Second Quarter 2023 Update

Vietnam Enterprise Investments Ltd

09 August 2023

 

9 August 2023

Vietnam Enterprise Investments Limited

("VEIL" or the "Company")

2023 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 NAV performance for Q2 2023 is set out in this notice.

Company Highlights                                                             

·          In Q2 2023, VEIL's NAV increased 4.6% over the previous quarter against a rise of 5.2% for its reference index, the Vietnam Index ("VNI"). In H1 2023, VEIL's NAV increased 10.3% against a rise of 12.2% for the VNI. All in total return US dollar terms

·          The Company's NAV per share was US$8.66 as of 30 June and its total NAV was US$1.8bn.

·          In USD terms, the Company's share price increased 4.8% for the quarter and declined 9.3% over one year.

·          VEIL's one year NAV per share performance in US dollar terms is -11.3%, but +48.0% over three years and +27.2% over five years. Over the same time periods, the performance of the VNI was -6.1%, +40.1%, and +23.1%, respectively.

·          In GBP terms, the Company's NAV per share was £6.81 as of 30 June (+1.6% for the quarter and -15.3% over one year) and its total NAV was £1.4bn. The Company's share price increased 1.9% for the quarter and decreased 13.3% over one year.

·          The Company's discount to NAV averaged 15.8% for the quarter. As of 30 June 2023, the discount to NAV was 14.0%, compared with 10.7% as of 31 December 2022.

·          The Company spent US$8.5mn repurchasing 1,199,216 shares in Q2 2023, compared with 707,373 shares repurchased Q1 2023. In H1 2023, 0.9% of shares outstanding as of 1 January 2023 were repurchased.

·          The Vietnamese dong ("VND") despite depreciating 0.5% against the US dollar in Q2 2023 has appreciated 0.2% year-to-date. The VND depreciated 3.2% against the pound sterling during the same period and has depreciated 5.3% year-to-date.

Dien Vu, Portfolio Manager of VEIL, commented:

"The VNI's 12.2% gain in H1 2023 was amongst the highest in Asia, owing to supportive Government measures, which included 150 basis points of rate cuts. As these rate cuts took effect, market liquidity improved over the course of the period due to a return in confidence and risk appetite amongst investors. Daily turnover across Vietnam's three exchanges averaged US$583.5mn in H1 2023 and rose to US$843mn in June following the fourth rate cut. The State Securities Commission's pledge to expedite the stalled trading system upgrade (which will reduce settlement times, among other improvements) also contributed to market optimism. This in turn boosted the share prices of the brokerage sector stocks that VEIL holds.

"Aside from the interest policy rates cuts, the Government has taken several other measures to kickstart the economy going into the second half of the year, including: a new decree supporting the corporate bond market, an acceleration in public investment (disbursements totalled US$9.2bn in H1 2023, up 43.3% year-on-year), and a 2% VAT cut effective from 1 July.

"The VNI's strong performance came despite GDP growth of 3.7% for this period, which is below Vietnam's 12-year H1 average economic growth of 5.4%, and the second lowest H1 growth after 2020. Exports and industrial production were relatively weak in the first half of the year, which had a knock-on effect on consumption. Although FDI continues to pour into the country, headline inflation rose a modest 2.0% and the Vietnamese dong was stable against the US dollar.

"Ultimately, the Manager anticipates that the impact of the Government's fiscal spending programme and other support measures will accelerate through the remainder of 2023, by boosting the real estate and bond markets as well as domestic consumption, leading to a favourable environment for H2 performance. Despite some scepticism in the foreign press about the pace of policy approvals, the government continues to emphasise that public investment is a key theme for economic development over the next five years. The Manager believes that the combination of near term and medium-term government support will both strongly boost underlying corporate performance and continue to buoy domestic investor sentiment."

"Within the portfolio, the Manager would like to highlight the following companies for the quarter.

·    Hoa Phat Group ("HPG") (8.3% of NAV) was the Company's standout performer in Q2 as its share price continued its recovery following a near 50% decline in 2022, with growth of 25.1% in Q2 bringing its total H1 2023 share price gain to 45.3% and one-year performance to 15.8%. HPG is a fully integrated steel producer, and its products uses include reinforcement in property and infrastructure, where HPG has the leading market share and is a key beneficiary of urbanisation in Vietnam. VEIL trimmed its position in March 2022 due to short-term volatility within the commodities sector but maintained a core holding due to the long-term outlook for the company. Near the end of 2022, as the company announced the temporary shutdown of seven of its factories to cut short-term costs, the Manager felt HPG's share price had overreacted to the news and started increasing its position, which carried on into Q1. All seven factories are now operational again. HPG's Q2 2022 revenue and NPAT reached US$1.2bn and US$61.4mn, up 11% and 267% on the previous quarter, respectively, although down 21% and 64% year-on-year.

·    Khang Dien House ("KDH") (3.5% of NAV), which the Investment Manager views as being one of the best property developers in Vietnam, saw its shares rise 11.1% in Q2 2023. As property stocks were sold off toward the end of 2022, the Manager assessed that KDH - with low leverage, large land banks in strategic locations and a quality end-product that's popular with the growing middle class - had been oversold and topped up its position in the portfolio. Q2 2023 revenue and NPAT fell 20% and 25% to US$25mn and US$11m, respectively, reflecting a lower number of units sold and higher tax expenses. The Manager expects falling interest rates will benefit KDH as buyers come back into the housing market. In May, as a testament to KDH's position as one of Vietnam's leading housing developers, Singapore's Keppel Corporation Limited acquired a 49% stake from KDH in two of their projects for US$135m.

·    Vietnam Prosperity Bank's ("VPB") (12.3% of NAV) share price fell 6.1% in Q2 2023 following Q1's 18.4% gain on the news of the 15% investment from Sumitomo that is expected to conclude in Q3 this year. VPB's H1 2023 pre-tax profit of US$220mn was down 66.5% year-on-year, largely caused by a high base effect from a one-off bancassurance transaction booked in Q1 2022 (-13.2% adjusting for this), as well as a rise in the cost of funding and the write-off of bad debt, including for its consumer finance subsidiary. Consolidated deposits grew 27.9% to the equivalent of US$16.3bn. Credit growth of 9.7% and net interest margins of 6.3%, both of which are above the sector averages of 4.7% and 4.2% respectively, continue to support core profitability despite the challenges.

·    FPT Corporation ("FPT") (4.8% of NAV) announced H1 2023 revenue and net profit after tax of US$1.0bn and US$127.2mn, increases of 22% and 21% year-on-year, respectively. Global IT services, its core business segment, generated revenue and net profit expansions of 30% and 35%, respectively. The education business also continues to thrive, with H1 2023 Education revenue increasing 42% year-on-year. FPT has been a portfolio holding for 15 years, and the Manager remains confident on the company's outlook.  FPT is benefitting from the global growth in digital transformation ("DX") with 40% year-on-year growth in DX revenue and 29% in new contract value for H1 2023, highlighting the company's capabilities to deliver innovative software outsourcing services to global customers. The data centre and AI business segments now being rolled out are expected to extend the company's growth even as its current core operations start to mature.

Macroeconomic Commentary

·    GDP growth registered at 4.1% year-on-year in Q2 2023 and 3.7% in H1 2023, the second lowest levels since 2011.

·    The service sector continues to be the main economic driver with 6.3% growth in H1 2023, contributing 78.9% to the total GDP increase.

·    GDP from the industrial and construction sector recovered in Q2 to rise 2.5% year-on-year following a 0.4% contraction in Q1, which was the first quarterly decline for the sector for more than a decade. Overall, the sector increased 1.3% year-on-year in H1 2023, contributing 11.9% to overall GDP growth.

·    In H1 2023, exports and imports were reported at US$164.5bn and US$152.2bn, declines of 12.1% and 18.2% year-on-year, respectively. This lifted the trade surplus to US$12.2bn, significantly higher than the trade surplus of US$1.0mm in H1 2022.

·    The Index of Industrial Production (IIP) rose 2.0% month-on-month in June but fell 1.2% year-on-year in H1 2023 due to the slowdown in exports. The S&P Global Purchasing Manager Index recorded Vietnam in contraction territory throughout Q2, with just February registering expansion in H1 2023.

·    FDI disbursement rose 0.5% year-on-year to US$10.0bn in H1 2023, with pledges down 4.3% in the period to US$13.4bn.

·    June CPI rose 2.0% year-on-year and average inflation in H1 2023 was 3.3%.

Top Ten Holdings (67.1% of NAV)

	Company		Sector	NAV %	VNI %	Q2 Return %	One-year Return %
1	Asia Commercial Bank		Banks	12.8	1.7	5.1	8.5
2	Vietnam Prosperity Bank		Banks	12.3	3.0	-6.2	1.4
3	Hoa Phat Group		Materials/Resources	8.3	3.4	25.1	15.8
4	Vietcombank		Banks	7.2	10.7	8.9	32.0
5	Mobile World Group		Retail	5.4	1.4	11.8	-40.2
6	Vinhomes		Real Estate	5.0	5.4	6.3	-12.6
7	FPT Corporation		Software/Services	4.8	2.1	8.2	-0.4
8	Becamex IDC		Real Estate	4.2	1.9	-4.9	17.7
9	PetroVietnam Gas		Energy	3.7	4.0	-9.3	-18.3
10	Khang Dien House		Real Estate	3.5	0.5	11.1	-14.0
	Vietnam Index		-		-	5.2	-6.1

Source: Bloomberg, Dragon Capital

NB: All returns are given in USD terms

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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