EPS growth in Vietnam 2010-15: Who`s got it, Who hasn`t, and does share price performance reflect it
Mekong Man has examined the five year historic earnings per share growth record of 70 top listed Vietnamese companies, to see who`s best and worst and how this record has affected share price performance over the last five years. The motivation to do this was to test the idea that long term EPS growth is the mother of share price performance. The results of this study suggest that it very much is. The data was sourced from Bloomberg, which adjusts historically reported EPS for subsequent rights issues, bonus issues, and stock dividends – this being a very important process to make sequential EPS data meaningful. We do not exclude the possibility that Bloomberg data contain errors, but in our experience Bloomberg observes this adjustment principle more scrupulously than the vast majority of analysts in emerging markets, and is therefore a better source than any other for such an analysis.
The table is presented below, ordered alphabetically; please refer to the footnotes for explanation. In essence, red (and to a lesser extent orange) are “bad”, indicating relatively poor EPS and share price records over the past five years; while blue (and to a lesser extent the paler blue) are “good”.
|Stock||5yr EPS %gr||EPS up every yr?||EPS up 4/5 yrs?||EPS down 4/5 yrs?||Notable EPS volatility?||5yr share price %chg||Stock|
|BVS||-ve to +ve||X||-47||BVS|
|PPC||up from nil||X||+41||PPC|
|Footnotes to the table:-|
|Data for these 70 major stocks is for the 5 years to 17.2.2016; EPS growth for the period 2010-2015. Source: Bloomberg, 17.2.2016 (which backwardly adjusts EPS figures for bonus issues, rights issues, and stock dividends)|
|” denotes a snap estimate used for 2015 EPS|
|* denotes 4 year (not 5 year) EPS record, i.e. 2011-15|
|# denotes September year-end|
|Blue||denotes a champion performer: EPS and share price both up >68% over 5 years: 18 stocks out of the 70. 68% represents 10% CAGR in USD (or 11% CAGR in VND) over the 5 years|
|Light blue||denotes a stock just below the champions league: 6 stocks out of the 70|
|Red||denotes an ugly dog, where both EPS and share price either down or up only <10% over the 5 years: 21 stocks out of the 70|
|Orange||denotes a slightly less ugly dog, where both EPS and share price failed to grow by 11% pa – or 68% overall – in VND (which equals 10% pa in USD): 18 stocks out of the 70|
|Lines in normal black text show the 7 anomalies out of the 70: where there is a substantial mismatch between EPS growth and share price performance, with one above and one below the 68% line|
|VND fell 6.6% v USD in the 5 years to 17.2.2016, and 12.9% between 1.1.2011 and 17.2.2016 (the latter includes the big 6.8% devaluation of 2.2011, the former does not).|
|* For Vietnam as a whole, this makes pretty grim reading: only 18 stocks (26% of the list) beat USD CAGR of 10% in both EPS and share price performance, whereas 39 stocks (56%) failed to reach anywhere near this level. In light of this, it is unsurprising that the VN-Index only gained 8.6% in the five years to 17.2.2016, and only 1.4% in dollar terms over the same period.
* The generally accepted “cost of equity” (or required rate of return) in Vietnam is generally taken to be at least 13-15% per annum (which includes dividends, whereas our 11% VND / 10% USD threshold used for our color coding in the table does not).
* Our findings strongly support a very selective approach to the Vietnam market, because the majority of stocks are not generating an “economic profit” for their shareholders.
* The top 10 share price gainers over the last five years are, starting with the best, TLG, VNM, BBC, VSC, DVP, BMP, NSC, DRC, TRA, and HT1 – all of whom had share price gains of over 200%. All of these 10 names grew their EPS in at least 4 out of the 5 years.
* It is striking how few anomolies there are, i.e. only 10% of the cases (the 7 uncoloured lines in the table). In other words, good EPS growth strongly tends to mean a good share price growth, and bad bad.
* Although this study has not tested share price performance against other drivers, it seems likely, given the findings, that EPS is the most important driver of share price performance over the long run. It follows that successful investing in Vietnam should be focused on finding superior long term EPS growers. Fast market cap, sales, or net profit growers are not necessarily fast EPS growers.