Vietnam Holding results affected by COVID

Vietnam Holding results affected by COVID – Vietnam Holding has announced results for the year ended 30 June 2020. Over that period, the NAV fell from 214.1p to 186.8p and the share price from 183p to 154p. The 15.1% fall in the NAV was greater than the 9.6% fall in the Vietnam All Share Total Return Index. The results were heavily influenced by the effects of measures taken to tackle COVID-19, both in Vietnam and globally (affecting the demand for some exports). Foreigners pulled substantial sums from the market in the early stages of the pandemic. [We do not think that Vietnam has received the credit it deserves from investors for its handling of the crisis and the economy’s growth prospects].

Tender offer planned

The company is planning to hold a tender offer for up to 15% of its shares at a 2% discount to NAV. The NAV will be that on 30 October 2020.

Performance fee scrapped

The management fee has been restructured to remove the performance fee element and compensate the manager for this loss. The new fee will be calculated as 1.75% on the first $300m of NAV, 1.5% on the next $300m and 1% on the remainder.

Extract from the manager’s statement

The company has a high-conviction portfolio concentrated in 24 positions, with the top ten positions making up 65% of NAV. The largest weighting, FPT Corporation (“FPT”), (14.3% of NAV), a software developer and provider of IT and telecom services, fared well in the period gaining 19.8%. FPT is well-positioned for the escalating focus on tech and e-commerce in Vietnam, as the country’s leading IT company. Its broadband subscriber base grew sharply in the first six months of 2020. One of its key growth areas continues to be its software outsourcing segment, with around 720 global customers which includes more than 100 in the Fortune 500. FPT aims to be an internationally recognised full IT services provider and its expansion outside of Vietnam has recently gained more momentum despite the COVID-19 crisis. Its sustainability strategy is a considerable part of its success and is indeed why we are invested in it. For example, FPT has assured compliance with regulations on wastewater treatment in all its buildings. Also, as part of raising awareness for employees, FPT established a running campaign with the participation of more than 7,000 employees. This resulted in the planting of more than 6,000 trees in Vietnam, Japan and Slovakia. The company also offers impressive training and upskilling programmes for employees and partners.

Hoa Phat Group (“HPG”), (6.9% of NAV), Vietnam’s largest steel producer in construction steel and steel pipe, was a particularly strong performer in our portfolio for the period gaining 14%. Its goal to be in the top 50 largest steel enterprises in the world has proved promising. In 2019, HPG provided nearly 2.77 million tonnes of construction steel (+16.7% YoY) in which over 0.26 million tonnes were exported to Japan, Korea and Australia. HPG, which follows the motto ‘Harmony for Joint Development’, has adopted the circular economic model aiming to use natural resources through the value chain from production to consumption and to the process of restoring and promoting the use of high-tech products and services. This not only saves energy and protects the environment, but also optimises production efficiency and product competitiveness. Notably, HPG also applies the ultra-clean coke heat recovery to eliminate all gases, fumes and toxic chemicals, as well as recovering heat to run the generator.

In terms of the holdings in retailers, Mobile World Group (“MWG”), (6.9% of NAV) fared less favourably despite building strong store networks and compelling offerings. MWG is the country’s fifth most popular website and unmatched multiproduct omni-channel, with a robust market share in consumer goods. We have applauded its sound management before, but its handling of the pandemic has stood out in our view for innovatively matching local needs and thoroughly looking after its shareholders. Based on this track-record, we expect it to make strides in its online grocery business expansion during the second half of this year.

The COVID-19 crisis inevitably had a significant impact on the equity markets, particularly in February and March, with sharp declines in asset prices partly due to foreign investors withdrawing funds from open-end funds indiscriminately. Almost USD 770m was withdrawn in the first four months of 2020 – a record level of outflow, representing almost the entire amount of inflows in the previous 15 months. However, the equity markets rebounded significantly in April and May, largely on the back of increased local liquidity. The Company’s NAV per share also rose even though its rally lagged the index.

Overall, the larger cap stocks (accounting for 53.4% of the portfolio) outperformed the small and mid-cap stocks during the financial year, which continued to suffer from lower liquidity in the market. This was exacerbated during periods of market downturns and not helped by lagging flows of capital from domestic investors as sentiment improved towards the end of the financial year.”

VNH : Vietnam Holding results affected by COVID

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