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Strong returns from VinaCapital Vietnam Opportunity 

Strong returns from VinaCapital Vietnam Opportunity – VinaCapital Vietnam Opportunity Fund produced an NAV return of 65.6% and a 63.1% increase in its share price over the year ended 30 June 2021. The strong returns meant that there was a performance fee of $16.6m accrued at the end of the year.  The dividend for the year is 11.5 cents, up from 11 cents for the prior year. The discount fluctuated between 5% and 25% and is currently 18.3%, the widest of its peer group.

The chairman says that the company is close to securing a $40m borrowing facility.

Extract from the manager’s report

The public equity component of the portfolio, which makes up 77.8% of NAV (listed equities 69.0% of NAV, and unlisted equities 8.8% of NAV) increasing 99.8% (on a gross return basis, before VOF fees and expenses). In comparison, the Vietnam Index (“VN Index”) returned 75.3% during this financial year, and while not a benchmark for the fund, it does serve as a useful measure. With the strong market performance, on a valuation basis, the VN Index is reverting to its historical average and now trades at 16.9x on a forward price-to-earnings ratio (“PER”), with consensus earnings growth for 2021 remaining at around 31% but we are sceptical about these forecasts. Nevertheless, Vietnamese stocks are not as cheap as they used to be versus regional peers, with the PER discount to Thailand, Indonesia, and the Philippines now being less than 10% (versus the long-term average discount of 30%). 

The increase in VOF’s NAV owes much to the performance of the public equity component of the portfolio which has benefited from rising stock markets. Stock market performance has been driven by domestic investors’ enthusiasm for stocks as interest rates have declined, property prices are subdued, and gold prices have plateaued, leaving them with few other investment alternatives. It has been widely reported that the market’s current bull run has been fuelled by record levels of liquidity amidst a prevailing low interest rate environment, with local Vietnamese retail investors now making up almost 90% of market turnover. The year-to-date average daily turnover for the VN Index has surpassed stock markets in Singapore, Malaysia, and the Philippines (and Indonesia too, if the HNX and UPCoM exchanges are included). The recent systems glitches which held back daily trading volumes seem to have been fixed with an interim solution provided by technology services company FPT (HOSE: FPT) – which incidentally is a VOF portfolio holding – and seems to have appeased retail and institutional investor concerns.

The quality of VOF’s public equity portfolio, which if measured by the average Earnings Per Share (“EPS”) growth, has been 41% per annum over the last three years, has allowed us to deliver the strong overall performance. Based on our latest earnings forecast revisions as of September 2021, we expect it to increase by approximately 37% for 2021, versus the VN Index for which consensus earnings growth for 2021 is trending down to a range of 15% to 20%, although we are mindful that the extended lockdown measures to control the pandemic may have a further downward impact on earnings. 

Investors today are enjoying the fruits of investments made from as early as 2007 in high-quality companies across sectors like construction materials (Hoa Phat Steel Group, HOSE:  HPG), consumers (Phu Nhuan Jewelry, HOSE: PNJ), to real estate development (Khang Dien House, HOSE: KDH), and more recent investments into financials (Orient Commercial Bank, HOSE: OCB) in 2018, and healthcare, including Thu Cuc International Hospital (TCI Hospital), a private equity investment made in 2020. 

Over the long term, VOF continues to perform well against the VN Index on both a NAV per share and share price basis.”

VOF : Strong returns from VinaCapital Vietnam Opportunity

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