Singapore Market Strategy - DBS Research 2019-07-01: Riding On Vietnam’s Growth Potential

Singapore Market Strategy - DBS Group Research | SGinvestors.io THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) FRASER AND NEAVE, LIMITED (SGX:F99)

Singapore Market Strategy - Riding On Vietnam’s Growth Potential

  • Vietnam is a key beneficiary of this trade diversion as its economy is strategically plugged into the regional manufacturing supply chain.
  • Proxies to Vietnam’s growth – Thai Beverage, F&N.

Riding on Vietnam’s growth potential

  • The US-China trade war has emphasized the importance for manufacturing companies to diversify operations out of China. Vietnam is a key beneficiary of this trade diversion as its economy is strategically plugged into the regional manufacturing supply chain.
  • Our Singapore economist notes that FDI flows from China has been significantly stronger than usual and this could be an early sign of investment diversification out of China and into regional markets such as Vietnam. Among the sectors, manufacturing is the main draw for investors due in part to the structural shift in regional electronics supply chain. This trend could be however, tempered by the US turning its attention on Vietnam’s trade surplus with the US, based on recent comments by President Trump.
  • Singapore companies with business exposure in Vietnam should benefit from Vietnam’s growth potential that could reach 6.0-6.5%GDP growth over the next 10 years. The list below summarizes the companies with Vietnam exposure.
  • However, the impact to earnings or assets are negligible, except for Thai Beverage (SGX:Y92) (BUY, Target Price S$0.91) and F&N (SGX:F99).

Exposure to Vietnam – Singapore Companies

ASCOTT RESIDENCE TRUST (SGX:A68U) BUY, 12-mth Target Price: S$1.35

  • % of exposure: 5% of revenues
  • Ascott Residence Trust derives close to 5% of revenues from its properties in Vietnam, which are mainly centrally located assets within Hanoi and Ho Chi Minh City. Performance of these properties have been mixed over time and most recently under pressure from new supply completions. In the longer term, we believe that performance will likely strengthen on the back of stronger business activities.

CAPITALAND LIMITED (SGX:C31) BUY, 12-mth Target Price: S$4.00

  • % of exposure: 2% of profit before tax
  • CapitaLand has a strong and growing Vietnam business franchise focusing on the residential sector and lodging sector (through Ascott Limited and Ascott Residence Trust). The group has presold close to c.S$750m in presales from its residential projects which will be recognised in the coming years.
  • CapitaLand also owns and manages serviced residences mainly in Hanoi and Ho Chi Minh City which are owned by Ascott Residence Trust.


  • % of exposure: Vinamilk is accounted for as an associate which contributes 45% to profit before tax.
  • F&N owns c.20% of VinaMilk, the largest dairy company in Vietnam which manufactures and distributes dairy products. Products include condensed milk, powdered milk, fresh milk, soya milk, yogurts, ice-cream, cheese, fruit juice, coffee and other milk-based products.

JAPFA LTD. (SGX:UD2) HOLD, 12-mth Target Price: S$0.61

  • % of exposure: The Vietnam operation contributed 11% to consolidated Japfa’s revenue in FY18.
  • Japfa has an operation in Vietnam for poultry feed manufacturing, breeding, and commercial farming; as well as swine feed manufacturing, breeding, and fattening. The operation in Vietnam contributed 11% of Japfa’s total consolidated revenue in FY18.

JUMBO GROUP LIMITED (SGX:42R) BUY, 12-mth Target Price: S$0.51

  • % of exposure: Franchise income, undisclosed. Estimated to be insignificant.
  • Jumbo Group has a 10 year franchise agreement with Nova Bac Nam 79 Joint Stock Company for rights to operate JUMBO Seafood restaurants in Ho Chi Minh City and Danang, Vietnam starting from 21 December 2016, with option to renew for a further 10 years subject to terms and conditions. We estimate franchise income to be insignificant. The franchisee currently has one Jumbo Seafood restaurant in Ho Chi Minh City.


  • % of exposure: Estimate that Vietnam accounts for ~6% of Keppel Corp’s RNAV
  • Keppel Land is one of Vietnam's pioneer and largest real estate investors with a diverse portfolio of properties in Hanoi, Ho Chi Minh City, Dong Nai and Vung Tau ranging from Grade A offices, residences, award-winning serviced apartments and integrated townships. Vietnam accounts for approx. 10% of Keppel Land’s Property RNAV (~6% of Keppel Corp’s), largely residential projects.

MAPLETREE LOGISTICS TRUST (SGX:M44U) BUY, 12-mth Target Price: S$1.60

  • % of exposure: 2% of revenues / 3% of net property income.
  • While Mapletree Logistics Trust (SGX:M44U) derives a rather small 2% of revenues from Vietnam as of FY19, the REIT continues to look to bulk up its exposure in the country with a pipeline of properties that the Sponsor is currently developing or leasing up which may be acquired in the longer term.
  • Mapletree Logistics Trust, together with Sponsor, Mapletree Investments continue to look to add more land and facilities in Vietnam in the longer term.


  • % of exposure: Negligible (only 1 centre out of a total of 74)
  • MindChamps PreSchool signed a Master Franchise Agreement with Evergrande Group in Vietnam, with plans to open 20 preschool and reading centres in Vietnam back in December 2017. A typical master franchise one-off fee with 20 centres is about S$1m to S$2m, depending on location and other terms, while royalty fee is typically charged between 9% to 15% of the franchisee’s revenue.
  • With only one preschool centre in Vietnam out of a total of 74 centres across the region, current contribution from Vietnam to MindChamps PreSchool is negligible.


  • % of exposure: Estimate ~3% of Raffles Medical Group’s revenue.
  • Clinics in Vietnam and Cambodia via the acquisition of 55% stake in MCH, an international medical group. Newly acquired subsidiary, MCH contributes approximately 9% to Raffles Medical Group’s revenue on a consolidated basis but is still recording a minor operating loss.

SEMBCORP INDUSTRIES LTD (SGX:U96) BUY, 12-mth Target Price: S$3.90

  • % of exposure: Estimate that Vietnam exposure accounts for ~7% of Sembcorp Industries’s RNAV.
  • Sembcorp Industries operates a 746MW gas fired power plant, Phu My 3 in Ba Ria - Vung Tau, Vietnam, which represents ~6% of group’s total power capacity.
  • In addition, under its Urban Development segment, since 1996, Sembcorp Industries has partnered with the Vietnamese government to create integrated townships and industrial parks in the country that are complete work-live-play environments through sales of land parcels for industrial, commercial and residential uses, as well as development of selective property projects. Vietnam market represents ~60% Sembcorp Industries’s remaining saleable lands.

ST ENGINEERING LTD (SGX:S63) BUY, 12-mth Target Price: S$4.50

  • ST Engineering’s Aerospace division has recently entered into a 49:51 JV with Vietnam Airlines’ subsidiary Vietnam Airlines Engineering Co. (VAECO) to provide component maintenance, repair and overhaul (MRO) services to cater to Vietnam Airlines’ requirements as well as other demand in the region. The component MRO facility will begin operations in mid-2019.
  • ST Engineering also has in place a partnership with Keppel Urban Solutions, a wholly owned subsidiary of Keppel Corp, to provide smart city solutions to Keppel Corp’s urban developments across Asia, beginning with Vietnam, where they will partner on the Saigon Sports City project. While both the above initiatives in Vietnam are long term positive for the Group, we do not expect material near term contribution from Vietnam to ST Engineering’s overall numbers.

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) BUY, 12-mth Target Price: S$0.91

  • % of exposure: Contributes about 25% of sales to group revenue. Contribution to net profit is insignificant due to interest expense related to the acquisition.
  • Thai Beverage owns 54% of Sabeco, which it purchased at end 2017 and early 2018 for close to US$5b and at a valuation of 38- 42x forward PE. Saigon Beer Co, (SABECO) produces Saigon Beer which is a leading beer brand in Vietnam.


  • % of exposure: Minimal; estimate < 5% of revenue.
  • Vietnam is identified as a possible manufacturing site, and Valuetronics has been working closely with one of its customers to explore manufacturing solutions at a leased site. We estimate capex for Vietnam would be about HK$20m to HK$30m if the group acquires an existing plant, and about HK$150m to build a new plant.

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Kee Yan YEO CMT DBS Group Research | Janice CHUA DBS Research | https://www.dbsvickers.com/ 2019-07-01
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