Vietnam Enterprise Investments (VEIL)

19/09/2024

Results analysis from Kepler Trust Intelligence

Vietnam Enterprise Investments' (VEIL) NAV per share rose by 6.9% in the first half of 2024 in GBP terms, matching the Vietnam Index (VNI), supported by strong GDP growth and supportive government policies.

New manager Le Anh Tuan strategically rebalanced the portfolio during the period, reducing highly concentrated positions in some banking and steel firms, while increasing exposure to retail, software & services, and manufacturing sectors.

Dragon Capital's analyst team continues to expect profit growth for 2024 to come in at c. 15-18% across the largest 80 stocks they cover, reflecting a year of economic recovery which looks unlikely to be derailed by some weakness in the global economy.

Chairman of the board Sarah Arkle commented: " Earnings per share are expected to grow in the high teens in 2024, putting the market on a forward price/ earnings ratio of around 12x, which is cheap both relative to Vietnam's recent history and also relative to other Asian and global markets. At current valuations the Directors believe that the large and experienced team of research analysts and the emphasis on high quality companies with clear earnings visibility should reward investors over the longer term."

Vietnam Enterprise Investments' (VEIL) first half results are encouraging, with the market rebounding as the Vietnamese economy has grown at a healthy annualized rate of 6.4%. Dragon Capital's analysts were confident on the outlook for earnings coming into the year, and their optimism seems to have been proven well-founded, with strong results reported by key holdings in the retail and banking sectors. 

The second half of the year could see the recovery broaden and get extra impetus if the Land Law reform has the expected effect. This reform has been hastened into law earlier than originally planned as the authorities look to encourage the residential and commercial development the country needs. The Law should liberalise the pricing of land and facilitate changes of use, amongst many other things. It also sets a framework for the compensation of existing land users in respect of land for project development. Tuan Le argues developers with existing pipelines and land banks should be in the best position to benefit, and have taken positions on this basis. Additionally, he expects the trust's two key holdings in the materials sector, steel producers Hoa Phat Group and Hoa Sen Group, to benefit from increased development and infrastructure spend. Notably, some of the key underperformers in the first half came from these sectors, with Tuan Le taking positions in anticipation of these reforms.

VEIL's shares continue to trade on an attractive discount. Emerging markets as a whole have been out of favour this year, and it seems that Vietnam is no different. This is even though the country's economy has been more resilient in a period in which fears of a slowing US economy and high US rates have weighed on the emerging markets. We note that US rate cuts would likely relieve pressure on the Vietnamese currency which has weakened this year, and so the current market expectation of a "soft landing" would arguably be an ideal outcome for emerging markets and for VEIL.

Overall we think that VEIL looks like a more attractive position, with a new manager who has made his mark on the portfolio, lower fees and a board focussed on closing the discount. Meanwhile the underlying investment case for Vietnam looks as strong as ever as it continues to deliver high GDP growth in a world struggling to achieve this.

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