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AFC on the Road – Vietnam

 

Dear Investors and Newsletter Readers,

Ruchir Desai, co-fund manager of the AFC Asia Frontier Fund, travelled to Ho Chi Minh City and Hanoi in November 2022 to meet with portfolio companies.

Flying into Ho Chi Minh City for the first time in three years, it seemed not much had changed on the ground after the pandemic as the buzz and energy on the street was as strong as before. The hustle and bustle of Ho Chi Minh City is one of its hallmarks and I am glad it has remained this way – this is one of the traits that gives the city its character!

I flew in on a Friday evening and took a walk around the wide Nguyen Hue Boulevard in downtown Ho Chi Minh City. This street livens up on the weekend with locals, tourists, and stand-up performers. This boulevard becomes a “hang out” spot for most on the weekend since it is right in the heart of downtown next to the restaurants, malls, and hotels frequented by almost anyone who is visiting or living in Ho Chi Minh City.

 

An Evening at the Nguyen Hue Boulevard in Ho Chi Minh City with the People’s Committee Building in the Background

An evening at the Nguyen Hue Boulevard in Ho Chi Minh City with the People’s Committee Building in the Background

(Source: AFC Research)

 

While walking around the city after and in-between meetings, I noticed that restaurants were completely full, and the malls had very high footfalls as Vietnam is still seeing a post-pandemic recovery in consumption since most of 2021 was spent in some sort of Covid-related restrictions. 

International tourists are also beginning to make a comeback, and the hotel I was staying at had a very high occupancy and I noticed a lot of tourists everywhere around the city. 2023 should be a much better year for international tourism in Vietnam since the country is still only at 20% of pre-pandemic arrivals and more importantly, since China has removed all Covid restrictions, Vietnam should be able to attract more Chinese tourists who accounted for 32% of arrivals in 2019.

In Ho Chi Minh City, I met with various companies across various sectors including the companies the AFC Asia Frontier Fund holds such as Gemadept (GMD), PetroVietnam Transport (PVT) and Phu Nhuan Jewelry (PNJ). In between meetings, I went back to one of my favourite Banh Mi spots for a quick lunch. This street facing store which only does take aways is very popular for its Banh Mi and usually has a large crowd outside.

 

In Line at the Popular Banh Mi Huynh Hoa in District 1, Ho Chi Minh City

In Line at the Popular Banh Mi Huynh Hoa in District 1, Ho Chi Minh City

(Source: AFC Research)

 

Work in Progress at Banh Mi Huynh Hoa

Work in Progress at Banh Mi Huynh Hoa

(Source: AFC Research)

 

Of all my meetings in Ho Chi Minh City, the site visit to the Gemadept's subsidiary Gemalink International Port (Gemalink) in Vung Tau was the highlight. The Gemalink port is owned and operated by Gemadept, the largest private seaport operator in Vietnam.

The significant advantage of the Gemalink port is (1) it is a deep seaport which can accommodate two larger container vessels at once and (2) its location at the mouth of the Thi Vai River which runs upstream to Ho Chi Minh City, giving it an advantage over other container terminals which are further upstream. Hence, Gemadept can handle a larger number of containers than the competing ports in the area without the vessels having to move further upstream.
 
Furthering the port’s strategic location is its ability to expand capacity since it has already acquired land adjacent to its existing terminal and therefore, it is unlikely that Gemalink will face any new competition in the near term.

 

The Gemalink Port has an Advantageous Location at the Mouth of the River

The Gemalink Port has an Advantageous Location at the Mouth of the River

(Source: Google Maps)

 

During my visit to the Gemalink port I was lucky to watch the container handling operations in motion as there was a vessel that had just called on the port. Though exports and in general trade growth in Vietnam could weaken in 2023, we believe Gemadept is one of the best proxies for Vietnam’s long term trade growth since it has large scale seaport operations both in the north and south of Vietnam in very strategic locations. The company has seen its container handling volume increase by an annualised 15% in the past ten years.

 

Container Vessel at Call at the Gemalink Port

Container Vessel at Call at the Gemalink Port

(Source: AFC Research)

 

Container Handling Operations in Progress at Gemalink Port

Container Handling Operations in Progress at Gemalink Port

(Source: AFC Research)

 

After spending a few days in Ho Chi Minh City, I flew to Hanoi on a packed weekday evening flight. This again shows that domestic consumption has come back strongly in Vietnam and in fact domestic air passenger numbers are now well above 2019 levels.

Sticking to the recovery in air travel, in Hanoi I visited one of our portfolio companies, Taseco Air Services (AST), an airport retailing company. AST operates duty free, food & beverage and souvenir stores in key Vietnamese airports including Da Nang, Hanoi, Ho Chi Minh City and Phu Quoc.

The company has its stores in both domestic and international terminals but the stores at the international terminals have higher profit margins and as international tourism in Vietnam recovers, AST could possibly see a strong uptick in its profitability. Besides AST, I also met with our other portfolio holdings such as FPT Corp (FPT), Vietcom Bank (VCB), and Vincom Retail (VRE).

 

International Arrivals to Vietnam are Seeing Positive Momentum (Monthly Arrivals)

International Arrivals to Vietnam are Seeing Momentum (Monthly Arrivals)

(Source: SSI Securities)

 

Similar to Ho Chi Minh City, my hotel in Hanoi also had a full occupancy and all the restaurants I visited were also enjoying good business. Since I was in Hanoi, I took the opportunity to ride the city’s newly opened metro. Though it was around 2pm in the afternoon, which is not rush hour, the metro still felt quite empty. However, I am told it gets crowded during rush hour.

 

At Cat Linh Station on the Hanoi Metro

At Cat Linh Station on the Hanoi Metro

(Source: AFC Research)

 

During my last day in Hanoi, I visited one of the Vincom Mega Malls in the city which gave me a chance to check out the Vinfast showroom with one of the EV models as well as the charging stations. The good thing about being in a Vincom Mega Mall is that you find pretty much anything, including a Winmart+ convenience store which is now owned by Masan and is undergoing a very aggressive store roll out.

Modern retail penetration in Vietnam is still extremely low and brands like Winmart+ are well positioned to capture this opportunity since their stores were well stocked with all the basic day to day products that one would need at a reasonable price (we do not own Masan).

 

Vinfast EV Charging Stations in Hanoi

Vinfast EV Charging Stations in Hanoi

(Source: AFC Research)

 

Winmart+ Convenience Stores Owned by Masan have an Aggressive Store Roll Out Plan

Winmart+ Convenience Stores Owned by Masan have an Aggressive Store Roll Out Plan

(Source: AFC Research)

 

In the evening, I visited one of the most well-known restaurants which specialises in a favourite Hanoi dish called Cha Ca which is catfish grilled on a live stove at your table. This dish is a hit with both locals and tourists alike and goes well with some Hanoi beer!

 

At the Popular Cha Ca Thang Long Restaurant in Hanoi’s Hoan Kiem District

At the Popular Cha Ca Thang Long Restaurant in Hanoi’s Hoan Kiem District

(Source: AFC Research)

 

Vietnam has closed 2022 with record-beating GDP growth of 8% but in 2023 it will most likely see some headwinds from slower exports, some pressure on domestic consumption because of higher inflation and interest rates, and a high base effect.

 

Vietnam is on a Structural Growth Path – The Current Historically Low P/E Ratio Offers a Good Long-term Opportunity

Vietnam is on a Structural Growth Path – The Current Historically Low P/E Ratio Offers a Good Long-Term Opportunity

(Source: Bloomberg)

 

However, at a trailing P/E ratio of only 11.1x and the country becoming the premier manufacturing hub in the region with foreign investment pouring in, you want to be invested in Vietnam for the next decade, not just the next year. Vietnam is in the midst of sustainable structural growth which began a few years ago and this is set to continue well into the near future. Enjoy the ride.

For further information on our AFC Asia Frontier Fund, please find below the links to the latest factsheets, investor presentation, special edition newsletter, and webinar:

 

      Cautiously Optimistic for 2023 - AFC Asia Frontier Fund 2022 Review and Outlook for 2023

If you are interested in our stand alone AFC Vietnam Fund, below are the links to the latest factsheet and investor presentation. Please note that the AFC Vietnam Fund is not available to "US-Persons".

During the next AFC Webinar we will discuss our views and thoughts on the outlook for Asian frontier markets in the year ahead. The webinar will be held on Monday, 30th January 2023, at 8:00am NY, 1:00pm UK, 2:00pm Swiss and 9:00pm HK/SG time.

The speakers on the webinar will be:

  • Thomas Hugger, CEO & Fund Manager
  • Ruchir Desai, Co-Fund Manager of the AFC Asia Frontier Fund
  • Ahmed Tabaqchali, Chief Strategist of the AFC Iraq Fund
  • Scott Osheroff, CIO of the AFC Uzbekistan Fund
  • Vicente Nguyen, CIO of the AFC Vietnam Fund

The webinar will run for an hour and include a 15-minute Q&A session after the fund managers' presentations. 

During the webinar, we will discuss the following key points:

  • Are we at the end of the rising inflation and interest rate cycle?
  • What is the impact on Asian frontier markets if interest rates have peaked?
  • Key trends for 2023 and beyond in Asian frontier countries.
  • Our top country and stock picks for 2023.
  • Outlook for the AFC Asia Frontier Fund / AFC Iraq Fund / AFC Uzbekistan Fund / AFC Vietnam Fund.

Please click on the button below to register for the webinar:

Disclaimer:

This Newsletter is not intended as an offer or solicitation with respect to the purchase or sale of any security. No such offer or solicitation will be made prior to the delivery of the Offering Documents. Before making an investment decision, potential investors should review the Offering Documents and inform themselves as to the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares, and any foreign exchange restrictions that may be relevant thereto. This newsletter is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law and regulation, and is intended solely for the use of the person to whom it is intended. The information and opinions contained in this Newsletter have been compiled from or arrived at in good faith from sources deemed reliable. Opinions expressed are current as of the date appearing in this Newsletter only. Neither Asia Frontier Capital Ltd (AFCL), nor any of its subsidiaries or affiliates will make any representation or warranty to the accuracy or completeness of the information contained herein. Certain information contained herein constitutes “forward-looking statements”, which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of Funds managed by AFCL or its subsidiaries and affiliates may differ materially from those reflected or contemplated in such forward-looking statements. Past performance is not necessarily indicative of future results.

The representative of the Funds in Switzerland is
ACOLIN Fund Services AG, 6 Cours de Rive, 1204 Geneva. NPB Neue Privat Bank AG, Limmatquai 1 / am Bellevue, CH – 8024 Zürich, Switzerland is the Swiss Paying Agent. In Switzerland, shares shall be distributed exclusively to qualified investors. The fund offering documents, articles of association and audited financial statements can be obtained free of charge from the Representative. The place of performance with respect to shares distributed in or from Switzerland is the registered office of the Representative.

AFC Asia Frontier Fund is registered for sale to qualified/professional investors in Japan, Singapore, Switzerland, the United Kingdom, and the United States. 

By accessing information contained herein, users are deemed to be representing and warranting that they are either a Hong Kong Professional Investor or are observing the applicable laws and regulations of their relevant jurisdictions.

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