In a recent report, BSC Securities assessed that in 2022, industry profits and VN-Index still recorded strong growth, thereby partly helping Vietnam’s stock market valuation remain attractive.
However, the groups of industries adjusted up were mainly related to the cyclical factor. In the context of commodity prices tending to correct, strong profit growth in 2022 will create a high base for 2023 and inadvertently put pressure on maintaining profit growth next year.
However, there are still some disadvantages, such as a high-interest rate environment, liquidity pressure related to the real estate bond market, and the possibility of a recession in some major world economies. Besides, China's Zero-Covid policy is also a risk factor that could put pressure on profit growth and industry and stocks' valuation in 2023.
Regarding market valuation, BSC still thinks that it is already at a very attractive level. With the market continuing to record a strong correction after the recovery in the third quarter of 2022, trailing P/E is trading at 10.7x as of October 31, 2022, well below -1.5x the standard deviation (i.e., P/E 12.2 times), equivalent to the lowest point of VN-Index in 2020.
BSC forecasts that after-tax profit growth will remain at a high level of 22.2% YoY, equivalent to a post-diluted EPS growth of about 16% (the dilution rate from 2019 to 2021 was 5%).
BSC believes this will be a great opportunity for the long-term investment goal of 2023-2024 if Vietnam's economy can maintain growth while withstanding the pressure of inflation and the FED hiking interest rate. Compared with countries in the region, Vietnam's forward P/E (8.9 times) still recorded an attractive level compared to the regional average (12.6 times).
After the general correction of the whole market in the third quarter of 2022, the group of large-cap stocks is the one that is showing some positive signals after recording efforts to recover in price. In terms of valuation, profit growth of large-cap industries in the second half of 2022 is expected to continue to record a positive double-digit level in the context that the stock price is also at a more attractive discount with P/E at only 10.5 times, as of October 31, 2022.
Therefore, BSC expects large-cap stocks to be the market's focus in the second half of 2022. For small and medium-cap stocks, the cooling of commodity prices will be a factor that will hinder the market's growth and development. The profit outlook is less optimistic, while the valuation of small and medium-cap industries is still higher than that of large-caps.
According to BSC's assessment, banking, basic resources, real estate, construction materials, seaports, and utilities are industry groups with attractive valuations compared to the 5-year average. These are industry groups expected to record good profit growth, accompanied by an attractive valuation compared to the 5-year median.
Although some industries maintain good profit growth rates in 2022, such as retail, seafood, textiles, and information technology, the above factors have partly reflected in prices. Therefore, this is a group with a valuation that is no longer attractive compared to the groups above.
BSC expects those stocks to have good performance compared to the rest in the second half of 2022. The focus of cash flow is on businesses with good fundamentals. A separate story comes with earnings growth and a healthy balance sheet.
BSC has a positive outlook for the following industry groups: Banking, industrial real estate, information technology, oil and gas, aviation services, seafood, consumer-retail, livestock, auto, and tires.
The neutral group includes non-life insurance, seaports, textiles, electricity, food, fertilizers, chemicals, and shipping.
Four stock groups considered to be less promising include commercial real estate, steel, construction, and cement.
Compiled by VietnamCredit