VietNam Holding — Made in Vietnam

VietNam Holding (LSE: VNH)

Last close As at 18/05/2024

GBP3.82

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Market capitalisation

GBP105m

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VietNam Holding — Made in Vietnam

VietNam Holding (VNH), managed by Dynam Capital (Dynam), a Vietnamese equities closed-ended fund, has given away some of its performance gains of the past two years during the challenging H122. While down 10.5% year to date, VNH’s NAV outperformed its benchmark VN All Share Index (VNAS, -14.6% TR). Over the past three years, VNH returned c 69% on a NAV total return (TR) basis to end-June 2022, after the current investment manager took over in 2018, outperforming the VNAS Index (c 50% TR) over this period. Despite the current gloomy global macroeconomic outlook, the manager expects VNH’s robust portfolio to withstand the uncertain times and pick up momentum when the global economy turns the corner. The ESG principles embedded in the investment process support the quality of the portfolio holdings.

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Investment Companies

VietNam Holding

Made in Vietnam

Investment trusts
Vietnamese equities

29 July 2022

Price

309.0p

Market cap

£90.2m

AUM

£105.4m

NAV*

359.9p

Discount to NAV*

14.1%

*Including income. As at 28 July 2022.

Yield

0.0%

Ordinary shares in issue

29.2m

Code/ISIN

VNH/GG00BJQZ9H10

Primary exchange

LSE

AIC sector

Country Specialists: Asia Pacific

Benchmark

VN All Share Index

52-week high/low

358.0p

242.0p

423.4p

310.1p

*Including income.

Gearing

Net cash at 30 June 2022

6.1%

Fund objective

VietNam Holding’s investment objective is to achieve long-term capital appreciation by investing in a diversified portfolio of companies that have high growth potential and an attractive valuation. The fund has experienced several significant changes since September 2017, including a new board and the appointment of the current manager, Dynam Capital.

Bull points

ESG considerations are a key part of the manager’s approach.

A very concentrated portfolio (c 20–25 holdings) and mid- to small-cap focus gives investors exposure to less well researched, high-growth companies.

The proactive board is committed to promoting shareholders’ interests.

Bear points

The relatively small market cap of c £90m limits liquidity and increases volatility, to some extent.

Very strong 2021 performance could limit 2022 return potential to an extent.

The trust has relatively high fees for an LSE-listed trust, but is in line with its two peers, as Vietnamese funds are expensive to run.

Analyst

Victoria Chernykh

+44 (0)20 3077 5700

VietNam Holding is a research client of Edison Investment Research Limited

VietNam Holding (VNH), managed by Dynam Capital (Dynam), a Vietnamese equities closed-ended fund, has given away some of its performance gains of the past two years during the challenging H122. While down 10.5% year to date, VNH’s NAV outperformed its benchmark VN All Share Index (VNAS, -14.6% TR). Over the past three years, VNH returned c 69% on a NAV total return (TR) basis to end-June 2022, after the current investment manager took over in 2018, outperforming the VNAS Index (c 50% TR) over this period. Despite the current gloomy global macroeconomic outlook, the manager expects VNH’s robust portfolio to withstand the uncertain times and pick up momentum when the global economy turns the corner. The ESG principles embedded in the investment process support the quality of the portfolio holdings.

VNH outperformed Vietnamese and EM equities over the last 10 years

Source: Refinitiv, Edison Investment Research. Note: Data to end-June 2022.

Why VNH?

While remaining a relatively small sized investment trust, VNH has sufficient AUM and agility to operate on the Vietnamese market. Retail investor participation and active new account openings, which boosted 2021 country’s equities considerably, continue into 2022. These are likely to further support strong Vietnamese equity market performance over the medium to long term, as the country’s capital markets gradually mature and expand. Despite global uncertainty, Dynam expects economically sensitive sectors like industrials and retail, where VNH is overweight the benchmark, to perform strongly, as the domestic economy continues to accelerate post the pandemic, enabling VNH to outperform the benchmark in the next 12 months.

The analyst’s view

We believe this country specialist fund offers investors exposure to a high-growth frontier market with conviction stock across the market cap spectrum, which can be held as part of a global growth portfolio. VNH’s NAV has outperformed the VNAS and MSCI EM indices over one, three, five and 10 years. VNH’s board is proactive and, having listened to shareholders, executes tender offers and share buybacks to manage the discount, as it deems necessary. Between November and December 2021, the discount to NAV narrowed from c 15% to c 5%, but volatile equity markets in H122 saw the discount widening to the mid-teens again.

The manager’s view: Vietnam is in good shape

Vietnam’s economy continues to grow and remains on track to outpace growth in the world economy during 2022 and 2023 (Exhibit 1), as global recovery from the pandemic stalled this year because of the war in Ukraine. This revived growth in Vietnam comes despite the economic slowdown resulting from the COVID-19 pandemic in 2020–21. According to International Monetary Fund (IMF) data at July 2022, Vietnam’s GDP will grow by 6.0% in 2022 and 7.2% in 2023, while global GDP is forecast to grow by 3.2% in 2022 and slowdown in growth to 2.9% in 2023. The IMF also expects Vietnam to grow faster than ASEAN-5 and advanced economies. In Q222, the Vietnamese economy grew 7.7%, exceeding expectations and 0.7% growth in G20 countries.

Exhibit 1: Vietnam remains one of the fastest growing world economies

Source: IMF at end-July 2022, Edison Investment Research. Note: *Indonesia, Malaysia, Philippines, Singapore and Thailand.

Given its prominence in the global supply chain, Vietnam posted a trade surplus of more than US$700m in H122. Exports and imports have been very stable and resilient during 2020-21 due to a diversity of trading partners, despite the global economic slowdown from the pandemic.

Following a full reopening of the economy post the pandemic, Dynam expects a boost to investment activities and a growing number of new projects and feasibility assessments in H222. The team also believes the growing Vietnamese consumer market will drive economic growth further.

Dynam expects the domestic economy to benefit from an increased amount of government spending on infrastructure, which was under budget in the first half of 2022. Infrastructure spending has a multiplier effect on economic growth, accelerating the pace of urbanisation and leading to growth in real estate development and trade.

Dynam expects controlled inflation in Vietnam for two reasons. The team believes that while Vietnam needs to import energy, its future consumption level is predictable and stable, and the country’s ability to export food would more than offset payment for its imported energy.

Dynam considers the key risks for Vietnam to be external. The team believes that a potential global recession would hit exports and production growth and could also affect the banking sector.

Portfolio update

Dynam continues to adopt an agile approach to capture investment opportunities within three megatrends in Vietnam by investing in listed companies: industrialisation (c 28% of thematic exposure in VNH’s portfolio at end-June 2022), urbanisation (c 19%) and consumer (c 18%). This is demonstrated by the team’s ability to adapt the portfolio to the rapidly changing market environment by adjusting exposure to the market segments the team believes have the best potential.

The portfolio contained 24 holdings at end-June 2022 (27 holdings at end-June 2021), within the targeted 20–25 range. Exhibit 2 presents the portfolio sector dynamics during the first six months of 2022 and its positioning relative to the VNAS Index.

Exhibit 2: Portfolio sector exposure at 30 June 2022

% unless stated

Portfolio
30 Jun 2022

Portfolio
31 Dec 2021

Change
(pp)

VNAS weight 30 Jun 2022

Active weight vs index (pp)

Company weight/ index weight (x)

Banks

22.3

24.6

(2.3)

33.1

(10.8)

0.7

Industrial goods and services

18.3

11.4

6.9

7.9

10.4

2.3

Retail

17.8

12.5

5.3

3.1

14.8

5.8

Real estate

14.9

20.3

(5.4)

20.0

(5.2)

0.7

Telecommunications

11.5

8.7

2.8

8.1

3.4

1.4

Financial services

3.8

12.9

(9.1)

4.3

(0.5)

0.9

Food, beverage and tobacco

2.7

6.0

(3.3)

9.3

(6.6)

0.3

Construction and materials

2.7

0.2

2.5

4.3

(1.6)

0.6

Chemicals

0.0

0.0

0.0

2.4

(2.4)

0.0

Consumer products and services

0.0

0.0

0.0

0.8

(0.8)

0.0

Energy

0.0

0.0

0.0

0.6

(0.6)

0.0

Basic resources

0.0

0.0

0.0

1.2

(1.2)

0.0

Insurance

0.0

0.0

0.0

0.4

(0.4)

0.0

Utilities

0.0

0.0

0.0

1.8

(1.8)

0.0

Technology

0.0

0.0

0.0

0.5

(0.5)

0.0

Automobiles and parts

0.0

0.0

0.0

0.1

(0.1)

0.0

Healthcare

0.0

0.0

0.0

0.3

(0.3)

0.0

Travel and leisure

0.0

0.0

0.0

1.8

(1.8)

0.0

Cash

6.1

3.4

2.7

0.0

N/A

N/A

100.0

100.0

100.0

Source: VNH, Edison Investment Research. Note: Figures subject to rounding.

The key sector changes over the past six months were an increase in the two cyclical sectors, retail (+5.3p) and industrial goods and services (+6.9pp) and a reduction in banks (-2.3pp), financial services (-9.1pp), real estate (-5.4pp) and food, beverage and tobacco (-3.3pp). The team reduced exposure to strongly performing banks, the financial services and real estate sectors and invested in cyclical stocks, expecting them to outperform as the economy continues to accelerate post the pandemic. As the portfolio management team’s expectations that banks and real estate would perform well in 2021 materialised, it trimmed the positions. Cash also went up 2.7pp, as the team took profits from strongly performing investments.

A major part of the reduction in financial services included the sale of three of the four owned market-leading brokerage businesses: Ho Chi Minh City Securities (HCM), Viet Capital Securities (VCI) and SSI Securities Corp (SSI) all exited at a profit.

Exhibit 3 illustrates that the weightings for two of the top 10 retail stocks, Mobile World Investment Corp and Phu Nhuan Jewelry, increased by 1.8pp and 5.1pp, respectively.

Exhibit 3: Top 10 holdings (%)

Company

Industry

30-Jun-22

31-Dec-21*

Change

FPT Corp

Telecommunications

11.5

8.7

2.8

Mobile World Investment Corp

Retail

9.2

7.4

1.8

Gemadept

Industrial goods & services

8.5

6.5

2.9

Phu Nhuan Jewelry

Retail

8.1

N/A

5.1

Saigon Thuong Tin Commercial

Banks

5.6

6.3

(0.7)

Khang Dien House

Real Estate

5.4

6.0

(0.6)

Hai An Transport & Stevedoring

Industrial goods and services

5.4

N/A

2.4

Military Commercial Bank

Banks

5.2

5.2

-

Vietnam Prosperity JSC Bank

Banks

4.6

4.8

(0.2)

Vietnam Joint Stock Commercial Bank

Banks

4.0

4.6

(1.5)

Top 10 holdings

67.5

N/A

Source: VNH, Edison Investment Research. Note: Figures subject to rounding. *N/A where not in 31 December 2021 top 10.

The team also added to two top 10 industrial holdings, Hai An Transport & Stevedoring (+2.4pp) and Gemadept (+2.9pp), as well as the top holding, telecommunications giant FPT (+2.8pp).

Gemadept, a market-leading Vietnamese logistics company (the third largest, holding 8.5% portfolio weight at end-June 2022), recently presented at VNH’s webinar on global supply chains. It is the largest private logistics operator in Vietnam, with a widespread network of ports, and the second biggest seaport operator. Port operations in Vietnam have grown 25–30% on average annually over the last five years. VNH first invested in the company in August 2019 and since then Gemadept’s market cap has more than doubled to the current US$725m. VNH currently has a US$6.9m (at 31 May 2022) holding in Gemadept, including an unrealised gain of US$4.9m.

Over the past six months, VNH has disposed of its food and beverages holding Quang Ngai Sugar and an industrial park operator Long Hau Corp, as the company’s operational performance no longer meets the investment team’s expectations.

Performance

VNH’s performance

Exhibit 4 shows VNH’s discrete performance over the past five years; Dynam is responsible for the last four. In the 12 months to end June 2020, including the fund's transition period, VNH underperformed the Vietnamese indices. It returned 9.0% on a NAV TR basis over the 12 months to end-June 2022, outperforming both the Vietnam VN (-4.7% TR) and VNAS (-5.4% TR) indices, demonstrating the fund’s strong alpha relative to these two indices.

Exhibit 4: Five-year discrete performance data

12 months ending

Total share price return (%)

Total NAV return
(%)

Vietnam VN All-Share Index (%)

Vietnam VN Index (%)

MSCI Emerging Markets (%)

30/06/18

11.9

4.9

13.3

20.7

4.3

30/06/19

(9.6)

(7.9)

(3.6)

1.2

2.5

30/06/20

(15.8)

(12.5)

(8.5)

(10.5)

(3.3)

30/06/21

72.1

78.3

72.3

54.3

23.9

30/06/22

16.8

9.0

(5.4)

(4.7)

(17.5)

Source: VNH, Refinitiv, Bloomberg. Note: All % on a total return basis in GBP.

Exhibit 5 illustrates that VNH outperformed VNAS over all periods shown. These include one, three and six months as well as the one- and three-year periods, all during Dynam’s tenure since 2018.

Exhibit 5: Ten-year performance to end-June 2022

Source: VNH, Refinitiv

VNH’s favourable position in relation to the cyclical market recovery has paid off in terms of disposals of three brokerages and taking profits from positions in banks and real estate. Dynam invested the proceeds in retail and industrial stocks. The team believes that in the renewed economy these sectors have further performance potential. In our view, this shift should further support VNH’s performance in 2022.

VNH’s share price outperformed the index over the past three years on a TR basis (69% versus 50%, respectively, to end-June 2022).

Exhibit 6 presents the averages for the Vietnam peer group of three London-listed trusts, where VNH remains the smallest. VNH’s market cap is above £90m, despite the tender offers in November 2020 and September 2021 (see below for details).

As the current manager was appointed in July 2018, the one- and three- year NAV TRs are most relevant. VNH ranks top over one and three years, on a NAV TR basis, following a very strong performance in 2021. If the domestic recovery continues, higher exposure (relative to the benchmark) to cyclical stocks, such as retail and industrials, positions the fund well to continue its sustainable outperformance of the indices.

VNH’s smaller size compared with its two closest peers means it can respond faster to the changing market environment to reposition the portfolio. Its increased exposure to logistics and transport businesses, such as Gemadept and Hai An Transport & Stevedoring, aims to capture export-led investment opportunities. Vietnam is one of the top world exporters of ready-made products, including textiles and electronic equipment, as well as food. It is likely to remain an active exporter to a number of various trading partners, particularly those looking to find alternatives to supplies from Russia and China.

While VNH’s ongoing charges are the highest of the three funds (smaller funds tend to incur higher charges), in 2020 the board removed the performance fee for a 25bp increase in the management fee to 1.75% pa on NAV below US$300m and 1.5% on NAV between US$300m and US$600m. The board notes that the initiative lowers the fund’s total expense ratio by c 80bp on a forward-looking basis.

Exhibit 6: Country specialist – Vietnam peer group*

% unless stated

Market cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount (cum-fair)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield (%)

VietNam Holding

90.2

9.0

69.3

64.0

339.0

(14.1)

2.57

No

94

0.0

Vietnam Enterprise

1,352.4

(5.7)

55.5

87.0

436.5

(17.3)

1.90

No

99

0.0

VinaCapital Vietnam

800.1

5.1

58.5

82.5

325.4

(18.5)

1.66

Yes

99

2.0

Simple average

747.5

2.8

61.1

77.8

367.0

(16.6)

2.04

98

0.7

Rank

3

1

1

3

2

1

1

N/A

N/A

Source: Morningstar, Bloomberg, Refinitiv, Edison Investment Research. Note: *Data to end-June 2022 in GBP. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

Corporate activity

In August 2021 (FY22), the board announced a tender offer for up to 30% of the company’s issued share capital (then 42.6m shares).

In September 2021 it bought back 12.7m shares under the tender offer at US$4.4528 per share for a total of $56.7m (equivalent to £41m), which was 30% of the total shares outstanding. Since then, the trust has also bought back c 1.08m shares (c US$1.18m) under its share repurchase programme. VNH currently has 29.2m shares outstanding.

Exhibit 7: Share buybacks and issuance

Source: Morningstar

The manager: Dynam Capital

Dynam has two managing partners, Craig Martin, the chairman, and Vu Quang Thinh, the chief investment officer, and a dedicated team of 12 professionals based in Vietnam. The manager follows a growth at a reasonable price (GARP) investment process, unconstrained by any index, to invest in a highly concentrated portfolio of 20–25 conviction stocks. Dynam employs both bottom-up and top-down analysis in its investment approach.

The approach remains focused on three core themes: industrialisation (best-in-class manufacturers, international logistics); urbanisation (purposeful real estate, transportation, clean energy and clean water); and domestic consumerism and its enablers (sustainable retail, domestic logistics, products and finance). These themes are interlinked, as industrialisation and urbanisation foster further robust growth in GDP and domestic consumption. The team looks for companies that are well-managed industry leaders with strong competitive positions and healthy balance sheets, yet which are attractively valued.

Dynam invests across the market cap spectrum, but typically favours small- and mid-cap companies, as these are often less well researched and more open to engagement. VNH’s relatively small size gives it the flexibility to invest in companies further down the market capitalisation spectrum.

General disclaimer and copyright

This report has been commissioned by VietNam Holding and prepared and issued by Edison, in consideration of a fee payable by VietNam Holding. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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General disclaimer and copyright

This report has been commissioned by VietNam Holding and prepared and issued by Edison, in consideration of a fee payable by VietNam Holding. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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GB Group — Maintaining FY23 outlook

GB Group’s AGM trading update confirms that the Fraud and Location businesses have seen solid underlying growth year-to-date. A tough comparative period for the Identity business has been partially offset by the favourable US dollar translation effect. With broad geographic coverage and the need for identity and fraud solutions across different sectors and economic cycles, the board anticipates FY23 results in line with its expectations, despite current economic uncertainty.

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