Stock market is likely to remain fluctuating

There were a number of positive indicators noted in many of the business reports for the first quarter of 2024 released to date. According to the latest data from stock market information and analysis platform FiinTrade, as of May 5, 1,036 of the 1,641 listed companies, representing 97.7 per cent of total market capitalization across Vietnam’s three stock exchanges, had disclosed their first-quarter financial results. Overall after-tax profits are on the rise, albeit slowly. Total after-tax profits of those 1,036 listed companies increased 21.5 per cent year-on-year, significantly lower than the 56.6 per cent growth posted in the fourth quarter of 2023.

Actual profits

In the opening quarter of 2024, non-financial sectors saw a sharper increase in after-tax profits than financial sectors, rising 34.3 per cent compared to 13.1 per cent.

Within the financial sector, the securities industry experienced a notable profit surge of 126.5 per cent, contrasting with modest growth in banking, of 9.6 per cent, which was attributed to low credit expansion and increased credit risk provisions. In non-financial sectors, retail exhibited remarkable after-tax profit growth of 420.9 per cent, alongside basic resources, with 222.2 per cent, construction materials with 122.1 per cent, and fertilizers.

The increase in after-tax profits in the retail sector was primarily driven by MWG’s unexpected profitability, which was supported by robust revenue growth despite reduced store counts, particularly in the Dien May Xanh chain. This growth was further buoyed by improved EBIT (earnings before interest and taxes) margins resulting from operational cost reductions and income from deposits and bond investments.

Aviation led the non-financial sectors in profit growth, with a remarkable 1962.7 per cent year-on-year increase, largely due to debt write-offs in Pacific Airlines, a subsidiary of Vietnam Airlines. The oil and gas sector also witnessed significant growth, with many companies posting record profits.

Real estate, meanwhile, proved to be disappointing, as profits plummeted 71 per cent year-on-year. Despite ambitious business targets set at the beginning of 2024, numerous companies reported unprecedented losses.

On Vietnam’s stock market, following a steep decline in April, the VN-Index gradually regained momentum, though not as robustly as anticipated, reflecting investor sentiment. A stark contrast emerged between stocks posting substantial profit increases and those experiencing declines. While the oil and gas extraction sector recorded a remarkable profit surge of 320.2 per cent in the first quarter, the real estate sector saw record profit declines, with stock prices mirroring these trends.

Consistent profit growth

According to SSI Research, the VN-Index’s Forward 1 Year P/E ratio has returned to an attractive long-term valuation of 11.2 times post-adjustment. Deeper market penetration into this appealing valuation area is expected to bring about differentiation, favoring stocks exhibiting recovery and resuming growth trajectories in core business performance, as observed during the information absorption peak in April, driven by first-quarter financial results. Rebounding consumer spending, tourism, trade activities, and significant FDI inflows could offer initial backing for sustained profit recovery in the upcoming period.

However, to establish a robust foundation for enduring stock market growth, continuous profit rebounds across diverse sectors in the quarters ahead are imperative.

In regard to the remaining quarters of 2024, analysts at the Viet Dragon Securities Corporation (VDSC) anticipate sustained double-digit growth, propelled by the banking and technology sectors, ongoing recovery in profit margins across various industries, notably tourism and entertainment and encompassing aviation stocks, alongside a favorable base effect from the corresponding period last year.

Based on FiinPro data, approximately 449 listed companies, representing over 63 per cent of combined market capitalization on HSX and HNX, have disclosed pre-tax profit targets for 2024. These projections indicate collective growth of 17.5 per cent compared to a pre-tax loss of 5.3 per cent in 2023.

With first-quarter profit growth across the market of 10 per cent and full-year profit growth forecast to exceed 17 per cent, the valuation of the VN-Index and individual stock valuations appear more balanced for medium to long-term investment. VDSC highlighted that the stock market in May is unlikely to receive significant positive cues, with the VN-Index expected to oscillate in a similar fashion to April. Amid this volatility, opportunities for portfolio restructuring and cost reduction may arise at market lows and highs. The downturns observed in April offer potential buying opportunities for investors with varying time horizons.

In specific sectors, the banking industry’s pre-tax profit is anticipated to grow by 20 per cent as planned, supported by a projected 16 per cent increase in total operating income. This growth is attributed to credit expansion and a modest rebound in net interest margin (NIM), while provisioning for doubtful debts are expected to rise by only 7 per cent year-on-year, driving overall profit growth.

Nevertheless, there exists a notable discrepancy in growth rates, particularly between commercial banks that heavily provisioned in 2023, with better performance anticipated in 2024 as provisioning costs diminish.

Meanwhile, the steel, consumer goods, and consumer services sectors (encompassing retail and aviation services) are poised for a robust rebound from the subdued levels of 2023. While investors may trade steel stocks with flexibility, consumer services offer positive medium to long-term prospects during market adjustments.

The real estate sector, spanning residential and industrial segments, has exhibited minimal signs of recovery from its 2023 trough. However, looking ahead, the residential real estate market stands to gain significantly from the enactment of three forthcoming laws - the Land Law, the Law on Real Estate Business, and Law on Housing - effective from July, alongside continued infrastructure development. In the short term, the general sentiment among real estate developers is that these three laws may not exert an overly substantial impact, given the limited available land for development and subdued demand, leading to divergent rates of recovery across regions.

Taking a more conservative stance, the SGI Investment Fund Management JSC (SGI Capital) suggested that growth prospects have already been incorporated into the valuations of numerous businesses, making it increasingly difficult to identify appealing opportunities.

Overall, the investment landscape has become less favorable than in October 2023, requiring discipline and patience in selecting opportunities and timing capital deployment for optimal outcomes.