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
(A-Z) (A-Z)
ACB -56         -19 ACB
BMI” +7 X +84 BMI”
BMP +82 X       +247 BMP
BBC +106   X     +272 BBC
BVH +8         -48 BVH
BVS -ve to +ve       X -47 BVS
CII -9         -5 CII
CTD +89         +139 CTD
CSM +85         +46 CSM
CTG -5         +4 CTG
DVP +118 X       +248 DVP
DIG -97         -53 DIG
DXG -12         +44 DXG
DRC +112   X     +226 DRC
DPR -60         -45 DPR
DQC +416         +164 DQC
DPM -27         -29 DPM
DHG +36         +119 DHG
EIB -97       X -23 EIB
FPT +19   X     +47 FPT
GMD +9         +44 GMD
GMC +75   X     +150 GMC
GDT +100         +143 GDT
HBC -23 +82 HBC
HCM -17         +61 HCM
HAG -54         -79 HAG
HVG -25         +43 HVG
HT1 +614   X   X +202 HT1
HPG +143         +67 HPG
HSG# +184       X +121 HSG#
IJC -82     X   -61 IJC
ITA -85         -54 ITA
IMP -35     X   +35 IMP
KBC -65         -65 KBC
KDC special +ve         -41 KDC
LAS* -13 +86 LAS*
LSS lack data         -70 LSS
MSN -63     X   -19 MSN
MBB* -24         +22 MBB*
NTP +135   X     +88 NTP
NSC +122   X     +238 NSC
PNJ -34 +98 PNJ
PET -16         -7 PET
PVI -2         +29 PVI
PVS -13         -20 PVS
PGD +34         +86 PGD
PVD +19         -45 PVD
PVT +570 +7 PVT
PHR -57         -58 PHR
PPC up from nil       X +41 PPC
PAN +102       X +164 PAN
REE +61   X     +76 REE
SSI +30       X +3 SSI
STB -48         +9 STB
SSC -35 +76 SSC
SBT lack data +108 SBT
TCM -37       X +44 TCM
TRC” -75         -71 TRC”
TLG +80   X     +419 TLG
TRA +104   X     +219 TRA
VSC +68   X     +253 VSC
VIC -68         +37 VIC
VCG -27         -55 VCG
VNS +69   X     +127 VNS
VND* -31         -29 VND*
VNR” +12         +39 VNR”
VHC +48         +128 VHC
VSH -17         +21 VSH
VCB -24         +46 VCB
VNM +84   X     +368 VNM

 

 

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).
Conclusions:-
* 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.

 

Mekong Man

Trumpasaurus Rex

Prior to last week, it was to many thinking people one of:

(a) a joke;
(b) a sick joke; or
(c) just sick.

But last week – following his emphatic New Hampshire win, with another one this coming weekend in South Carolina on the cards – it became a possible outcome that can no longer be considered an outlier.

To what are we referring ? The prospect of Donald J Trump becoming the next president of the United States.

“No, you’re wrong, Las Vegas has The Donald at 4-1 but Clinton is evens”, I hear you shouting. Well yes, you’re right. But MM is calling the bookies’ odds wrong. Trump has electric appeal to many and if more terrorism, and/or tragedy in the Middle East, takes place in the months leading up to November, then he could easily erase his current single-digit-poll-deficit to Clinton.

Hilary Clinton’s trustworthiness ratings are so low – and it’s easy to see why. She flip-flops on key issues so transparently, based on latest voter mood. TPP? For it (and at the very centre of the government that negotiated it !), then against it. Wall Street? She’s suddenly, on the turn of a dime, gone all “Bernie” now, following her embarrassing margin of defeat in New Hampshire. Her stump speeches have the content and delivery of a wet rag. She’s the soggy insider in an election where most voters are yearning for a true outsider. No wonder voters are mostly unenthused with her. It would be great to break the ultimate glass ceiling and have a woman president, but that’s got to wait for a more inspiring candidate, is MM’s guess.

Michael Bloomberg is a grand irrelevance. If he runs, he’ll win every properly thinking person’s vote – but that’s no good, as the old Adlai Stevenson joke went, he needs a majority – or actually in this case a plurality as it would be a three-horse race. No chance.

That leaves Trump to, very possibly, win the White House.

So we think it is not premature to begin asking what a Trump presidency would mean for Vietnam. We’ve thought of five things:-

* Bye-bye TPP. Trump is against the Trans-Pacific Partnership trade agreement, he says. He is campaigning for greater protection against cheap imports in general. ‘No TPP’ would be a disappointment for Vietnam, since it would be a strong beneficiary of the deal, to the tune of perhaps an extra one percentage point of GDP growth per year over the next 10-20 years. However, the Vietnam manufacturing-centred growth story doesn’t get derailed by TPP not happening. Moreover, Vietnamese seafood and textile exports to the US are unlikely to be targeted; the attention would be more likely in heavier and more sophisticated industrial sectors, like steel, cars, and the solar industry, where Vietnam is largely absent as an exporter to the US. Regarding Trump’s purported economic nationalism in general, the sage joke in Texas is that if he really does want to build that wall, he’ll have to throw open the border first, in order to get in anywhere near the amount of labour that is needed to build it.

* Vietnam reform momentum: dented slightly ? If TPP didn’t happen, its impetus to impose reforms on Vietnam would also be gone. The new Vietnamese leadership of Messrs Trong and Phuc seems to be slightly less reform oriented than the previous administration, and slightly more likely to be close to autocratic-brother-in-arms China. An arrogant occupant of the White House might serve to reinforce these Vietnamese attitudes.

* Muscularity versus China. Trump is likely to fashion himself as a strongman. This would have the most impact on Russia and China, the US’s two big geopolitical rivals. Increased US stiffness against Chinese expansionism in the South China Sea would of course be helpful to Vietnam, lessening the chances of a recurrence of episodes like that of May 2014, when deadly riots erupted in Vietnam, tourism from China collapsed, and the Vietnamese stock market took a quick 16% plunge – all because of a Chinese oil rig being placed in contested waters near the Paracels.

* Fewer free lunches. Perhaps in slight contradiction to the preceding point, for many years Trump has made the argument that countries that rely on US security should pay for it to a much greater extent than they do. He has mainly made this in reference to wealthy Europe and Japan. It’s doubtful that a change in military burden-sharing would affect Vietnam much. However, there might be a scarcer availability of concessional loans and other overseas development assistance from largely-US-funded multilateral organisations like the IMF and World Bank. To an extent, this trend will occur anyway as Vietnam has now reached definitions of “middle income status” and is therefore beginning to lose access to programmes designed for the very poorest countries.

* Much a-do about nothing. Though many people around the world will cringe (or worse) at the thought of a Trump presidency, wise heads are beginning to point out that one shouldn’t divine all that much from his bombast on the campaign trail. After all, pretty much every candidate since Bill Clinton in 1992 has excoriated China on trade and vowed to be tougher on it. Once in power, the candidate-turned-president has to live in the real world again. The game – especially in America – is to talk big guff to win, then sober up and run the country. Moreover, the American system makes it very difficult for the president by himself to achieve much anyway. Trump’s long term flexibility of views tends to suggest that, in reality, he’s mostly a pragmatic moderate in terms of his actual likely policymaking.
Mekong Man