VNDirect expects the VN-Index to reach 1,700-1,750 points within 2022F

Strong performance

Based on VNDirect’s estimates, the 3Q21 aggregate earnings of listed companies on three bourses (HOSE, HNX, and UPCOM) increased by 15.8% yoy, lower than that of 1Q21 and 2Q21, which were 92.0% yoy and 72.3% yoy, respectively. The results surprised us, as 3Q21 GDP slumped 6.2% yoy amid stricter nationwide social distancing. 9M21 aggregate earnings grew robustly by 53.4% yoy. VNDirect anticipates that earnings from several sectors, including retail, food and beverage, and banking, will rebound strongly in 4Q21, while profits from oil and gas and real estate will remain strong.Therefore, it lifted the 2021F EPS growth of listed companies on HOSE to 39% yoy, from a previous forecast of 26% yoy.

For 2022F, VNDirect expects the EPS growth of listed companies on HOSE to remain strong at 23% yoy. Some sectors could see strong improvements in earnings growth, including industrial goods and services, retail, and real estate, while the performance of oil and gas, utilities, and technology remains relatively strong.

For 2023F, this stock company forecasts EPS growth of listed companies on HOSE at 19% yoy, still higher than the average growth rate of 12%/year in the period 2017-2020.

Market liquidity will increase further.

VNDirect believes average daily trading value (ADTV) could increase by 10-15% yoy in 2022F, spurred by the following catalysts:

First, a strong inflow of domestic retail investors will come into the stock market due to the low interest rate environment. Currently, the average 1-year term deposit interest rate of commercial banks stands at 5.5%/year, which is lower than the average 1-year term deposit interest rate in the 2017-2019 period (before the COVID-19 pandemic) at 6.8–7.0%/year. VNDirect expects the deposit interest rate to edge up slightly by 30-50 basis points in 2022 and remain significantly lower than the deposit rate level before the pandemic. In the context of low deposit interest rates, individuals continue their search for higher-yield investment instruments, i.e., equity.

Second, several notable companies, such as Bach Hoa Xanh JSC, Bamboo Airways, and Ton Dong A Corporation, plan to list on the stock market, thus contributing to the expansion of the stock market's size.

Third, new products are expected to be launched if the new securities trading system (KRX) comes into operation officially in the first half of 2022, such as daily trading and selling pending stock. The new trading system also helps to solve pre-funding issues, which could further boost foreign inflows.

Fourth, Vietnam's stock market has a chance to be upgraded to the FTSE Secondary Emerging Market Index in the September 2022 annual country-reclassification review if the new securities trading system (KRX) comes into operation officially in the first half of 2022.

Robust uptrend

As of December 6, 2021, according to Bloomberg data, the VN-Index was trading at 16.7x trailing 12-month P/E (TTM P/E), which is slightly lower than the P/E of 17.3x at the beginning of 2021. VNDirect maintained its FY22/23 earnings growth of 23%/19%, driven by the strong recovery of export-oriented sectors and the bounce back of oil and gas and property. Thus, market valuation is still attractive, with FY2022 and FY2023 forward P/E being estimated at 13.4x and 11.5x, respectively (lower than the 3-year historical average P/E of 16.1x).

Overall, VNDirect expects the VN-Index to reach 1,700-1,750 points within 2022F, based on the following assumption: (1) the VN-Index’s P/E would remain around 16.0-16.5x at year-end 2022, (2) corporate earnings across the VN-Index could grow by 23% yoy with a 2022F VN-Index dividend yield of 1.4%.

Potential re-rating catalysts include: (1) the sooner-than-expected reopening of aviation and tourism; and (2) the inclusion of Vietnam’s stock market into the FTSE Secondary Emerging Market in the annual country-reclassification in September 2022. Downside risks include: (1) aggressive inflationary pressures prompting the Fed to raise interest rates sooner than expected, potentially leading to further net capital outflows from emerging and frontier markets; (2) higher-than-expected inflationary pressures in Vietnam prompting the SBV to reverse its monetary easing policy; and (3) lower-than-expected earnings growth of listed companies.