Auto stocks to grow thanks to rising consumption

TMT closed September 13's trading at 5,800 VND (0.25 USD) per share, down 37 percent from the beginning of the year (Photo: cafef.vn)

On the stock market, shares of TMT Motors Corporation (TMT), a prominent importer and assembler in the capital city, closed September 13’s trading at 5,800 VND (0.25 USD) per share, down 37 percent from the beginning of the year. TMT has experienced a significant decline over the past four years.

TMT recorded an all-time peak of over 59,300 VND per share in October 2015, then plunged to its current value. The stock liquidity was also low, with only a few thousand units matched each session.

The slump of the TMT stock price is attributed to negative business results. In the first six months of 2019, TMT recorded revenue of 734 billion VND (31.4 million USD), up 6.8 percent.

However, the company suffered a loss of 5.9 billion VND due to higher costs of goods sold, up by 192 billion VND, equivalent to an increase of 120 percent. Selling expenses rose by over 8 billion VND, equivalent to 106 percent.

TMT also saw a loss of 10.6 billion VND in the same period of 2018.

With GGG stock of Giai Phong Automotive Joint Stock Company, the situation is even worse.

Since early this year, GGG has witnessed few transactions, reaching only some 1,000 units per session, if any. The highest price that GGG achieved this year was 2,200 VND per share, in June.

GGG hit the daily limit decline of 7 percent on September 13, closing at 1,200 VND per share.

GGG recorded a loss of 9.8 billion VND in 2018 and 7.2 billion VND in 2017.

Let alone the poor performers, automobile companies with positive business results have not received much attention from investors either.

For example, at the end of the first half of 2019, Truong Long Auto & Technology Joint Stock Company (HTL) reported a pre-tax profit of 18.1 billion VND, up by 11 times over the same period of 2018 thanks to an increase in consumption.

HTL shares lacked resilience, currently fluctuating around the threshold of 17,000-18,000 VND per share.

From the beginning of the year, HTL has recorded an increase of about 10 percent. Liquidity remained very low, with the average matched the volume of 10 sessions being only some 1,000 shares per session.

Hang Xanh Motors Service Joint Stock Company (HAX) closed September 13 at 19,450 VND per share, up 21.4 percent compared to the beginning of the year.

However, the liquidity fluctuated and was generally low. The average matched volume in the most recent 10 sessions was about 24,000 shares per session.

In the first 6 months, HAX achieved 2.4 trillion VND in revenue, up 9.43 percent over the same period of 2018. Pre-tax profit was 38.7 billion VND, down 16.8 percent mainly due to increased competition.

In an interview with Dau Tu Chung Khoan (Securities Investment) newspaper, a representative of HAX said the number of distributed vehicles had risen sharply since the beginning of September and this is likely to continue until the end of this year, thereby helping the company improve sales and profits.

In a recent report, FPT Securities (FPTS) recommended that investors pay attention to HAX because its Mercedes’ sales would rise as the middle and upper classes in Vietnam are increasing in size.

With the EU-Vietnam Free Trade Agreement (EVFTA) coming into force, import taxes on cars and car parts from Europe will be reduced, making Mercedes’ prices more competitive.

HAX is also expanding the popular Nissan vehicle segment to persify its products.

The auto market of Vietnam boasts huge growth potential from now to 2025, according to the Industrial Policy and Strategy Institute (IPSI).

The institute forecast the consumption scale of Vietnam’s automobile market is forecast to reach over 500,000 vehicles per year from 2021 onwards.

The domestic auto manufacturing industry will grow by about 18.5 percent annually between 2018 and 2025 and 13.8 percent between 2025 and 2035, raising the car output to nearly 531,600 units by 2025 and 1.76 million units in 2035.

With the growing middle class, car sales are set to respectively rise by 22.6 percent each year from now to 2025 and 18.5 percent in the following years.

Accordingly, Vietnam’s population was estimated at over 96 million at the end of 2017. This figure is expected to rise to 98.2 million by 2020, 101.1 million by 2025 and 107.8 million by 2035.

Per capita GDP in the country was 53.5 million VND (2,385 USD) in 2017, which will increase by 6.8 percent annually to 7,780 USD by 2035. More than half of the Vietnamese population will enter the global middle class by 2035 with the average daily spending of at least 15 USD.

Expecting huge potential in the automobile market, many firms have moved into this field, such as local Vingroup with the recent launch of automobile brand Vinfast.

Phu Nhuan Service JSC (Maseco) has also participated in the automotive business after exiting the Ariang electronic product distribution channel.