Vietnam Enterprise Investments Ltd Q1 2024 saw highest Q1 GDP growth in five years at 5.7%

Vietnam Enterprise Investments Ltd (LON:VEIL) is a London listed investment company investing primarily in listed equities in Vietnam and a FTSE 250 constituent. The Company’s unaudited NAV performance for Q1 2024, in which NAV per share rose 10.7% (in USD terms), is set out in this notice.

Tuan Le, Lead Portfolio Manager of Vietnam Enterprise Investments, commented:

“The first quarter of 2024 saw the highest Q1 GDP growth in five years at 5.7%, aligning with our projections and supporting our forecast of a 6.0-6.5% expansion for the year. The economy continues to benefit from significant fiscal support through public investment disbursement, VAT cuts, and public sector salary increases set to be implemented from 1 July 2024, which will be capped at 20%. We estimate this could benefit as many as 8-9 million individuals (c.8-9% of the population).

“The State Bank of Vietnam is likely to maintain an accommodative monetary policy throughout 2024, which is foundational to economic expansion. The Vietnamese dong depreciated 2.1% in Q1 2024 and over 4.5% YTD as of 26 April, having come under pressure from a robust US dollar, the Federal Reserve’s reluctance to adjust interest rates, and speculative activities in domestic gold and unofficial USD markets in Vietnam.

“While a strain on the currency will likely persist in the short-term, the situation may improve by the end of 2024 as the Federal Reserve pivots towards rate cuts. Despite these challenges, we anticipate that consistent FDI inflows (US$4.6bn disbursed in Q1) and a robust trade surplus (US$8.1bn in Q1) will provide a buffer against currency volatility.

“In the retail sector, an 8.2% year-on-year increase in sales, driven by rising international arrivals, dovetails with our emphasis on retail modernisation and consumption recovery. This encouraging trend validates our focus on leading retail entities like Mobile World Group and a new addition to the portfolio, FPT Retail (“FRT”).

“We like FRT because of the compelling growth prospects of its pharmacy chain Long Chau, aiming to fortify a nationwide healthcare ecosystem by adding 400 new pharmacies to its network of over 1,500 stores in 2024. Long Chau’s expansive store network and strong brand name position it as a solid player in the retail sector and a potential IPO contender. FRT is also aggressively expanding its vaccination centres to address a nationwide shortage and has grown from just ten centres at the end of 2023 to 49 at the end of Q1 2024, with a target to increase to 100 by the end of 2024. We forecast sales in the FRT’s vaccination chain to deliver a compounded annual growth rate of 70% between 2024-2030.  FRT’s also owns a consumer electronics arm, FPT Shop, which is refining its product range to include more high-margin small home appliances. We forecast FRT’s total sales for 2024 to reach US$1.5bn, a 21% increase, with a profit before tax of US$8mn, a significant turnaround from a near US$12m pre-tax loss in 2023.

“As we move forward in 2024, our outlook for Vietnam’s economy remains positive. Nevertheless, we remain conscious of the internal and external risks that have contributed to a decline in April of nearly 8% (as of 26 April) for both the VEIL’s NAV per share and the VNI in US dollar terms, with respective year-to-date performances of +1.6% and +2.8%.

“The resignations of the Vietnamese President on 20 March and Chairman of the National Assembly on 26 April reinforce the Government’s intention to maintain integrity at its highest levels. Throughout the Investment Manager’s 30 years of experience in Vietnam there has been a consistent political cycle for the transition of power. While the recent resignations are exceptional in their seniority, they are likely reflective of the positioning that is typical of political succession.

“Admittedly, recent events have temporarily slowed policy implementation and affected confidence levels. Nevertheless, the Vietnamese economy is proving robust. Aside from Vietnam’s GDP recording the fastest Q1 growth of the last five years, foreign direct investment increased by 13.4% year-on-year, and exports expanded by 17.0% from Q1 2023. The top 80 companies under the Investment Manager’s coverage are expected to achieve their highest net profit in seven quarters, delivering 19.3% year-on-year growth for Q1 2024.  

“While such leadership transitions pose challenges, Vietnam’s economic environment and commercial activities have historically demonstrated resilience. Looking ahead, we believe that these factors, while impactful, will not detract from the long-term growth potential of Vietnam and its capital markets.”

Company Highlights

All quoted data to 28 March 2024 due to a public holiday on 29 March 2024

·    In Q1 2024, VEIL’s NAV increased 10.7% over the previous quarter against an increase of 12.0% for its reference index, the Vietnam Index (“VNI”).

·    The Company’s NAV per share was US$9.60 as of 28 March, and its total NAV was US$1.9bn.

·    The Company’s share price increased 5.3% over the quarter in USD terms.

·    VEIL’s one-year NAV per share performance is +15.9%, +2.9% over three years and +43.3% over five years. Over the same periods, the performance of the VNI was +16.7%, +5.4% and +33.7%, respectively (all in US dollar terms).

·    In GBP terms, the Company’s NAV per share rose 11.7% over the quarter to £7.60 and its total NAV was £1.5bn. The Company’s share price increased 6.3% over the quarter.

·    The Company’s discount to NAV averaged 19.2% for the quarter. As of 28 March, the discount to NAV was 22.1%, compared with 18.1% as of 31 December 2023.

·    Vietnam Enterprise Investments spent US$20.0mn purchasing 2,723,307 shares in Q1 2024 (1.4% of shares outstanding as of 1 January 2024), compared with US$14.3mn purchasing 2,112,634 shares in Q4 2023.

·    The indicative accretion to NAV per share from the share purchases in Q1 2024 is 0.34%.

·    The Vietnamese dong (“VND”) depreciated 2.1% against the US dollar in Q1 2024 and 1.3% against the pound sterling.

Top Ten Holdings (59.6% of NAV)

Source: Bloomberg, Dragon Capital

NB: All returns are given in USD terms as of 28 March 2024