INVESTMENT THESIS
Vietnam Engine and Agricultural Machinery Corporation (UPCOM: VEA) is a leading company in the field of manufacturing and trading engines (gasoline, diesel), agricultural machinery, and trucks. Parent company VEAM is currently contributing capital to many subsidiaries and joint venture/affiliated companies, including 30% shares of Honda Vietnam, and 20% shares of Toyota Vietnam and Ford Vietnam. The Ministry of Industry and Trade is currently the largest shareholder of VEA, holding 88.47% of the shares.
Business results in 2023 are less than positive due to economic difficulties affecting purchasing power. In 2023, VEA records net revenue of VND 3,806 billion (-19.8% VNDbn) and profit after tax of VND 6,265 billion (-18.3% VNDbn), mainly due to core operating business activities declined and car consumption from joint ventures Honda, Toyota, and Ford Vietnam also recorded fewer positive results. During the period, profits from joint ventures/affiliated companies were only recorded at 5,640 billion VND (-19.3% VNDbn).
Continue to maintain large amounts of cash with low leverage. As of December 31, 2023, VEA currently owns a high amount of cash, cash equivalents, and short-term financial investments, up to VND 13,246 billion and accounting for 48.8% of the total assets. Meanwhile, the company's total debts as of December 31, 2023, is only VND 143 billion, down 85.9% compared to the beginning of the year.
The outlook for car and truck consumption is expected to improve in the second half of 2024 when the registration fee reduction policy is approved. Recently, the Prime Minister requested to study reducing car registration fees in May 2024. Previous registration fee reductions have had a positive impact on the Vietnamese automobile market, especially the 50% registration fee reduction in the second half of 2023. In early 2024, car purchasing power on the market dropped sharply, especially domestically assembled completely knocked down (CKD) cars that did not enjoy the registration fee support policy when car sales in Q1/2024 recorded a 17% decline in sales compared to the same period last year.
Cash dividends are maintained at a high and regular level every year. In 2023, VEA paid cash dividends in 2022 at 41.869 %/share (equivalent to 4,187 VND/share), higher than planned by 37.34% and lower than 54.527% in 2020 and 44.937% in 2021. We expect dividends paid in 2024 (for 2023) to be at least 3,700 VND/share. At the current price, the dividend yield is attractive at 10.4%/year.
RECOMMENDATIONS
OUTPERFORM recommendation with a 1-year target price of 39,400 VND/share and a potential price increase of 10.7%. Currently, VEA stock price is trading at LTM P/E of 7.6 times, lower than the 5-year average P/E of 7.7 times.
Outlook: (1) The registration tax reduction policy is expected to boost consumption demand when approved; (2) Healthy financial health with a large amount of cash; (2) Attractive dividend yield; (3) The Ministry of Industry and Trade's divestment and transfer to the listing floor are stories that will support future price increases.
Risks: (1) Car sales recover slower than expected and (2) Cash dividend policy is not as expected.
Investors can see the full report below:
