Vietnam Enterprise Investments NAV outperforms reference index in Q3

Vietnam Enterprise Investments Limited (LON:VEIL) has announced its 2023 third quarter update.

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 Q3 2023 is set out in this notice.

Company Highlights                                                             

·          In Q3 2023, VEIL’s NAV increased 2.2% over the previous quarter against a rise of 0.4% for its reference index, the Vietnam Index. Year-to-date, VEIL’s NAV and the VNI have both increased by 12.7%. All in total return US dollar terms.

·          The Company’s NAV per share was US$8.85 as of 30 September, and its total NAV was US$1.8bn.

·          In USD terms, the Company’s share price decreased 2.9% for the quarter and has increased 3.2% year-to-date.

·          Vietnam Enterprise Investments’ one-year NAV per share performance in US dollar terms is +0.7%, +31.9% over three years and +23.6% over five years. Over the same periods, the performance of the VNI was +1.7%, +27.2%, and +18.1%, respectively.

·          In GBP terms, the Company’s NAV per share was £7.25 as of 30 September (+6.5% for the quarter and -7.9% over one year), and its total NAV was £1.5bn. The Company’s share price increased 1.2% for the quarter and decreased 6.8% over one year.

·          The Company’s discount to NAV averaged 15.8% for the quarter. As of 30 September 2023, the discount to NAV was 18.2%, compared with 14.0% at the end of Q2 2023 and 10.7% as of 31 December 2022.

·          The Company spent US$12.6mn repurchasing 1,679,469 shares in Q3 2023, compared with 1,199,216 shares repurchased in Q2 2023.

·          A total of 3,586,058 shares were repurchased YTD to the end of September. This is 1.7% of shares outstanding as of 1 January 2023. The accretion to NAV per share from the share repurchases is 0.37%.

·          The Vietnamese dong (“VND”) depreciated 3.1% against the US dollar in Q3 2023 and has depreciated 2.8% year-to-date. The VND appreciated 1.1% against the GBP pound sterling during the same period and has depreciated 4.1% year-to-date.

Dien Vu, Portfolio Manager of Vietnam Enterprise Investments, commented:

“Vietnam’s GDP expanded by 5.3% year-on-year in Q3 2023, putting average growth at 4.3% in the first nine months of 2023. This expansion can be attributed mainly to the services sector, which increased 6.3% year-on-year due to sub-sectors such as accommodation and catering services (+13.2%), wholesale and retail sales (+9.0%) and transportation and logistics (+8.7%).

“VEIL outperformed the VNI in Q3 2023, and year-to-date ended September 0.03% behind its reference index. In a turbulent third quarter, the VNI was up 10% in mid-August and again in early September before declining to end the quarter flat.

“The third quarter strengthening of the US dollar index from 103.6 to 107 combined with rising 10-year US Treasury yields from 4.1% to 4.8% came as the Fed signalled rates could remain higher for longer. The Vietnamese dong’s 3.1% depreciation versus the US dollar in the third quarter was broadly in line with many of its peers, including depreciations of 3.5% in the Thai baht, Indonesian rupiah and New Taiwan dollar.

“The Vietnamese dong remains well-supported by US$16bn of disbursed FDI and US$22bn trade surplus. The State Bank of Vietnam (“SBV”) issued bills totalling US$5.7bn during the third quarter, leading to the 1-month interbank interest rate increasing from 0.7-0.8% in early September to 2.5-2.7% in early October. The Manager believes the devaluation to maintain the VND’s competitiveness and bill issuances are normal operations and not a sign of policy change; the SBV has undertaken numerous bill issuances in the past as a means of money supply management. Excess liquidity in the banking sector is evident, however, as some banks reported a drop in deposit rates of 10-20 basis points.

“All 80 companies in the Manager’s core investment coverage have reported their Q3 2023 earnings. Overall, revenue increased by approximately 5% and EBIT by nearly 9% year-on-year. However, following the 3.1% currency depreciation, NPAT was affected by increased loan provisions from some large cap stocks with USD denominated debt and grew by just 0.8%. This underlines the Manager’s view that while the nadir has passed, challenges still exist on the road to earnings recovery.

“In Q3 2023, Mobile World Group’s (“MWG”) share price increased by 18.8%, however, the stock is still down 18.7% over one-year, which the Manager believes is reflective of weak investor sentiment on consumption. MWG cleared the excess inventory it was holding in H1 2023, and the revenue increase of just 3% quarter-on-quarter (to US$1.2bn in Q3) was in line with the Manager’s expectations as MWG continues to spend aggressively on sales and marketing to capture market share opportunistically. In the first nine months of the year, MWG recorded revenue of US$3.5bn (-18.4% year-on-year) and NPAT of US$3mn (-97.2%) due to reduced operating margins.

“Asia Commercial Bank (“ACB”) reported NPAT growth of 12.6% year-on-year (to US$343mn) as it saw a significant boost in non-interest income, expanding by 109.2% year-on-year. ACB’s share price decline of 4.0% in Q3 2023 underperformed the overall banking sector increase of 3.5%, although this is understandable after a strong H1 2023 when it returned 20.5% against a rise of 11.2% in the VNI. In August, VEIL divested 40% of its position in ACB (held continuously by the Company since 1996) via an off-market transaction commanding a 7% premium, 3% higher than ACB’s all-time high.

“Residential property stocks fell 24% year-on-year although increased 3.6% quarter-on-quarter. VEIL’s real estate holding Vinhomes (“VHM”) was a notable laggard, decreasing by 19.8% in Q3 2023. At US$1.3bn, NPAT fulfilled 107% of the Manager’s full-year forecasts due to faster than anticipated unit handover of some major projects. The Manager believes the recent drop in stock price is attributable to the uncertainty felt by investors in the wider Vingroup family of stocks rather than in VHM itself, which is regarded as one of the strongest names in the property market.

“Global challenges are widely anticipated going into 2024 and will likely impact Vietnam’s economy. Nevertheless, the Manager expects the country’s macro stability will be maintained due to its solid external position, low USD-denominated debt (35% of GDP) and low government debt (38% of GDP). On the domestic front, the Manager expects fiscal spending, credit growth and disbursement, and consumer recovery to materialise. The Manager has positioned VEIL’s portfolio to benefit from sectors such as technology, banks, retail, food and beverage, property, oil & gas, and steel, and expects earnings per share growth of over 20% from VEIL’s portfolio next year.” 

Macroeconomic Commentary

·    GDP growth registered at 5.3% year-on-year in Q3 2023 and 4.2% for the first nine months of the year. The services sector grew by 6.2% in Q3 to average 6.3% year-to-date and contributed 68.6% to overall GDP growth.

·    The industrial and construction sector increased by 2.4% in the first nine months, contributing 22.3% to GDP, of which the processing and manufacturing industry increased by 2.0%, the lowest increase over the same period since 2011-2023.

·    In the first nine months of 2023, exports totalled US$259.7bn and imports US$238.0bn, down 8.2% and 13.8% year-on-year, respectively. The YTD trade surplus is US$21.7bn, compared to a US$6.8bn surplus at the same stage of 2022.

·    FDI disbursement to the end of September was US$15.9bn, up 2.2% year-on-year. Meanwhile, registered FDI increased 7.7% to US$20.2bn in this period.

·    Average inflation for the first nine months of 2023 was 3.2%.

·    In the first nine months of the year, total retail sales rose 7.3% year-on-year in real terms.

·    International visitors to Vietnam totalled 8.9mn in the first nine months of the year, which although 4.7 times higher than the same stage of 2022, only accounts for 69% of the 2019 numbers.

Top Ten Holdings (61.6% of NAV)

Source: Bloomberg, Dragon Capital

NB: All returns are given in USD terms