- Aggregate 2023 NPAT-MI for our coverage universe declined 4% YoY and achieved 98% of our aggregate 2023 forecast. Aggregate 2023 NPAT-MI for our HSX-listed coverage declined 3% YoY and also achieved 98% of our aggregate 2023F forecast. As of February 5, our analysts have updated forecasts for six of the 79 stocks under our coverage following the 2023 results and will update their numbers for other stocks over the next few weeks. At this point we do not see an upside or downside skew to the risks to our current aggregate earnings forecasts. These imply c.20% growth for both 2024F and 2025F. Banks remain by far the most powerful potential swing factor to index earnings forecasts at around 60% of both our coverage aggregate NPAT-MI and forecast growth in NPAT-MI for 2024.

- Outlook. Vietnam’s GDP growth accelerated further in Q4 2023 and we maintain our forecast for growth to improve to 6.5% in 2024F from 5.0% in 2023. We remain positive on the market based on our view that VN-Index earnings will post double-digit growth in 2024, bank deposit rates will remain low through 2024, and VN-Index valuations look undemanding relative to recent history and other ASEAN markets. Based on applying our bottom-up earnings growth forecasts for HSX-listed stocks under our coverage to Bloomberg’s 2023 VN-Index diluted EPS from continuing operations, we project 2024F and 2025F index P/Es of 13.2x and 10.9x, respectively (see Figure 9 for details). We maintain our VN-Index targets at 1,350 for 2024 and 1,550 for 2025.

- Leading sectors in 2023. Only two sectors showed increases in NPAT-MI in 2023 - financials and transportation & logistics. Despite lower net interest margins and weaker asset quality, banks achieved positive earnings growth in 2023 and financial stocks under our coverage posted 6% growth in aggregate NPAT-MI, in line with our forecast. Meanwhile, aggregate earnings for transportation & logistics swung from a net loss in 2022 to a net profit in 2023, primarily due to a lower net loss at Vietnam Airlines (HVN) and beat our forecast by 12%.

- 2023 laggards. Aggregate NPAT-MI declined in 2023 YoY for all the other sectors under our coverage, with the largest declines from industrials (-41%), oil & gas (-36%), and power & water (-30%). Lower commodity prices YoY were a strong factor in the earnings declines amongst oil & gas and chemicals companies while export-oriented manufacturers suffered from a global slowdown in merchandise trade. Consumer (-22%), industrial parks (-16%), and materials (-14%) also posted double-digit declines in aggregate NPAT-MI in 2023 while real estate posted a marginal decline in NPAT-MI of 4% YoY. The biggest shortfalls in 2023 NPAT-MI vs our forecasts by sector were from industrials (-12%), real estate (-9%), materials (-9%), and power & water (-7%), while consumer, oil & gas, and industrial parks were broadly in line with our forecasts. 

- Sectors and stocks. We maintain our call to overweight banks and consumer stocks in 2024, as stated in our January 5 Vietnam Strategy 2024 report, and we show our top stock picks from the same publication in Figure 10. While banks still face asset quality challenges following the COVID-19 pandemic and more recent slowdowns in the export and residential real estate sectors, the rate of new NPL formation appears to have slowed in H2 2023 and we believe the banks will be able to work out bad debt problems without a destabilizing decline in earnings, supported by low interest rates and further recovery in GDP growth in 2024/25. Meanwhile, valuations for private banks continue to look undemanding relative to the outlook for earnings growth and ROEs. We believe the worst has passed for the consumer sector and we expect household incomes and consumer confidence to recover through 2024 & 2025. We forecast a strong recovery in earnings in 2024/25 and we view valuation multiples generally as attractive vs the near-term and long-term growth outlook.

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