Monthly Update

RNS Number : 8354V

Vietnam Enterprise Investments Ltd

12 August 2022

 

12 August 2022

Vietnam Enterprise Investments Limited

("VEIL" or "the Company")

Monthly Update

-1.7% NAV Return in July 2022

VEIL is a closed-end fund investing primarily in listed equity in Vietnam, and a FTSE 250 constituent. The Company's NAV performance for July 2022 is set out in this notice.

Fund Performance

· As of 31 July, VEIL's NAV decreased 1.7% over the previous month against a rise of 0.9% for its reference index, the Vietnam Index ("VNI"), both in US dollar terms.

· The Company's NAV per share was US$9.59 as of 31 July, and its total NAV was US$2.0bn (£1.6bn).

· VEIL's NAV per share performance was -16.9% over three months, -13.8% over one year and +42.3% over three years. Over the same time periods, the performance of the Vietnam Index was -12.5%, -8.1% and +27.3%, respectively.

· The Company's share price decreased by 2.2% in July and 22.5% YTD, and its discount to NAV as of 31 July was 16.2%, compared with 15.9% at the end of June.

· The Company repurchased 733,980 shares in July, to be held in treasury, compared with 194,169 shares repurchased in June. As of 31 July 2022, 2.6% of issued shares have been repurchased since 1 January 2022.

Dien Vu, the Portfolio Manager of VEIL commented:

"Economic activity is at pre-pandemic levels, with various indicators exceeding 2019. Last month the Index of Industrial Production increased by 12.8% year-on-year and rose 9.7% YTD to the end of July. The service sector has seen strong growth, mainly due to hospitality and tourism, and total retail sales hit a record high, up by 2.4% month-on-month and 42.6% year-on-year. Vietnam's macro situation looks stable, the public debt ratio is only 43.7% of GDP and budget revenue is in surplus YTD, meaning Vietnam still has the fiscal space to maintain stability in the short-term.

Nevertheless, the economy is facing some challenges, including rising prices, currency pressure and a reduction in global demand. Slowdown in activity in the US and EU has impacted manufacturing and exports, this is reflected in Vietnam's Purchasing Managers Index falling from 54.0 in June to 51.2 in July, which is still an expansion despite the lower figure. Exports and imports decreased from the previous month as Samsung cut its smartphone production in Vietnam on reflecting waning consumer demand globally. With Vietnam being a net purchaser of energy products the Investment Manager now sees a possibility of a trade deficit this year, having previously anticipated a surplus.

July's Vietnam Index increase of 0.9% is the best monthly performance of the year, this modest figure highlights the challenges faced in 2022 following the 39% rise in the index last year. That said, the second quarter earnings season has concluded with an average 17% earnings growth for the top 80 companies under the Investment Manager's coverage, and 24% growth for H1 2022. With strong earnings expansion in a market that is down 20.5% year-to-date, valuations have reset. Banks, the largest sector in the Vietnam Index and an industry that VEIL is overweight in, registered 34% growth compared to 2Q 2021.

We believe these Q2 and H1 results confirm both our view on the solid fundamentals displayed by Vietnamese corporates and the strength of the domestic economy in which they operate, although we must remain mindful of what may lie ahead given the domestic and global pressures that currently exist, many of which are addressed above. The uncertainty also seems to be reflected in local retail investor sentiment: as noted last month, a total of nearly one million new trading accounts were opened in May and June, and a further 196,000 in July, putting the YTD figure at 2.1m, but despite this the average daily trading value across Vietnam's three exchanges dropped 23% to US$585m, the lowest level since the end of 2020."

Economic Overview

· Overall trade slowed compared to June due to a decline in electronics products, which can largely be attributed to Samsung cutting its smartphone production in Vietnam.

· Exports were US$30.6bn in July while imports totalled US$30.5bn, representing monthly declines of 6.8% and 5.3%, respectively.

· YTD to end of July exports reached US$217.3bn (+16.6% year-on-year) and imports US$216.3bn (+14.0%) making a trade surplus of US$1.1bn, this compares to a trade deficit of US$3.3bn in 7M 2021

· Disbursed FDI reached US$11.6bn (+10.2% year-on-year) for YTD to the end of July.

· The Vietnam Purchasing Manager's Index was 51.2 in July, a tenth consecutive monthly expansion.

· Falling petrol prices caused by lower oil prices and Government tax cuts on fuel have been a key factor in keeping inflation subdued.

· Inflation rose 0.4% month-on-month and 3.1% year-on-year. An average CPI of 2.5% in 7M 2022 is the second lowest over this period since 2017.

· In July, the Vietnamese dong depreciated 0.3% against the US dollar, year-to-date depreciation is 2.4%.

July Commentary

The notable underperformer in VEIL's portfolio was Mobile World Group ("MWG"), down 14.9%. Having shown relative resilience throughout the recent market decline MWG fell sharply following its second quarter results announcement. While total revenue for the Group grew 8.5% year-on-year, sales in the grocery store division, Bach Hoa Xanh ("BXH"), fell 8.9% year-on-year due to a restructuring across its 2,140 stores in which 251 underperforming stores were closed, and others refurbished. The associated costs had an impact on BXH's bottom line, which fell 6.9% compared to Q2 2021, although monthly average revenue per store in July was more than 25% higher than before the restructure and so the Investment Manager believes this was a necessary step, particularly while MWG undertakes preparations to pre-IPO BXH as per management guidance at the AGM, which could be a very positive event for the company.

Asia Commercial Bank's ("ACB") share price reacted to impressive Q2 2022 numbers, with profit before tax up 51% whilst maintaining strong asset quality. In addition to solid net interest income growth of 12% and overall total operating income growth of 11%, ACB booked over US$38m of reversals in previous bad debt provisions. ACB's non-performing loan ratio remains at just 0.8% and the bank has a loan loss reserve ratio of 185%.

Dat Xanh Group ("DXG") rose 26.8%, partly recovering from a large fall in its share price following the investigations into market abuse within the property sector in March and April, in which DXG was not one of the two companies targeted. DXG's management announced the company is the only property developer to receive planning permission in Ho Chi Minh City during H1 2022 and has acquired 178 hectares for two projects in northern Vietnam. Despite three of four project launches planned for 2022 being put back to 2023 the company's cash position displays strength, with debts equivalent to US$100m due this year having had US$73m paid off already, the management reports some of these repayments were 1-3 months early and are well prepared for the remainder that is due by October.

Top Ten Holdings (62.8% of NAV)

	Company	Sector	VNI %	NAV %	Monthly Change %
1	Vietnam Prosperity Bank	Banks	2.7	11.3	-1.3
2	Asia Commercial Bank	Banks	1.7	11.1	2.2
3	Mobile World Group	Retail	1.9	10.4	-14.9
4	Hoa Phat Group	Materials/Resources	2.6	5.8	-3.8
5	Vinhomes	Real Estate	5.5	5.0	-3.8
6	FPT Corporation	Software/Services	1.9	4.8	-3.4
7	Dat Xanh Group	Real Estate	0.3	3.8	26.8
8	Techcombank	Banks	2.8	3.7	6.3
9	Vietcombank	Banks	7.4	3.5	-0.4
10	PetroVietnam Gas	Energy	4.3	3.4	-4.6

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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