Aggregate NPAT-MI for 79 of the 81 stocks under our coverage (KBC and HVN have not yet reported) increased 67% YoY in H1 2021 and achieved 51% of our full-year 2021 aggregate forecast (which includes updated forecasts for eight stocks following H1 results). Excluding the eight stocks under our coverage that are traded on UPCoM or HNX, aggregate reported NPAT-MI for our HSX-listed coverage increased by 59% YoY and also achieved 51% of our FY 2021 forecast. Ordinarily, this achievement ratio would imply upside risk to our full-year aggregate forecast, but disruption from the current ‘fourth wave’ of COVID-19 in Vietnam suggests the balance of risk to our full-year earnings may now be to the downside. However, the strong H1 aggregate NPAT-MI provides some cushion to full-year numbers and we maintain our VN-Index targets of 1,450 for end-2021 and 1,600 for end-2022.   

Sector leaders and laggards 

The largest absolute contributions by sector to the strong YoY growth in H1 2021 NPAT-MI came from financials, materials and oil & gas. These sectors also posted the highest aggregate H1 2021 achievement ratios vs our full-year 2021 NPAT-MI forecasts with oil & gas at 65%, materials at 61% and financials at 51%. Real estate, industrials, consumer and power & water also posted robust achievement ratios of between 45% and 50%. In the transportation sector, Vietnam Airlines (HVN) has not yet reported, which makes it difficult to second-guess aggregate performance. However, within this sector, aviation stocks clearly continue to face substantial challenges due to the current disruption both to domestic and international flights.    

Outlook  

Our current forecasts (most of which are still subject to revision following H1 2021 results reports) imply growth in reported NPAT-MI for our coverage in aggregate of 38%/20%/17% for 2021/22/23F, respectively, and 36%/20%/17% for our HSX-listed coverage. These figures are very close to the current Bloomberg consensus forecasts for VN-Index EPS growth of 35%/18%/17% for 2021/22/23F, respectively. Applying a market cap weighted average upside to our current target prices to the VN-Index implies a mid-year 2022 index target of just below 1,500. Based on our VN-Index EPS forecasts, the index at 1,332 (August 3 close) is trading on a 2021F P/E of 15.4x, a 2022F P/E of 12.8x and a rolling 12-month forward P/E of 13.9x, which is in line with the average since end-2013 of 14.0x. Reducing our EPS forecasts by 5% would imply a 12M forward P/E of 14.6x and a reduction of 10% would push the 12M forward P/E up to 15.4x. We view these as reasonable multiples for the VN-Index given Vietnam’s structural growth outlook and current low interest rate environment, hence we believe the market should be able to absorb moderate downgrades to 2021F earnings forecasts without suffering significant further downside. 

Healthy correction and substantial rotation in July  

We view the c.10% drop in the index from its peak of 1,420 in early July to its subsequent lows below 1,300 as a healthy correction for a market that was starting to look a little over-heated. While the current COVID-19 challenges may cap the market’s performance in the short term, we believe the structural bull story for Vietnam is unchanged. Meanwhile, there has been substantial rotation in stock and sector performance in July vs H1 2021, which has partially reversed the pronounced outperformance by financials and materials stocks and underperformance by defensive sectors such as the consumer staples and utilities sectors in H1 2021.