice.

Company Highlights

· In 2021, the Company's NAV increased 47.1% versus 39.0% (both USD terms) for its reference index, the Vietnam Index ("VNI").

· In Q4 2021 the Company's NAV rose 6.5% against 11.7% in the VNI.

· VEIL's NAV per share was US$12.21 at the end of the quarter, total NAV was US$2.6bn.

· Through share buybacks the Company bought back 478k shares in Q4 2021 and a total of 3.4m shares in 2021 (1.6% of shares in issue at year end), an increase from 1.1m shares in 2020.

· Following an outperformance of the Index in the first nine months of the year, the final quarter saw a rally in small and mid-cap stocks and selling in large-cap companies, resulting in the Company underperforming the Index.

· VEIL's primary strategic concentration remains the banking, property, steel and retail sectors, which the Investment Manager believes are best positioned to be the main beneficiaries of the trends currently driving Vietnam's development.

· Most of the Company's holdings have now announced their preliminary Q4 2021 and full year 2021 results, some highlights are given below.

S elected Active Returns (Bloomberg Basis)

TR$%	4Q21	3Q21	2Q21	1Q21	2021	2 Year	3 Year	5 Year
NAV (net)	6.54	-2.80	26.37	12.41	47.11	80.62	86.13	176.87
Share Price	8.23	-1.00	17.21	10.75	39.08	64.84	78.02	183.49
VNI	11.68	-3.31	18.94	8.22	39.00	63.17	79.30	147.97
Active Return	-5.14	0.51	7.43	4.19	8.11	17.45	6.83	28.90
Active Share Ratio: 55.24

Dien Huu Vu, the Portfolio Manager of VEIL commented:

"The Company's focus on interlocking strategic sectors (banking, property, steel) was successful in H1 2021 when investors were increasing their allocations to value and growth stocks reflective of the buoyant economy, but they fell away in H2 2021 amidst heavy foreign net-selling and the spread of the Delta variant rumbling macro fundamentals. With over 90% of Vietnam's adult population now double vaccinated and economic indicators showing the country is successfully adapting to 'living with Covid', the Investment Manager expects things to normalise.  

The Company made some adjustments to the portfolio during Q4, including a private placement for an industrial park developer with 5,000ha of industrial land, whose major tenants include LG, Foxxcon, Canon and GoerTek. VEIL increased positions in two banks whilst fully divesting a position in one of Vietnam's largest banks. The Company also increased its holding in a mid-cap property developer with strategically located landbanks in the outskirts of HCMC that are benefitting from both urbanisation and the Government's investment in infrastructure.

With regards to the market, the SME rally may continue in 2022 but VEIL is not looking to change its investment strategy. We believe many SME stocks are rather expensive - even when allowances are made for asset revaluations - and that having been out of favour for several years, the recent buying is cyclical. The objective of VEIL is to outperform its reference benchmark over a rolling three-year period and the portfolio management team favours sticking to fundamental stock-picking and undertaking structured deals with quality companies channelling top-down economic drivers and ESG compliance, which is an integral part of the investment process and is used by analysts in their evaluation of stocks . Given the Index has been touching its all-time high and global market volatility looks to be on the rise, we feel this is not a time to change tack."

Macro Overview

· GDP recovered in Q4 following the lockdown throughout most of Q3, registering at +5.2% for Q4 to end 2021 with +2.6% growth year-on-year.

· The main driver was the manufacturing sector, which advanced +4.1% year-on-year.

· The CPI rose +1.8% in 2021, lower than observed in the US and Europe, partly because of Vietnam's more basic CPI basket but also due to more restrained fiscal and monetary policy in 2021.

· Total trade for 2021 increased 22.6% to US$668.5bn, with imports rising 26.6% to US$332.3bn, outpacing exports which gained only +19.1% to US$336.3bn, partly handicapped by pandemic constraints globally. The cumulative trade deficit of US$2.4bn in July was reversed to a surplus of US$4.0bn by December 31st.

· This was supported by Vietnam's mass inoculation programme which began in Q3 and was ramped up in Q4 with as many as two million doses being administered daily.

· At the end of 2021, more than 90% of Vietnam's adult population (over 18 years old) were double-vaccinated and nearly 56% of children aged 12-17 years old were double-vaccinated.

· Vietnam ended the year among the top six countries globally for vaccination rates and was administering booster shots in some parts of the country.

· A US$15bn economic stimulus was announced in January, which the Investment Manager expects to boost growth in 2022 along with an anticipated global recovery supporting Vietnam's exports.

Market Overview

· Total market capitalisation for Vietnam's three exchanges was US$339bn at the end of 2021, up from US$235bn at the end of 2020.

· Average daily traded value across Vietnams three stock exchanges was US$1.2bn for the year, 3.5x higher than for 2020.

· Foreign investors sold net $965m in Q4 2021 and $2.5bn for the year, mostly in large-cap stocks.

· This selling caused the VN30 Index (comprising of the 30 largest companies on the Ho Chi Minh Stock Exchange) to drop by 0.6% in H2 2021 with the small-cap index gaining +46.7% and the mid-cap index rising 38.5%. 

· The foreign outflows shifted the ownership structure of the market towards retail investors, who owned 46.8% of the market at the end of 2021 vs 35.8% at the end of 2020.

· Due to eKYC (electronic Know Your Customer) and investment in technology from brokers making retail trading accounts easier to open, total retail investor account openings were 956k for the first nine months of 2021 and accelerated in Q4 to 574k, ending the year with 1.5m new accounts opened - more than the total accounts opened in the previous five years.

Sector Commentary

· Banking is the largest sector in the Vietnam Index and VEIL is modestly overweight in it.

· The Investment Manager identifies a variety of positive factors within the sector: loan books are expanding, provisions that were prudently overstated during the pandemic are falling and non-performing loans have been eased downwards from Q3.  Net Interest Margins are rising as the decline in lending rates lags that of deposits.

· VEIL is overweight in the retail sector and the reopening of the economy has the potential to create high levels of pent-up consumer demand, at the same time as the industry continues to modernise.

· Valuations for these two sectors are not challenging.

· The Property sector is of interest but on a more selective basis. Mid-cap developers with big land banks, strong execution and good marketing teams are favoured, such as Khang Dien House and Dat Xanh Group.

· The Company also holds two industrial park developers who have benefitted heavily from FDI inflows into Vietnam, which the Investment Manager believes have the ability to produce strong NPAT gains.

· The Company holds large-cap property developers, but they are not overweight positions.

· The Investment Manager continues to monitor c. 20-30 smaller developers that have displayed good share price growth in recent months but believes this is not backed up by fundamentals.

Alpha Attributions for VEIL by Sector, 2021 (DC Basis)

No	Sector	Average Weight (%)		2021 Return	Attribution
		VEIL	VNI	(%)	(bps)
Top 5 Alpha Attribution:  +1,008bps / +1,221bps
1	F&B	1.83	8.45	-21.07	371
2	Banks	34.85	30.96	49.27	226
3	Retailing	8.77	1.68	74.52	224
4	Software & Services	4.56	1.60	88.15	119
5	Energy	1.45	5.49	15.29	68
Bottom 5 Alpha Attribution: -384bps / -390bps
1	Diversified Financials	2.01	5.04	126.8	-210
2	Cash	1.91	-	-	-112
3	Consumer Service	1.90	0.98	22.06	-49
4	Technology	-	0.14	150.92	-10
5	Commercial Service	-	0.06	90.86	-3
Total Alpha Attribution: +624bps / +821bps

Notable Q4 Company Performances

Hoa Phat Group ("HPG") - 12.2% 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 Manager expects the company will benefit from both the reopening of the economy and the infrastructure play created by the government's fiscal spending programme.

· 2021 revenue of US$6.6bn and PAT US$1.5bn (+65% and +156% year on year, respectively).

· Q4 revenue US$2.0bn and PAT of US$322m (+73% and +59% year on year, respectively).

· Despite strong sales growth in Q4, PAT was disappointing compared to Q3, this is thought to be caused partly by pressure on hot rolled steel prices which have also seen the same trend globally.

· HPG continues to increase market share by expanding product diversity and capacity and aims to have a major capacity increase completed in 2023.

· Share price rose 52.3% (USD terms) in 2021, VEIL has a large overweight position in HPG, 12.2% of NAV vs. 3.6% of the VNI.

MobileWorld Group ("MWG") - 9.6% of NAV

VEIL has held MWG since 2014, soon after its IPO. The Investment Manager likes MWG because of its top 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.

· Over US$5bn revenue in 2021 and NPAT of US$216m (+13% and +25% year on year, respectively)

· Q4 revenue and net profit of US$1.6bn and US$68m (+33% and +66%, respectively).

· Online revenue of US$630m (+53% year on year) makes MWG Vietnam's largest online share on consumer goods by gross merchandise value.

· MWG have announced they target revenue of over US$6bn for 2022.

· The Investment Manager expects the economic recovery, rising incomes and the stimulus package will boost sentiment and spending in Vietnam, with MWG a likely beneficiary of these factors in the short, medium and long term.

· Share price rose 72.0% (USD terms) in 2021 and remains a large overweight position at 9.6% of NAV vs. 1.7% of the VNI.

Vinhomes ("VHM") - 6.7% of NAV

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 100m sqm). Vinhomes specialises in affordable housing and creating large-scale 'mini cities' including malls, sports facilities, schools and clinics.

· 2021 net revenue of US$3.8bn and NPAT US$1.7bn (+19% and +43% year on year, respectively).

· Q4 2021 net revenue over US$1bn and NPAT US$527m (+6% and +8% year on year, respectively).

· At Vinhomes Ocean Park development, the TechnoPark Tower was granted LEED Platinum v4 by the US Green Building Council. Electric VinBus have started to operate in Hanoi

· Vinhomes announced for 2022 they plan to extend their market leadership by launching large scale projects which will use digital transformation and advanced technology to rival premier international projects

· Share price rose 20.8% (USD terms) in 2021 and is a slightly overweight position at 6.7% of NAV vs. 6.3% of the VNI.

FPT Corporation ("FPT") - 4.3% 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. The Investment Manager believes the business remains undervalued. Their 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 are well positioned to benefit.

· 2021 revenue US$1.6bn and NPAT of US$275m (+20% and +23% year on year, respectively).

· In Q4 2021 FPT announced 24.5% year-on-year post-tax profit growth and 23.5% sales growth

· Global IT segment drove growth as demand increased for digital transformation (DX) from large companies adapting to the new normal post COVID-19, software outsourcing revenue from the US grew 52%, Asia Pacific +27%, EU +15% and Japan +5%

· FPT Education performed well in 2021 with revenue growing 43% year-on-year to turn Q4 into a profit following Q4's loss. Year-on-year there was a 43% growth in total enrollment

· The share price rose 84.8% (USD terms) in 2021 and the fund has an overweight position of 4.3% vs. 1.5% of the VNI.

Techcombank ("TCB") - 3.9% of NAV

Held since IPO in 2018, TCB is a private bank that 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.

· Consolidated results for 2021 showed pre-provision operating profit at US$1.1bn and NPAT of US$784m (+41% and +46% year on year, respectively)

· The strong NPAT increase came from both net interest income (NII) as well as and net fee and commission income (NFI) and made TCB the second most profitable bank in Vietnam in 2021

· Customer loans grew 8.2% quarter on quarter and 46% year on year, the growth in retail loans was driven by increasing demand for mortgages in Vietnam

· NPL ratio increased 9 bps over the quarter to reach 0.66% at the end of Q4, +19 bps year on year

· The share price rose 58.7% in 2021 and TCB is a slight overweight position at 3.9% of NAV vs. 3.1% in the VNI.

For further information, please contact:

Vietnam Enterprise Investments Limited

Rachel Hill

Phone: [phone]

Mobile: [phone]

[e-mail]  

Jefferies International Limited

Stuart Klein 

Phone: [phone]

[e-mail]  

Buchanan

Charles Ryland / Henry Wilson / George Beale

Phone: [phone]

[e-mail]  

LEI: 213800SYT3T4AGEVW864

 

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