FiinGroup: Vietnam stock market is still attractive despite a strong increase, 2 reversal risks need to be watched

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FiinGroup has just released a report on Vietnam’s stock market under new normal conditions and comments on industry groups.

According to FiinGroup, VN-Index is currently valued at P/E at 18.6x the last 4 quarters’ sliding profit until the end of Q1 2021 and P/B at 2.8x. This is a valuation that is still not too high compared to the average of 1 standard deviation of this valuation index over the past 10 years.

FiinGroup also forecast that P/E in 2021 will be at 17.8x and P/B at 2.1x. With this forecast, the PEG index (assessing the correlation between the current P/E of the market and the next year’s profit growth) is considered quite attractive at 0.89.

Regarding the opinion that the current Vietnamese stock market is similar to the boom period in 2007 and then the crash in early 2008 and the downturn until 2015, FiinGroup said, this may be reasonable from the perspective of the demand-pull factor from the “rushing” money flow into the market and a “fear of missing the train” of individual and institutional investors.

However, this according to FiinGroup is probably not such a big risk if considered from two angles: first, in the period 2006-2007 the market received both domestic and foreign cash flows while the period In the current period, it is mainly the cash flow of individual investors in the country while foreign investors continue to “discharge” strongly.

Second, the valuation indexes at the end of the first quarter of 2007 (when the VN-Index fluctuated around 1,130), the valuation indexes at that time were at a very high level compared to the current period. Specifically, the P/E of VN-Index at that time was at 31.4x and P/B at 8.9x with only nearly 140 listed stocks with a total capitalization of about 364 trillion dong and average daily liquidity. 1.2 trillion VND.

Currently, the market breadth has increased by about 17 times in terms of liquidity, 14 times in terms of capitalization and 9 times in the number of securities accounts while the valuation is at a low level and many times more reasonable.

Particularly, banking stocks at that time, with 2 listed banks, had a P/E valuation of only 21x but P/B at up to 9.6x. While currently 27 listed banks at the moment have P/E of only 15.5x and P/B at 2.6x.

Compared to other countries in the region, according to FiinGroup, VN-Index is currently trading lower in relation to profitability but significantly higher in relation to book value compared to regional markets.

“It’s worth noting that very few markets in the region can have a forecast of 20.6% profit growth both in 2021 and 33.4% in 2022. This may have made all the difference. This is especially the case for Vietnam’s story and is the index with the largest increase since the beginning of 2021 compared to emerging markets”, the FiinGroup report stated.

Profit growth of non-banks is more certain than banks

FiinGroup also offers 2 reversal risk factors to watch. Specifically, the banking group contributes up to 43% of the profit structure in 2021 of the whole market. While the profit growth story of non-banking sector has higher certainty in the current context. Therefore, the monitoring of the second quarter of 2021 and related policy changes have impacts such as deposit interest rates, provisioning rates for bad debts, the ability to continue to maintain profit growth from service activities. As well as the dilution issuance activities, it will be an important factor for investors to monitor and assess the impact on the overall market sentiment and on these fundamental market indicators.

Moreover, although EAT is forecast to grow at such a high rate in 2021 and also forecast in 2022, the dilution risk factor is also quite large. That is, in the coming time, the number of newly issued shares will increase while the capital mobilized this year will contribute to profits in the following years. As a result, valuation and earnings-per-share metrics will experience lower growth.

For example, while the profit after tax of non-financial enterprises in 2021 is forecasted to grow by 20.7%, the earnings per share (EPS) calculated by us are only expected to grow at 10, first%.

Source: – Translated by