Banking sector with stable profit growth

3Q24 credit growth is expected to continue improving compared to the previous quarter (credit growth reaching 7.38% as of 17/09/2024, versus to 6% at the end of 2Q24) thanks to the recovery of production and business activities. Noninterest income remains sluggish and has yet to recover, mainly relying on fee income and debt restructuring. Foreign exchange and securities trading activities are not expected to see significant growth as the market has not shown many signs of recovery.

“3Q24 NIM is likely to stagnate or slightly decrease compared to 1H24 as most banks increase deposit interest rates in 2H24 to boost funding activities, while lending rates are expected to remain low and will not increase significantly to support the economy. Non-performing loans of listed banks in 3Q24 are not expected to increase compared to 2Q24 as outstanding loans from the corporate sector continue to drive credit growth in 3Q24”, said MBS.

Meanwhile, banks will slow down provisioning in 2H24 due to limit ed credit growth from the corporate sector. Accordingly, the provision buffer is expected to decrease due to slower provisioning and continued write-offs as in 1H24.

Real estate sector segmented by region

3Q24 business results will show a divergence among businesses by region. As of the end of 1H24, the supply of apartments in HCMC continued to be limit ed with only about 1,676 new units (-59% YoY) and prices only increasing by about 6% YoY. New supply mainly came from high-end projects with clear legal documents, from foreign developers with strong financial capacity, or from subsequent phases of previously launched projects.

In contrast to the Southern region, Hanoi witnessed a surge in new supply, up 176% YoY to reach 10,841 new units – the highest level in 5 years. Prices in this region also increased significantly, catching up with the Southern region with a 22% YoY increase. With 3 important real estate laws implemented, it will take more time to build official land price lists, thereby accelerating project progress.

In MBS’s view, real estate businesses focusing on the Southern market (NVL and DXG) will continue to record modest 3Q24 business results due to a lack of new project launches and a sluggish market. Some businesses with projects with completed legal procedures (KDH and NLG) may have an advantage in the future thanks to their launch timing. Real estate businesses with projects concentrated in the Northern region, such as VHM, may continue to benefit from high liquidity and clear legal documents.

IP & rubber sector earnings may grow strongly

3Q24 business continued to maintain a good growth momentum, thanks to the strong inflow of FDI since the beginning of the year. As of 8M24, total registered FDI and disbursed FDI increased by 7% and 8% YoY, respectively. However, net profit growth rate in 3Q24 will vary among industrial zone companies due to different land handover timeframes in year.

KBC is expected to achieve a significant increase in net profit from a low base in last year. BCM could record net profit that is 3 times higher than last year thanks to the transfer of residential land to IJC. As for IDC and SZC, 3Q24 is usually a weaker quarter compared to other quarters in the year; therefore, we forecast that their net profit growth will be modest due to signed MOUs. Overall, 9M24 industrial zone enterprises are expected to record higher business performance compared to 9M23.

MBS said rubber businesses will benefit from the significant increase in global rubber prices since the beginning of the year. This is due to a supply shortage caused by unfavorable weather conditions for harvesting, coupled with sustained demand despite a slowdown in the Chinese market. This factor will contribute to positive business performance for rubber companies until the end of the year.

Materials sector recorded growth

The materials sector faced many difficulties as commodity prices generally declined; however, enterprises were still able to record positive profit growth, with the steel group being a bright spot. 3Q24 steel sector faced many disadvantages in the context of increasing price pressure from Chinese steel due to weak demand in China and anti-dumping investigations in major export markets such as the EU and the US. However, domestic demand became a bright spot as domestic consumption grew by 20% YoY thanks to the contribution of construction steel with a 25% YoY increase.

MBS assessed that the sector's gross profit margin improved thanks to the decrease in the prices of raw materials such as coal and ore by 17% and 12%, respectively, while the price of construction steel decreased by 9% YoY. In the coming periods, domestic steel prices have many prospects for recovery thanks to the reduced pressure from Chinese steel as China has launched a series of new economic stimulus measures to revive the country's real estate market, such as reducing the required reserve ratio (RRR) by 0.5%, reducing the 7-day interest rate by 20 basis points to 1.5%, cutting interest rates for home loans, and reducing the down payment ratio for home purchases to 15%...

“These efforts could cause Chinese steel prices to recover and reduce the advantage of imported steel from China into Vietnam. In addition, the improvement of the housing supply and the acceleration of public investment disbursement are also growth drivers for domestic steel prices. 4Q24 domestic steel enterprises will also look forward to gaining market share thanks to the anti-dumping tax which is expected to be issued in Dec/24”, said MBS.

Positive outlook for upstream oil and gas sector

3Q24 may be a quarter with fragmented business performance among oil and gas companies. Oil prices have recorded a relatively sharp decline (-15.2% since the beginning of the quarter) as the impact of low demand outweighs the effect of limit ed supply. This could negatively affect some downstream companies such as PLX and BSR, as PLX may have to increase provisions for inventory price declines, while BSR is impacted by the continued low crack spread.

However, due to the completion of the maintenance period, BSR's production hasrecovered, so business results may still be higher than the previous quarter. On the upstream side, PVS has been awarded all bids for the two packages of the Block B project, allowing for quicker implementation and the handover of components to the Jurong power plant in Singapore, which could lead to more positive business results; for PVD, rig rental rates have not changed much, landrigs were not operational in 3Q24 but have completed maintenance, so cost pressures on the company may decrease.

In the midstream, PVT is expected to report positive business results as oil freight rates are stable, the company has received 3 new ships and recorded the disposal of the PVT Synergy vessel for approximately VND 150 billion; meanwhile, GAS's business results may be less positive compared to 2Q24 as dry gas production may decrease compared to the previous quarter due to lower consumption from gas power plants, however, additional contributions from LNG trading may be recorded.

Supports for power sector profit

As of September 25, 2024, the USD/VND exchange rate has decreased by 3.5% compared to the end of Q2/2024, while a portion of the debt of electricity businesses is denominated in USD. As a result, electricity businesses will be able to record foreign exchange gains in this quarter, especially PC1 and PGV. Regarding core business activities, 8M24 electricity demand has increased by 12% YoY, which is higher than the target (9%) set by the Ministry of Sector and Trade at the beginning of the year, thereby facilitating the mobilization of power plants. This has led to a positive outlook for the electricity sector in 3Q24 thanks to the hot weather and increased production.

Notably, in July-August, hydropower generation has increased by approximately 39% YoY, leading to hydropower businesses benefiting from this period. However, small hydropower businesses such as PC1 and HDG will have a greater advantage due to less impact from declined mobilization costs. For the thermal power segment, generation has stagnated YoY and decreased significantly compared to 2Q24 as Vietnam has passed the peak of hot weather. This trend of low generation is expected to continue throughout Q3 and only improve from Q4 when the Southern region ends the rainy season.

Therefore, in MBS’s view, the thermal power segment may maintain a relatively low profit level during this period. Regarding policies, in the near future, a Decree on encouraging the development of rooftop solar power is expected to be issued, while the amended Electricity Law and other important policies, such as renewable energy pricing policy, are still pending issuance.

Retail sector is showing signs of recovery

In July and August, PMI stood at 52.4, indicating that new orders in the manufacturing sector have started to improve. Therefore, it is expected that in 3Q24, consumer demand for various sectors will recover better than in 1H24, as the overall positive impact of the manufacturing sector on people's income has begun to take effect.

MBS foresees that 3Q24 will mark the expansion phase of retailers after a period of stagnation to protect market share, especially in a context where overall consumer demand remains weak. Businesses have gradually opened more stores to reach potential customers with the aim of (1) expanding their customer base, and (2) increasing their nationwide coverage. However, the e-commerce retail sector is still experiencing a decrease in the number of physical stores due to a significant decline in overall demand in 2023, leading retailers to restructure their businesses to optimize costs and improve profits.