Monthly Newsletter – July 2024

Dear valued clients and friends,

Each month we provide a market overview and pick out the M&A transactions, investment activities, regulation updates, and event highlights that we find relevant to your businesses to share with you in order to help you make informed decisions, solve problems, or gain a new perspective.

Our execution, experience, and in-depth understanding of the market have assisted many of our clients in solving their most difficult problems, augmenting the right strategies, finding targets, connecting with investors, and closing deals successfully. So stay informed with us, and make the right decisions for your businesses and investments!

MARKET OVERVIEW
Vietnam’s macroeconomy data showed a significant growth in June. Contradicting with the conservative results and views of the first quarter which recorded only 5.7% growth, GDP of the second quarter reached 6.9%, driven by a recovery in exports, risen investment disbursement, and more efficient credit operations. 

Interest rates, particularly deposit rates, are increasing and inflation also showed signs of increasing. Inflation is edging up the government’s target ceiling of 4.5% for the year however it remains under control, maintaining a level that positively supports economic growth. 

Many took the second quarter’s sharp growth as a sign that Vietnam’s economy will continue to grow strongly in the coming months and will be able to achieve the government’s target of 6.5% for the whole year.

GDP Growth
The recovery of production, import and export in the region including Vietnam has actually pushed growth and if persists, we will revise our forecast to 6% for the year. If the third and fourth quarters are to be peak periods as usual by the strong increases in consumer demand and investment thanks to the big holidays toward the year-end, Vietnam might even be able to achieve its growth target this year.


Source: GSO, ASART analysis

Inflation and Interest Rates
Inflation in June increased by 4.3% y-o-y and the average inflation for the second quarter of 2024 rose by 4.4% y-o-y, an increase worth paying attention to. Since April, commercial banks have shown signs of increasing deposit interest rates. The average 1-year deposit interest rate in June from major private commercial banks (MBB, ACB, TCB, VPB) increased by nearly 20 bps compared to May while the interest rates from the Big 4 banks remained unchanged. There is a high likelihood that the SBV will raise interest rates in the coming months to control inflation if the inflation rate continues to rise and if that happens interest rates from the Big 4 banks would also rise. 

Trade Activities
Trade activities in June 2024 picked up, with exports rising by 10.5% y-o-y and 0.3% m-o-m to USD33.09 billion, while imports increased by 13.1% y-o-y but decreased by 9.6% m-o-m to USD30.15 billion. While Vietnam is still having a trade surplus of USD2.9 billion, it is about USD350 million lower than last June, a 10.6% y-o-y decrease.


Source: GSO, ASART analysis

Exchange Rate
The USD/VND exchange rate rose rapidly following Fed’s increases in interest rates. This will only slow down once Fed reduces rates, which depends on US inflation. US inflation remains in the range of 3.3%, much higher than the target of 2%.

Investment, M&A
FDI surged by approximately 60% y-o-y and 129% m-o-m in Jun 2024, with a total registered capital of USD4.1 billion.

While M&A activities in June also surged to USD640 million from USD124 million, marking a 421% m-o-m increase, it is slightly decreased compared to June 2023 (down 7.7% y-o-y) due to the uncertainties in interest rates, exchange rates, gold prices, and political landscape. 


Source: GSO, ASART analysis

M&A SPOTLIGHTS

Vietnam Renewable Energy Singaporean giant Sembcorp has completed the acquisition of a majority stake in three out of four subsidiaries of Gelex, thereby adding 196 MW of operational wind and solar power capacity to its investment portfolio. Once all transactions are finalized, Sembcorp’s total renewable energy capacity in Vietnam will reach 455 MW, while the group’s global capacity will be 14.4 GW. Renewable energy is a strategic investment area for Sembcorp in Vietnam. The group has been investing through various entities such as Phu My 3 Power Company, Sembcorp Energy Vietnam, Sembcorp Solar Vietnam, and BCG Gaia, etc. In addition to renewable energy, Sembcorp is also particularly focused on the industrial park leasing sector. To date, the group has developed 14 Vietnam-Singapore Industrial Parks (VSIPs) across 10 provinces and cities nationwide, covering a total area of approximately 11,000 hectares. These VSIPs have achieved a high occupancy rate of about 83.2%, attracting USD18.7 billion in total investment for around 866 projects, and creating jobs for over 300,000 workers. Healthcare IHH Healthcare, one of Asia’s largest healthcare conglomerates based in Malaysia, is planning to expand into Indonesia and Vietnam through acquisitions. This move comes as their current markets are nearing saturation, making the search for new opportunities essential. Recently, IHH Healthcare signed a strategic partnership with FPT Long Châu, aiming to bring advanced medical methods and techniques, delivered by a team of top specialists from Asia, to the people of Vietnam. This collaboration also seeks to help patients access high-quality healthcare services at affordable costs right within Vietnam. Entertainment Yeah1 Group (HSX: YEG) is planning to divest and transfer the entire share capital of its 6 subsidiaries: ANA Entertainment JSC (2.97 million shares, equivalent to 99%); Care Group JSC (39.99 million shares, equivalent to 99.98%); Dai Su Tre Investment and Film Production JSC (730,000 shares, equivalent to 73%); Giga1 Trade Tech JSC (nearly 36 million shares, equivalent to 99.99%); YAG Entertainment JSC (1.56 million shares, equivalent to 85%); Appnews Vietnam JSC (1.33 million shares, equivalent to 70%). In early 2023, Yeah1 acquired shares of Netlink Vietnam, which specializes in digital advertising, from two individuals at an exorbitantly high price, 160 times higher than the face value. Conglomerates SK Group plans to divest its Vietnam portfolio to recoup a 1 trillion won initial investment (approximately USUSD720 million) to refocus on core businesses. SK Group’s total investment in Vietnam today is roughly USD2 billion, holding stakes in major Vietnamese conglomerates including 6.1% of Vingroup JSC (VIC), 9.2% of Masan Group (MSN), 64.79% of Imexpharm (IMP), 4.9% of The CrownX Corp.

The World Recycling Leading provider of comprehensive waste management services in North America Waste Management Inc (WM) entered into a definitive agreement with Stericycle, who specializes in managing regulated waste and providing compliance solutions to healthcare and commercial businesses, on 3 June, to acquire all outstanding shares at USD62 per share, giving Stericycle an enterprise value of USD7.2 billion, a premium of 24%. WM estimates the acquisition to create over USD125 million in annual run-rate synergy. The transaction is expected to close during the fourth quarter of 2024, with Centerview Partners LLC serving as the exclusive financial advisor.  Banking The National Bank of Canada (NA) announced its acquisition of Canada Western Bank (CWB) for USD3.63 billion on 11 June, marking the integration of Canada’s sixth and eighth-largest lenders. This strategic move significantly expands NA’s commercial banking portfolio by approximately 52%, bolstering its domestic earnings potential and diversifying its loan and revenue streams through CWB’s robust USD11 billion loan portfolio. CWB, established in 1984, operates 39 branches and serves 65,000 clients nationwide, specializing in commercial banking. NA’s CEO, Laurent Ferreira, emphasized that the acquisition aims to drive growth and reinforce the bank’s presence in Western Canada and this deal is expected to be completed next year.  Healthcare Becton Dickinson (BD), a leading global medical technology company announced it will buy Critical Care’s product division of Edwards Lifesciences for USD4.2 billion in cash, where it will fund USD3.2 billion through debt. This purchase will expand BD’s portfolio of medical care products. The Critical Care product division has around 4,500 employees and generated over USD900 million in revenue in 2023. Critical Care’s long-term financial outlook anticipates sustained revenue growth of around 6% to 7%, with an adjusted gross margin of at least 60% in the first year and adjusted operating margins of at least 25% and expected to rise over time. The deal is anticipated to be completed by the end of the calendar year. Malaysia’s IHH Healthcare and Sunway, alongside an experienced Asia-based healthcare investor, are bidding for Island Hospital in Penang, valued at over USD800 million, from Affinity Equity Partners. Established in 1996, Island Hospital offers 600 beds and specializes in cardiology, oncology, pediatrics, and plastic surgery, with a strong medical tourism program across Southeast Asia. The sale, originally planned for 2020 but delayed due to the pandemic, has regained momentum following the USD1.2 billion sale of Ramsay Sime Darby Health Care to Columbia Asia. Affinity Equity Partners, managing USD14 billion in assets across 11 countries, is actively involved in healthcare and other sectors. The acquisition reflects growing private equity interest in Asia’s healthcare market, with expectations for completion by the third quarter of this year.  Aviation Elliot Management, an activist hedge fund, has purchased a USD1.9 billion in shares of Southwest Airlines, making Elliott Management one of Southwest’s largest shareholders. Elliott Management plans for Southwest Airlines to have some major leadership changes, as the company has been struggling recently.

RELEVANT NEWS & INFORMATION

Vietnam Russian President Putin visited Vietnam Russian President Vladimir Putin and his high-ranking delegation visited Vietnam from 19 to 20 June at the invitation of Nguyen Phu Trong, Vietnam’s General Secretary of the Central Committee of the Communist Party. During this visit, Vietnam and Russia signed 11 cooperation agreements to lay the groundwork for new cooperative ventures, fostering stronger bilateral relations and offering economic benefits while enhancing political and strategic ties between the two countries. Key areas of cooperation include education, science, nuclear, and non-renewable energy.  International shipping freight rates doubled  Freight rates for international shipping routes doubled in June compared to the previous three months. Rates to the US are more than doubled, with the cost to ship a 40-foot container rising from nearly USD2,900 in March to around USD7,400 in June. This increase was driven by a shortage of empty containers and the Red Sea crisis affecting the Panama Canal. Impending US import taxes on Chinese goods, effective in August, have also prompted expedited shipments. Sea freight rates are expected to continue rising, imposing substantial financial burdens on businesses that face high shipping fees but cannot increase product prices due to existing contracts, which is leading to inevitable losses. Continued foreign investments in Northern Vietnam HiteJinro, a dominating player in South Korea’s soju market and beer industry, is expanding globally and Vietnam has chosen to be a strategic location. Celebrating its 100th anniversary, the company is investing USD100 million to build its first overseas soju plant in Thai Binh province, Vietnam, set to be completed in 2026. This plant is located at Lien Ha Thai Industrial Park, developed by Green i-Park, aims to anchor its foothold in the Southeast Asian market.

The World FED holds steady, European Central Bank cuts rates amid revised inflation forecasts The US Federal Open Market Committee (FOMC) kept interest rates at 5.25-5.5% but reduced their projected rate cuts for the year from three to one and also raising their long-term rate outlook 12 June. They noted inflation is easing towards the 2% target, adjusting their 2024 inflation forecasts to 2.6% for headline and 2.8% for core inflation. Recent data showed the Personal Consumption Expenditures (PCE) price index rose 2.7% in April 2024, with core PCE up 2.8%. Meanwhile, the European Central Bank (ECB) cut interest rates by 25 basis points in June, setting new rates at 4.25% for main refinancing operations, 4.5% for marginal lending facility, and 3.75% for deposit facility. Despite ongoing inflation, ECB President Christine Lagarde cited improved economic confidence as the reason for the cut. The ECB raised its inflation forecast for 2024 to 2.5% and emphasized keeping rates “sufficiently restrictive” to reach the 2% target.

EVENT HIGHLIGHTS

Vietnam 2024 Mid-Year Economic Outlook
Our firm’s CEO and Head of Advisory, Binh Le Vandekerckove shared with business owners and business executives our outlook for Vietnam’s market for the second half of 2024 at the Business Executive Network’s “Mid-Year Economic Outlook”.

Binh offered a recap of the first five months and six key points to keep in mind regarding GPD growth, import-export actives, interest rates, exchange rates, inflation, with a focus on FDI, investment, and mergers and acquisitions for the coming months. 

It has been quite difficult for Vietnam since early last year and most businesses are still struggling with uncertainties and slowdown in sales and profitability. In 2023, we forecasted that it would continue to be difficult for most businesses at least until the first half of 2024. It did, and what we are seeing is it will continue to be slow and difficult to predict and maneuver for at least until the end of 2024. There is also a consensus that short-term challenges persist, but in the medium- and long-term Vietnam will continue to experience a steady growth.

    

Vietnam Forecast Dinner 2024
We recently joined Vietnam Chartered Financial Analyst Community for their special dinner with a theme “A Start of the New Era for Vietnam Stock Market”. Leading portfolio managers and experts discussed the pivotal upgrade possibility of Vietnam to emerging market status and its implications for attracting foreign investment.

The discussions underscored the importance of balancing foreign capital inflows with domestic benefits, as well as the readiness of local businesses to accommodate the anticipated significant increase in investment. We also got to catch up on market latest updates and reconnected/connected with many old and new friends. This has undoubtedly supported our work and contributed to our commitment in helping our clients both private and public companies in making critical decisions every day.

   

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Disclaimer 
This newsletter is of a general nature. It is for information purposes only. It is not intended to serve as advice or recommendation, or to address the circumstances of any entity, individual, or matter. No one should rely and/or act on the information presented without appropriate professional advice from ASART. ASART accepts no liability for the content of this newsletter, or for the consequences of any actions taken based on the view and information provided. Where it contains statements, estimates, and projections with respect to the anticipated future performance of Vietnam, markets, companies and related figures, such statements, estimates, and projections may or may not prove to be correct. There is no representation nor guaranty made on the accuracy and completeness of the content presented. Any person or entity who uses this newsletter to form a discussion, decide, or perform any actions must satisfy themselves as to all relevant matters including all the information and statements contained in this newsletter, and must rely upon their own enquiries, investigations, judgments and not upon the information and statements contained herein. ASART does not accept responsibility for any information contained herein and disclaims all liability to any entity, person, and matter arising out of or in connection with this newsletter.

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