Revisiting Beyond Meat

Source: Yahoo finance, chart by Vietecon.com

The company reported 1Q results, and they were very good.

A few key items:

• Revenues were up 141% yoy (although weirdly -1% qoq).

• Gross margin rose again to 39%.

• There was a lot of growth in foodservice sales, which means to restaurants. It was up 100%. But of course most of the quarter was over before all of the COVID-19 related closures happened, so we are going to see more of that in 2Q.

• Retail sales grew much faster than to foodservice at 185%, both domestically and internationally. International was nothing in 1Q, so this is real progress.

• SG&A is high again at 28% of sales and $27m. This was trending down as a percentage of sales, but it’s back up again. Seems fairly normal for this stage of a business/industry - there is a lot of education that needs to happen around Beyond Meat - but I would hope that this declines over time.

• There is a real concern over meat production right now with COVID-19. Wendy’s cut beef from 20% of its stores. I could see something like Beyond Meat doing very well out of this.

The company stopped giving guidance, but previous guidance for 2020 was for revenue of $490-510 million and adjusted EBITDA margin of 9.7%, or $48-49 million.

I redid my DCF analysis, and based on what we have seen so far and assuming that things get back to mostly normal next year, we could see growth continue at high levels. Especially because so many more people will have tried the product. Plus, the company hopes to lower prices over time (prizing volumes over gross profit).

Even with a much more positive view of things, I still find it very difficult to get comfortable buying the stock. Remember, it is trading at 73x trailing revenue. That only falls to 55x this year. We don’t get to a reasonable P/E until 2026 when it will be 25x. And that’s with a CAGR of 23% for gross profit from now until 2026 and sales of $1.8bn in that final year.

But maybe that’s not positive enough. $2bn in sales is nothing for a stellar consumer brand. If we assume that prices fall 3% a year from now until then reaching $4.69 per pound (which is similar to ground meat right now), then that is only 385m lbs of beef, 1% of total beef consumption (not counting pork or chicken).

If we increase that CAGR to 25%, then the value starts to look more attractive, which is what I show in the DCF below.

It’s a risky bet, but I think that more and more people are going to be interested in meat alternatives, and COVID-19 may actually help that trend, because, at least in the US, we are learning so much about the horrors of the meat packing plant.

Source: Vietecon.com

Vinamilk - 1Q results not that bad, but not so exciting

Source: Vietstock.com.vn

Oh, Vinamilk. The stock has not performed well, which is a bit surprising, given that it is a consumer staple. Growing girls and boys still need milk. Of course, exports are an increasing part of the business, and closed borders definitely don’t help those.

Since Tet, the stock is down 7%, YTD it is down 14% and over the past 12 months it is down 22%. In summary, the stock was already performing poorly, but it performed relatively well during the pandemic. And it has recovered a bit.

Last week, earnings came out for 1Q, and they were alright, or at least showed stability, which is something very few other stocks can say. Revenues were actually up 7%, as were gross profits. Operating profit rose 1%, but net profit after tax and minority interest was down 1% (due to a reversal in other profit/loss).

Remember that Vinamilk has extremely high returns (see this post). But they are falling. Return on equity was 34.5% (using TTM net income), down 270bps from 1Q2019. Inventories are also up, despite lower COGS (qoq) - although days inventory of about 69 days is mostly unchanged from 1Q2019.

The decline in returns would not be the case if the company actually meets its guidance of VND12.4tr in profit this year, up from VND10.6tr in 2019 and returns equity in the form of dividends. The company is sitting on a lot of cash - almost VND16tr including short-term investments, most of which are deposits at banks.

The stock is trading at 16x forward P/E (almost 18x trailing), which isn’t that expensive, given that the company prints cash. But I would be a bit nervous investing in the company if it continues to make dilutive investments outside of Vietnam.

Back to work - looking at the HCMC urban environment

Source: Codie Lesemann

Things are slowly getting back to normal with the schools open today. That’s one thing that really seems to be missing in the US - all these people clamoring for businesses to be open, but no place to keep the kids. Maybe schools are just a way to give parents time away from their children? That’s not too cynical, right? [FYI, I don’t have kids, so I have no idea what I am talking about.]

Anyway, I found this interesting article about the move to the east in HCMC. It is #6 in a series on the urban environment. Of course, I like the data, especially the data on population density in different parts of the city.

Source: GSO via Vietstock.com.vn

The areas the government is promoting are in the East, which makes sense given that they are big and have relatively lower population density. Districts 4, 10 and 11 are basically all similarly crowded. District 1 is in the middle, probably helped by office buildings.

HCMC is pretty dense, but not that dense, especially compared to its international peers. Compared to Mumbai, it’s like rural Iowa! But so is most everywhere else in the world.

Source: The World in Numbers

However, HCMC is growing like crazy! It has averaged 2.15% over the past 10 years, and is growing about that much still. At that growth rate, the city’s population would double in about 33.5 years. A slightly higher growth rate of 2.5% means a doubling in 30 years.

This means a few things:

• Good base of economic growth. Economic growth is a function of population growth to some extent, so as long as people are getting richer, the more population, the greater the economic growth.

• There are going to be a lot of homes. The population increased by 50% from 2009 to 2019. And all of these people needed a place to sleep. It could be crowding into a family member’s home, but if they are making money, they will probably want to buy/rent something on their own.

• Traffic is going to be worse. I hate to bang endlessly on the same drum, but we need more public transport. The metro is great, but there needs to be much more! Bus rapid transit. Limits on cars. Etc.

• Lots more services are going to be needed. There are going to be tons of opportunities for the entrepreneurial minded.

But back to the point of the article: Districts 2, 9 and Thu Duc are the places where there seems to be the most potential for new development (although the south has a lot of development too). . The rest of the articles in the series are also excellent.

Happy Reunification Day!

Also Southern Liberation day! These are the same thing. Anyway, it’s a holiday, which makes it doubly nice.

Source: Tuan Truong

I haven’t talked about the Vietnam war much (at all), mainly because I don’t have anything to say. One comment though. About a year ago, I read Hue 1968: A Turning Point of the American War in Vietnam by Mark Bowden. It was excellent, and it tried to include a fair amount of insight from the Vietnamese side, which is not always the case with American writers.

Anyway, at the end of the book, Bowden (who is famous for writing Black Hawk Down, later turned into a movie), makes a pointed statement that the whole war was a complete waste for both sides:

[T]he battle of Hue and the entire Vietnam War seem a tragic and meaningless waste. . . . As some of the nation’s more recent wars have helped to illustrate, ‘victory’ in Vietnam would have been neither possible nor desirable.

To be fair to the time period, there were concerns about the domino effect, that a communist Vietnam would result in communism spreading to all of South East Asia. After the war, Laos was invaded by Vietnam, and better that less is said of the tragedy of Cambodia…But the rest of South East Asia did not become communist, and even Vietnam, despite being lead by the Party, is basically capitalist.

I don’t want to minimize the efforts and losses of those that fought on the South Vietnam side, but it seems clear to me that we should never have gotten involved.

There is dissent, of course. Some believe that the press lost it for the US (whatever that means). This review from Bing West in the National Review approvingly quotes Colonel Harry Summers’ view that nation building was a mistake and that it would have been better to just repel aggression from the North:

Source: New York Public Library

The American military could have rendered North Vietnam incapable of sustaining its offensive. Mining the harbors up north would have prevented Russian military aid. Bombing the dikes would have diverted manpower to subsistence farming. Large-scale ground attacks into Laos and north of the risible Demilitarized Zone would place the NVA army on the defense.

Of course, it is impossible to say for certain that this wouldn’t have worked, but given how strong north Vietnamese networks were in the south, it seems tough to imagine.

In my view, with the benefit of hindsight, the Vietnam war was a waste, especially given that just 45 years later, the US and Vietnam have extremely strong ties!

1Q results out: lots of negative headlines, but MWG outperforms

The market is up, we are going into a 4-day weekend, and COVID-19 appears under control with continued social distancing required. The stock market is down 20% since the start of the year, but has rebounded 17% from its low. Things are looking up for Vietnam!

But now earnings from 1Q are coming out, and it is doesn’t look that great. A few of the headlines:

• FLC reported a loss of VND1,172bn in 1Q, down from a profit of VND7.7bn in 1Q19. Revenue was surprisingly up 60%.

• Sabeco revenue fell 47%, net profit 43%. I would love to see what happened in January, because, if you remember, new drunk driving laws caused beer sales to fall at the start of the year.

• Danang Airport Services (MAS) reported its first loss ever. Revenue was down 29% and gross profit -55%.

• TTC Land showed a profit of VND47bn, but that was down 47%. It is handing over properties (when revenue associated with these units are recorded), which helps. But that wasn’t enough to record growth. .

• Vingroup had profit of VND438bn, off 58% yoy, with revenue down just 30%.

What we are learning: Revenue hasn’t been hit as hard as expenses, which shows the operating leverage that is built into these businesses, to no one’s surprise.

There were a few companies that showed strength. Today, I want to talk about my beloved MWG:

Source: MWG, Vietecon.com

• Revenue grew 17% to VND29.4bn, helped by massive growth at BHX (+178%!). Remember that MWG opened 600 BHX stores in the past year, growing from 1,008 to 405. Phone stores didn’t do that well (revenue -6%) but still did better than I would have expected. And DMX, the consumer electronics stores, had laptops flying off the shelf.

• Net profit grew 9% to VND1,132bn. Again, not a bad result, implying a net margin of 3.9%, up 11bps from full year 2019 results. Although, it was down 30bps from 1Q2019. But that was because of the mix shift (more groceries/BHX sales).

• There has been a drastic decline in inventories, which I expected, down 19% to VND21tr from yearend 2019. Days payables also fell to 30 days from 45 in 2019. These resulted in a lot of cash generation: VND3.8tr in operating cash flow.

• Some of this free cash was used to pay down debt. Short term loans fell 19%, in line with the inventory decline. Long term loans are unchanged. This ultimately results in a less levered balance sheet. Debt-to-equity fell to 87% from 117%.

• Online sales represented only 7% of all online sales. TGDD and DMX were at 11% online in March (partially caused by some store closures). BHX’s online sales grew 17% month-over-month in March. I expect the low overall figure will rise in April, with stores shut but the company fulfilling online orders.

Overall, the company is doing very well. It does say that 1Q results are in no way representative of what we should expect for the full year, which seems a reasonable statement to make. But hopefully MWG will be able to build on some of its successes in 1Q.

Tomorrow, let’s look at Vinamilk, which also did well.

What's going on?

I don’t have much time today, so here are a few stories that caught my eye, most of them positive!

Vietnam Airlines will provide two direct flights to the US in the next two weeks. Both will be from Hanoi with one going to San Francisco and one to Washington, DC. This will be the first direct flights from Vietnam to the US since the FAA allowed (see my post below from Sept. 11, 2019). Interestingly, Washington, DC wasn’t on the list of cities passed for flights. And I am surprised it is San Francisco rather than LA. These flight are meant to get US citizens back home. Passengers will have to pay, and the cost will depend on how many sign up.

Source: Navigos

IT engineers wanted! A survey by the recruitment firm Navigos showed that more than 90% of companies want to hire workers, with half of those saying that want to increase the number of IT engineers they employ between 11% and 20% next year. This is no surprise to me. I bet if you asked most IT companies in the US, they also want to hire more engineers, and Vietnam is growing much faster.

The interesting thing is that only 4% of employees spend less than a year at their employer. The 1-2 year figure is not great at 31%, but seems fairly normal for a growing economy with a lack of high quality employees. At my last job, we had some analysts working in India employed directly by the bank. These people would leave all the time and fairly quickly. And for all sorts of reasons. My associate left because he said that he couldn’t stay at the bank, because his wife was moving up faster than him. Really feminist there! At least he was honest.

Turnover is a real cost, though. It takes time to get people up to speed, to learn the systems, to figure out how the office works. If they leave after a few months, then it’s been a total waste. I would say if they leave after 12 months, it probably is almost as bad. Once they get to two years, then things get better. And 64% of employees stay more than 2 years. So Vietnam isn’t too bad.

Vietnam will start exporting rice normally. At least this is a request of Vietnam’s trade ministry. Last year, the country exported 6.4m tons of rice worth $2.8bn. Volume was up 4.2% while value was down 8.3%. We saw tons of improvement in 1Q: rice exports were up 9% in volume and 15.5% in value, as prices have risen.

April exports were capped at 500,000, which would be in line with the average of 1Q, but it seems like farmers could have sold more and at higher prices. If the government does open up, we could see a nice jump.

The country has about 1.4 million tons that can be exported between May and mid-June, according to the proposal. The agriculture ministry estimates the country can ship as much as 2.4 million tons of rice harvested from the summer-autumn season, the proposal shows.

Rice could be a bright spot for exports, if the government feels secure enough in the domestic food supply.

Source: Tony Pham

Domestic flight rebounding. Now that the most onerous of the social distancing requirements have been lifted, domestic flights are picking up. There are 18 flights a day between Hanoi and HCMC, with another 3 coming on line in May. It seems like we are only going to get up to about 50% of capacity in the near-term. It will be interesting to see how long it takes for the full complement of flights to be reached.

Of course most international flights are cancelled, and it is very hard to get a visa for Vietnam. Domestic demand is going to pick up much faster than international demand, which will have interesting effects. Tourism is going to be a mess, still, and remember that tourism is an export.

I have my fingers crossed for the Vietnamese economy, for whatever that’s worth.

Adding more debt

A week and a half ago (see post here), I wrote about two things that I was certain would happen post-COVID-19.

The first is that the move to online, while it may be temporary, will give companies a lot more data about their customers. Big companies will very likely be able to take advantage of that. Data mining to figure out how better to sell/extract money from people.

The second is that companies will probably be more cautious, at least in the short term. Most companies have been optimizing everything they can: supply chains, working capital, capital structure. As part of that, they really worked hard to make sure that there was very little slack in each area. Well, now we could use some of that slack!

I bet that, like after the great depression, companies and people will save more and not overextend themselves. For companies, this will likely mean less debt and more equity. So what could this mean for companies in Vietnam.

Source: company data, Vietecon.com, Vietstock.com.vn

Back to basics: Return on equity depends on numerous things, but they can be broken down into three: margins, turnover (sales/assets) and leverage (assets/equity). I believe that COVID-19 will return leverage.

So let’s see what would happen if companies de-levered their balance sheets.

Source: Company data, Vietecon.com, Vietstock.com.vn

I ran these numbers back in October, so they reflect 2H2019 figures. Back then in Vietnam, the average was 48% for turnover, and 2.4x assets/equity. Net margin was 16%. [Because these are simple averages, you can’t actually multiply them to get the return on equity (that only works for individual stocks).]

Source: Company data, Vietecon.com, Vietstock.com.vn, Yahoo Finance, Bloomberg

These are different than the what we see in the S&P 500. Vietnam has much lower leverage, but significantly higher asset turnover and almost double margins. That may be because the market is less developed and so investors are less willing to favor companies with high leverage.

Now, what will happen if companies have to de-lever even more? Well, it’s pretty simple: returns would fall. I did two different scenarios.

Source: Company data, Vietecon.com

1. Everyone takes a 25% cut in leverage, meaning that assets/equity falls 25%. This is based on the view that everyone will face difficulties accessing debt markets, that everyone will have a general inclination to use less debt in the capital structure. The impact is straightforward: a 25% cut in leverage results in a decline in return on equity by the same 25%.

2. The other way is to say that companies with high leverage will not be able to maintain it. In order to see what that would mean, I made a few assumptions. I choose 1.5x as a target leverage ratio and said everyone above that will want to lower leverage, everyone below that will do nothing. And the higher you are above 1.5x, the more you lower your leverage. I assumed that companies will try to lower any leverage above 1.5 by half. So 2.5x leverage becomes 2.0x (1.5 + 1.0/2). Of course I am guessing at these figures, but it gives us an idea of the impact.

Looking at the chart (above right), you can see that some companies will not have to lower their leverage much in scenario 2: returns for VNM, VRE and TCH are all mostly unchanged. VHM, MSN and NVL will all see a decline of more than 400bps! That’s a lot.

VHM and VHL are real estate companies, where high debt levels are seen as a normal course of business. However, that’s not actually true in all markets. Take Growthpoint, the largest commercial landlord in South Africa. It has assets worth ZAR142bn ($7.5bn), and has equity of ZAR83.9bn ($4.46bn) for a leverage ratio of 1.7x. VHM is at 3.6x, while NVL is at 3.4x.

It is going to be interesting if and how quickly companies de-lever. The problem is that it is hard to de-lever without profits and growth. So while companies may want to de-lever (and may have to), we could see leverage grow in the near term.

Unemployment

TGIF! Can’t wait for the week to be over. I am ready for all the weeks to be over in the COVID-19 times. Luckily, Vietnam is doing better than the rest and is moving to normalcy. I can’t wait.

We are starting to get a sense of the impact of the pandemic. Today it was workers - 5 million affected! This is bad. Very bad. It equates to 9% of the total labor force. The US has seen 26 million, which is worse, but mainly because it had a much lower labor force participation rate (63% vs around 77% for Vietnam). But in the US, almost 50,000 people have died, while Vietnam has seen none die.

Source: Vietnamese statistics

At the end of the quarter, Vietnam’s labor force participation rate fell 1.2-1.3%, and, as I stated above, 5 million workers have been affected. Of these, 59% have been temporarily laid off, 28% furloughed (or rotated, not sure exactly best translation for this) and 13% laid off.

And the unemployment rate rose to 2.22%, which is still amazingly low.

The International Labor Organization had a report out earlier with its view on how the labor market would be impacted. The report’s takeaway was:

Applying two scenarios, the ILO estimates that by the end of the second quarter the crisis can affect the livelihood of 4.6 to 10.3 million workers, whether through a decline in working hours, in wages or, ultimately, job loss.

Source: ILO

We are well beyond the lower bound, and we could be moving up to the higher level. Looking at it on a sector level, there are almost 3m that are employed in accommodation & food services, which are surely going to be impacted, then another 23m that are at medium or medium-high risk of an impact. Even agriculture is being impacted, because supply chains are not as resilient as we expected, plus the government has limited exports of things like rice.

The only hope is that 1) as we go back to normal quickly, and that all these businesses can reopen and rehire their workers (or bring them back if they have only be furloughed), and 2) the government stimulus will make most of these workers whole or something close to it.

I am worried about both of those things, but here’s to wishes and prayers. And Friday!

The trade balance turns negative

Source: Vietnamese customs, chart by Vietecon.com

Big news today is that the trade balance for the first two weeks of April shifted into negative. There are reasons not to get too worked up about this: 1) it’s still relatively small ($1.28bn), 2) these are preliminary numbers that will likely change and 3) the first half of April 2019 also saw a trade deficit, so it could be seasonal.

The trade balance is definitely something to pay attention to, because it may be another use of Vietnam’s strong foreign reserves, which were about $81bn as of January. But that can fall quickly if these start to turn very negative.

Source: VN Express

• Imports

• Repatriation of foreign investment in stocks or bonds, or direct investment

• Foreign currency debt payments at both the government and the private level.

But there are some sources of cash. The IMF, WB and the ADB all could be sources of cash, and the government is looking at all three organizations for $1 billion in financing. And there’s exports, which have always been the easy part of the equation and helped build that foreign currency reserve.

Now you have the three main uses of cash: trade pushing dollars out (buying more imports than your exports - for example, textile firms are hurting as orders dry up. ), FDI going out (see chart on foreign investment on the HCMC Stock Exchange), and you have debt payments (interest and principle payments).

I do wonder if there will be a push to limit imports, if the trade balance continues to be negative.

In some good news, there is still FDI in Vietnam. This American company is opening a new factory. And this Japanese firm bought a staffing company. And USAID will be spending $42m to improve Vietnam’s competitiveness (although I have a somewhat cynical view that a not insignificant portion of this will go back to the US in terms of salaries for consultants and profits of implementing partners).

Ultimately, Vietnam is managing well, what with a very successful program to limit COVID-19 spread plus still good exports and a large reserve balance. But it is also prudent for them to look for low-cost debt, because who knows how long this recession will last.

Smoking

Yesterday, I talked about health preparedness, and I ended with a promise to look at the health of Vietnam currently. One of the best proxies I have for that is smoking. Mainly because it is a good indicator of rising or falling death.

Source: World Bank

In Vietnam, we have seen a slow trend down in smoking, going from above 25% back in 2000 to 22.8% in 2016. This is just a bit above the US. Almost no women smoke in Vietnam: just 1%, and that’s down from 1.8% back in 2000.

Men are the big smokers, and it turns out that smokers are more susceptible to COVID-19 cases. Plus, it may help explain why men are dying at higher rates.

On a personal note, I was a smoker for a number of years, and I definitely feel healthier than I did when I was a smoker. And of course, lung cancer caused by smoking is a major cause of death. Now COVID-19 adds another negative to smoking. I’m glad I quite a while ago.

Source: World Bank

The funny thing is that smoking in Vietnam is about in line with other SE Asian countries, once again proving my point that the health of the population, the health system of the country and the political response are all important.

I don’t have time to write more today. Will be back tomorrow.

Health preparedness and how to measure it in advance

I was reading this email from CSIS about the impact of COVID-19 on SE Asia and the news that HCMC and Hanoi are asking for social distancing rules NOT to be extended. I started to think about both preparedness for pandemics and what we can learn from this one. Specifically, are we measuring the right stuff?

The Gates Foundation, which has really been ahead of the curve here, put together a document in October of last year entitled “Global Health Security Index.” It is basically a measure of a country’s preparedness to global health emergencies. It was done with the help of Johns Hopkins, which has also been very strong in mapping the disease.

Source: Gates Foundation, Johns Hopkins

The Global Health Security (GHS) Index is the first comprehensive assessment and benchmarking of health security and related capabilities across…195 countries ...These organizations believe that, over time, the GHS Index will spur measurable changes in national health security and improve international capability to address one of the world’s most omnipresent risks: infectious disease outbreaks that can lead to international epidemics and pandemics.

So, if this really is an index of how well-prepared countries are, we should expect that the better prepared will do well.

First, looking at the list itself, the rankings aren’t that surprising. Big rich countries are clustered at the top, while failed states are at the bottom. There are some surprises in the mix, though:

• Thailand is ranked 6th (!). It has a high capacity to deal with infectious diseases with a great system in place. This New Yorker article talks about it in detail. The US was a helpful partner there.

• South Korea is well up there at 9th, helped by a strong medical system.

• Japan is surprisingly low, ranked 21 in the world, despite its wealth and high-tech economy.

• Vietnam and China are ranked 50 and 51, respectively. Good for Vietnam, somewhat low for China. I think we tend to forget that while China is the second largest economy, it is still fairly poor with a per capita GDP of less than $10k per person. Vietnam is way lower at less than $3k, so its ranking is quite high.

• But in SE Asia, even Laos and Cambodia are punching a bit above their weight - Laos is just above the average and Cambodia is just below. Both of which is respectable given how poor both countries are.

Source: Johns Hopkins University

So how did the ranking do? Turns out, it was not a good ranking of the effectiveness of a country’s response to COVID-19.

Looking at deaths per 100k, there is absolutely no correlation between ranking and response. The higher the ranking, the higher the deaths per 100k. But I don’t actually believe that - it’s just that there is no correlation between rankings and deaths.

[Big caveat here, this New York Times story makes a strong argument that deaths are wildly underreported, and that has been a criticism of China from beginning. I expect many PHD dissertations will be written about the full death tally of COVID-19 - who was uncounted, who was counted when they were probably killed by something else.]

Source: GHS, Johns Hopkins University

Vietnam hasn’t had any deaths, while the US (ranked #1) is in the middle of the pack in terms of deaths per 100k. The chart on the right looks at the countries with the worst figures of deaths per 100k (and China), and there doesn’t seem to be any link. If we did a scatterplot, there would be no clear line up to the right.

It may have to do with the underlying health of the population, so tomorrow I am going to look at some of those things. But at first glance, using smoking as a proxy, there doesn’t seem to be any clear line. Smoking in Vietnam is about the same as the Philippines, but the latter has done a poor job in controlling the disease.

It seems pretty clear that you can have a great system in place (and the US and other developed countries generally do), but it takes political will to implement measures that will be effective. It may help if you are authoritarian, but New Zealand is a counterexample to that.

Let me be clear: I don’t think that the GHS Index is done poorly or that it’s not measuring the right things. There might be things that can be improved in the index, but it seems like it is looking at the right areas. The problem is that the health care system means nothing if there is no political leadership to make sure it is used effectively.

Where stocks stand now...

Great news, 4 days of no new cases!

Now on to the news…I need to follow up on Friday’s post about debt. Reminder: Post-COVID, I believe that companies will decrease debt and leverage in order to be more resilient going forward, but potentially at the cost of equity returns. Debt is almost always cheaper than equity, and so, all else being equal, more equity means lower returns for those equity holders.

And probably we need to widen the discussion on debt to the country and emerging markets as a whole. This Odd Lots podcast has an interesting discussion on how countries may try to beef up reserves and move away from dollar debt (and debt overall), which would probably prolong any recession as spending falls. Someone’s consumption is another person’s income. If you cut back consumption to pay off debt, then someone else’s income falls, which forces them to cut back spending too…

Source: Vietstock.vn, Bloomberg

That’s something to think about, but today, I wanted to look at where we are in terms of stocks. Both the indices and individual stocks.

First, for the indices:

• VNM ETF is down about 23%, much worse than the local indices. That’s partly due to currency issues: the KRW is down 5.1% compared to USD since the beginning of the year and the VND down 1.2%.

• The VN Index (which represents stocks in HCMC) is down 17%, about the same as Japan.

• Hanoi, which is about a tenth of the size of HCMC, is up 7%, but that’s probably just because of a few stocks. I wouldn’t read too much into it.

• The S&P is down 12%, and the NASDAQ (which is composed mostly of tech stocks) is only down 3% YTD. This surprises me, because I feel like the US has done such a bad job combating COVID-19, but the stock market is one of the better ones. Helps that the Fed has been so aggressive.

• The UK Index has performed particularly poorly, even with massive stimulus there. Seems like with Brexit coming up, the UK markets could be for a rough few years.

I also want to look at individual stocks. I looked at all the stocks in the VNM ETF (which gives us a good range of large market cap stocks) and ones that are widely held by local funds (see my consensus post here).

Source: Vietstock.vn, Bloomberg

Diving into some stocks, I was very surprised by a few individual ones. I am going to break these down into groupings in order to better show performance in charts (right). Let’s start with the biggest companies first.

• All of them fell, and most between 10-20%. Two companies somewhat outperofrmed: Vietjet (-8%) and Hao Phat (-10%, but up 2.4% just today).

• I would think that Vinamilk would have done better - its a staple, more people eating at home, etc. It didn’t, probably because the underlying business is growing slower (saturation in Vietnam), plus its expansions outside (re: China) are put on hold. And it’s still not that cheap at 18x P/E (16.5x forward P/E).

• Vincom Retail performed much worse than the other biggest companies, probably because it is dependent on retail, which is not happening. As a reminder, Vingroup owns a majority stake in VRE.

Source: Bloomberg, Vietstock.vn

The second set of stocks shows a wider range of performance, from +5% for MSN and -78% for Faros (ROS).

• MSN had performed so poorly late last year, plus it is in grocery. Those two things combined means that isn’t so surprising that it is doing well. Obviously the market viewed its tie up with Vincommerce as a bad deal, but it’s redeemed itself a bit.

• Faros is down tons, after a steady and massive decline in 2019 (-42% in 2H). It is also out of the VNM ETF. This was a long time coming…

• TCH (Hoang Huy, which does real estate, trucking and finance) saw a massive rise in 2H2019 (+50%), so it is actually just back to where it was for most of 2019.

Source: Bloomberg, Vietstock.vn

The third set of stocks are back to less variation.

• SCS is holding up the best, helped by very poor performance in 2H2019 (-24%). Also, you would think that logistics would hold up, given still strong exports/imports plus more ecommercee.

• My beloved MWG is down a lot, and I just don’t get it. Yes, 2/3rds of its business is closed (!), but the 1/3rd should be doing very well. And it will recover. But maybe I’m just talking my book.

• I could see FPT both benefiting and being hurt by this. Companies look to outsource to save money when times are tough, but also new contracts are probably not being signed. It will be interesting to see how the company looks post-COVID.

Source: Bloomberg

The fourth and final set of stocks is foreign companies with lots of activity in Vietnam.

• Pharos Energy is the worst performer, which isn’t really a surprise. It is a small oil & gas producer that made a loss last year. Luckily, it’s balance sheet seems alright, so it will probably stay in business, but oil at $26 (Brent) doesn’t help.

• Seojin Systems (178320 KS) is basically flat. So is Synopex (025320 KS). Both of them are suppliers for Samsung, which is down about 10% (2.5% today). So I guess the view is that Samsung will have to continue to buy supplies, which seems like a good bet.

• The rest of the stocks are mostly in line except for Hansae (105630 KS), a very large apparel manufacturer. It’s down 36%. The company was unprofitable last year, and the stock was already down because of this. A hoped for turnaround seems unlikely in the current climate.

So overall, very few Vietnamese stocks have been able to perform well during the crisis, even ones that would seem to do well.

Two things that may become more important post-COVID-19

I am trying to be a bit optimistic, so I wanted to look forward and assume that the crisis will be acute, not chronic, and at some point, we will get out of it.

I wanted to look specifically at what corporate behaviors might change. There are two things that I feel certain companies will do/know post-COVID:

USDbn. Source: Google, Temasek, Bain

Data mining: There is a lot of online ordering right now. And that means lots of data on customers and what they are buying. Vietnam is still in the very early stage of ecommerce, at less than $5bn, but growing to $20bn plus.

Generally, online ordering provides better data for companies than retail ordering, at least according to my experience in grocery. And I assume that most stores in Vietnam haven’t been mining lots of customer data now.

All of this online ordering will allow companies to target customers much more directly and, hopefully, profitably. For example, if I go into a grocery store right now that doesn’t have a preferred shopping program, a store can learn these things from my purchases:

• Average ticket size for the average customer. And they can look at days and times, which might be helpful. Like, if customers that buy a lot come in early on Saturdays, have more cashiers, or whatever. Pretty basic.

• They can see what items go with what. Could be obvious, like chips with salsa, or beer with peanuts; or it could be quite interesting, say chicken with orange juice (or any random thing).

Now that everyone is ordering online (at least in some areas), these stores can personalize things so much more. Say I sometimes buy mangoes. When there is a special on mangoes, the store can email me to tell me and ask if I want some. And they can do this for more and more customers. And the opposite - if I buy milk no matter the price, they can stop marketing milk to me. Coupons could be super targeted to people.

And it doesn’t matter if I don’t order online in the future. The stores will still have my email and phone number, plus they could implement a preferred shopper program through this.

But it is going to be hard to set all of this up, especially for smaller stores. The technology investment is prohibitive, and so I can see larger chains standing out even more. They already get better prices and probably have some customer data, but now they will have a lot more data. They should be able to more easily target each customer. Small store will be hard-pressed to do this, unless their point-of-sale (POS) is extremely sophisticated and does most of the hefty lifting for them.

Source: Company data, Vietecon.com, Vietstock

More cash, less debt: In the US, everyone talks about the depression and how it affected the generation that went through it for decades after the recovered. Grandparents saved their pennies and were basically miserly.

Companies may follow a similar path, in that they (and their investors) will want to see more cushion. Now, I think it is very unlikely that even the best company would have enough cash to get through 3 months of revenue or even a month or two of a 80% decline in sales, like we are seeing now.

Source: Company data, Vietecon.com, Vietstock

But they could start to take on the personal finance rule of at least 3 months of cash for essential payable (however they calculate those - rent? insurance? essential payroll? taxes?). Plus, because higher leverage increases the risk of bankruptcy, we could see companies look to pay down debt.

I want to look at this in more detail, but it seems like there are a few companies that have high deb/equity and high-ish servicing of that debt. (These charts are from this post I did back in late October.) VHM and NVL stand out, as they would since they are real estate (notorious for lots of debt). MSN doesn’t look great here either. Or SBT and GEX.

More on this next week. Enjoy the weekend.

A closer look at exports and oil

I was reading an email from CSIS, which has a great Southeast Asia program. It was discussing the economic impact of COVID-19. There are a few interesting things in there.

First, it had a table that showed estimates for economic growth in 2020 by the IMF, the ADB and the World Bank. There is a wide range, especially for Vietnam, which could see growth as low as 1.5% or as high as 4.9% (both of those are scenarios by the WB). The ADB looks for 4.8% (as we mentioned the other day), and the IMF pencils in 2.7%, basically a bit below the average of the WB’s scenarios. Both the IMF and ADB have a return to growth in 2021 with 7.0% and 6.8% estimates, respectively.

Second, Dr. Searlight highlighted this important fact that both Malaysia and Indonesia depend heavily on oil exports. Fuel exports make up 15% of Malaysia’s merchandise exports and 23% of Indonesia’s.

I starting thinking about second order effects from that, and these stats stuck out:

Source: Vietnamese customs, World Bank. Data on exports represent 2019. Data on fuel exports represent 2018 figures except for Saudi and Iraq. These are 2016 figures

• Vietnam's oil exports make up 3.5% of the budget (I read this but can’t find the source right now) in 2019. In 2018, it was estimated to be 4.6%.

• Oil and oil products made up around 2% of total merchandise exports in 2019.

• Many countries that buy Vietnamese products are heavily dependent on oil exports. I went through and found 20 countries that get more than 10% of their exports from oil. I think we can assume that the percentage of their budget funded by these exports is at least similar, if not higher (meaning fuel exports make up 77% of Saudi Arabia’s merchandise exports but more than 90% of its state budget).

• In total, 13% of Vietnam’s exports go to countries where fuel is 10% or more of exports.

• If we tighten this up a bit, 4% of Vietnam’s exports go to countries where fuel is the majority of their exports.

Source: Vietnamese customs, World Bank. Data on exports represent 2019. Data on fuel exports represent 2018 figures.

There were some surprising findings here for me. Canada and India have a large percentage of fuel exports (25% and 15%). Australia is high at 24%. Brazil is a bigger trading partner with Vietnam than I expected - Vietnam exported $2.1bn worth of goods there.

The big worries are Indonesia and Malaysia, where trade is high and they depend on fuel exports (although both are less than 25% of total exports). Canada and Russia also import a lot from Vietnam - these lanes might start to shrink. The UAE is mainly a re-exporter, so its hard to say what will happen to it. I could see trade there falling off a fair amount, especially because some of its goods go to other fuel exporting nations. And Australia.

But overall, the decline in oil prices shouldn’t have massive effects on Vietnam’s economy. Plus, some of these exports will remain even in a downturn, because Vietnam generally produces lower-priced goods. Finally, remember that Samsung alone makes up a quarter of Vietnam’s exports - so it really depends on what happens with the company’s products.

Closer look at government debt

I was off yesterday because of a small bike accident that kept me off the internet for the day. But feeling better today, thanks for the support!

Anyway, today I wanted to follow up on government and what I think are some possible paths over the next few years, depending on how quickly things rebound.

Let’s start with what we know:

• GDP growth is slowing, because lots of businesses are shut. This will likely persist through 2Q, and hopefully recover in 3Q and beyond.

• Government revenues are falling, because private revenues are falling which equals lower tax revenue. Luckily exports and imports are holding up so far (+5.7% YTD through March), so tariff revenues should be solid. But oil revenues (about 3.5% of the budget in 2019) are definitely going to be down (Brent oil is down to $28 now).

• Government expenditures are rising, with a stimulus of almost $8bn so far…

• Combined, this means that borrowing and borrowing as a percentage of GDP will very likely be the highest it ever has been, based on even my most optimistic scenario.

Source: Vietecon.com

So I tried to put some numbers around this to get a sense of where debt/GDP could go. Of course, I had to make a bunch of assumptions. To be honest, I just don’t have a good sense of how true they will turn out to be. To cover my a$$, I went with three different scenarios, imaginatively called low, medium, and high.

For each scenario, I changed revenue growth, expenditure growth and nominal GDP growth. I also made a blanket assumption that the VND would depreciate by 2% a year.

The big assumption I made is that it would be a V-shaped recovery, with 2021 back to normal (7% growth). Plus I assume that the government will keep expenditure flat in 2021, in line with 2020 spending. If the economy has not recovered, the government may want to try more stimulus next year as well, which would make these figures worse.

Source: Vietecon.com, World Bank data

Source: Vietecon.com, World Bank data

In all but the most optimistic scenario, debt/GDP will rise from just under 60% in 2019 to 65% or almost 75%. Borrowings generally go up in the long term, and the hit to GDP in 2020 continues to hurt the metric over time.

I would hesitate to say that the worst-case scenario here is actually the worst case. Revenues might fall short of even my most pessimistic assumption (-3%), while expenditure might need to be even more to stave off a bigger recession. And the best case could be even better, since maybe GDP growth will be even higher next year.

Don’t get me wrong, now is the time for stimulus, but Vietnam works in an environment with restraints. While it can print its own currency, it has a managed floating exchange rate that it doesn’t want to break and that may limit its ability to just spend. The good thing is that inflation remains fairly low (except for pork prices) and energy prices are likely to fall overall. No inflation should allow it a bit more flexibility.

Overall, I think we are probably looking for Vietnam’s debt/GDP to increase pretty dramatically this year and rise from there, even with a quick return to growth.

Closures and government deficits

So the lockdown is supposed to last for another in 2 days in Vietnam. The airlines were going to open up on Thursday. But people seem to think it will be extended. HCMC’s government asks the central government to extend it to April 30.

It doesn’t help that there were 3 more cases of COVID-19 over the past few days (not sure the exact timing of them). When it originally announced the closures, the government said that it would extend the lockdown if there were more cases.

Part of the problem is that the current lockdown is only partially working. Social distancing is very hard to implement. Workers are still going to factories, and also are in the streets. At the same time, construction is ongoing for major infrastructure projects.

Companies are also not equipped to safeguard against the virus. Because of this, the HCMC government is asking its largest employer to close for 3 days, and it looks like it has agreed.

Ultimately, it seems like Vietnam’s process is working, even without full social distancing in place. There is lots of testing (including a pick up at industrial parks and export processing zones), and contact tracing has been very comprehensive (as maybe can only be done in a country with an authoritarian government). I wonder if this will be the new normal. There will be a lockdown, some people will stay home, lots of businesses will be closed, but not all of them. This seems like maybe a solution, as long as the number of cases doesn’t start to grow.

Ultimately, it is kind of hard to get a sense of how we get out of it, when what we know about COVID-19 is still so unclear.

Source: IMF

In the meantime, the government realizes that it is going to need more cash, especially because less revenue is coming in. Vietnam is looking to raise $1bn in debt from major multinational lenders (the IMF, World Bank, Asian Development Bank), to fill its coffers, according to a statement from the Ministry of Finance. The budget deficit will be worse because of COVID-19. This is no surprise, but tax revenues are going to fall by VND140-150tr (c$6bn) because of the virus, and that’s if it is contained within 2Q.

Looking historically, Vietnam has had a very high deficit to GDP, but it has been helped by strong growth. This year, the IMF had been forecasting just a 4.2% deficit, but now it looks like it will be 5.0-5.1%.

Government debt to GDP was falling over the past few years, and there was expectation that it would fall more over time. Now, it looks like it will be growing this year, allowing less flexibility on the government’s part going forward. In some ways, those really bad years of 2012-2015 really didn’t help put Vietnam in a position to weather a big downturn.

If growth picks up again later this year and into next, then things will be fine. But there’s a big hole in the budget, at a time when there wasn’t much cushion to begin with.

Friday and population data

Let’s talk about anything but the virus today. I was looking around to see what was there, and I got excited about a paper that I read looking at sex ratios in Asian countries. The paper can be found here.

I want to set it up properly.

The problem: the number of young males in Asia is skewed. At birth, the human species produced about 105 males to women. It falls over time, because women generally are healthier than men and live longer.

But in some Asian countries, the ratio is decidedly skewed to males. In China at birth there are 111 males to females, 6 extra males per 100 females.

Impact: It is very negative for a country to have so many more young men than women (more about the elderly later):

Source: CIA factbook

The consequences of having too many men, now coming of age, are far-reaching: Beyond an epidemic of loneliness, the imbalance distorts labor markets, drives up savings rates in China and drives down consumption, artificially inflates certain property values, and parallels increases in violent crime, trafficking or prostitution in a growing number of locations.

Short summary: it’s really bad to have a skewed ratio.

Why? Social scientists have tried to look at why it is happening. There are a few hypothesis:

Policies: For example, in China, maybe the one-child policy is the reason why it is so off? This is probably true, but it can’t be the whole story, because India is also really bad.

Patriarchy: Is it because of a society being male-dominated? Then why does Egypt have a ratio of 1.06 males to females at birth? Saudi Arabia is even lower at 1.05 (but other figures for Saudi are very weird, so it is likely an outlier for some reason).

Economics: Is it because of economic reasons? If so, why do the richer parts of India have a worse imbalance than the poor ones?

Culture/religion: Some posit that the skewed sex ratio is because of culture and/or religion. Unless there is some prohibition against infanticide, cultures that value boys more than girls, will see an imbalanced ratio.

Looking at Vietnam: As can be seen in the chart above, it has similar issues to China, although less severe. It is actually the worst in SE Asia, with 1.09 males to females at birth and 1.11 males to females age 0-14.

So this study tried to figure out how much is due to policy, patriarchy, economics and how much of it is due to culture or religion. It looked at immigrants to Canada. In Canada, economic reasons for having a boy are moot, and it is fairly easy to get an ultrasound and abortion, so policies aren’t an issue. If that was the case, then all immigrant groups and those that have been in Canada for more than 2 generations, should all have a similar sex ratio.

Well, it turns out that immigrants from Asia have a very different sex ratio than the rest of Canada (1.05 males/female at birth).

In the study, they found that there were a few things that determined an imbalance sex ratio:

• Religion: Muslims and Christians from Asia did not show the same skew, probably because both religions have strong prohibitions to infanticide.

• Generations: First generation immigrants are more likely to resort to sex selection overall. But second generation immigrants are more willing to go the route of sex selection on their second child (if the first is a girl) than first generation, which wait until the third child.

• Sikhs are the group that has the biggest skew among immigrants in Canada. This is most clearly shown in the third child (after 2 girls), where there are 2 males to every female born.

• Indian immigrants have the greatest imbalance (again for the third child) with almost 2 males per female, probably driven by Sikhs.

So it seems that culture is a big part of this, and so is religion. Because Christianity and Islam have negative views on abortions, you don’t see the same sex ratio imbalance for followers of these faiths. Although they may have more children to get a boy.

A fun thing is that even if everyone keeps having children until they have a boy, the sex ratio will still remain in balance (at that 1.05 or so at birth). Why? Well, you can do it in Excel pretty easily

[Just set it to come up with a random number between 0 and 1. Assume 1 is a boy, so if 1 does not comes up, then run the random number generator again as many times as needed to get a 1. Then average all of these. It will approach 0.50 as more and more tests are run.]

The idea is that if 100 people have children, 50 will have boys and 50 will have girls. Then those 50 with girls will have 50 more children, 25 girls and 25 boys. Then those 25 will have more, 12.5 girls and 12.5 boys. Then those will have 6.75 girls and 6.75 boys. Then keep going down until the numbers get so small that any additional boys at the very end are statistically meaningless.

Source: CIA Factbook

Where Vietnam stands now: It will be very interesting to see what happens in Vietnam with the excess men. Right now for ages between 25-54, there are 1.03 men to women, which isn’t too bad. This falls drastically as the cohorts get older (a sizable majority of people over 65 are women), probably because of the war.

But we are entering a period when lots of Vietnamese men are getting to marrying age. Remember, under 25, there are approximately 110 men for every 100 women.

If there aren’t enough couples, then lots will be left to bachelorhood. The Washington Post article above has lots of scary details.

There is a small COVID-19 tie in, which is unlikely to materialize in Vietnam, because cases are under control. More men than women die of COVID-19:

In Italy, men have accounted for 71% of deaths and, in Spain, data released on Thursday suggests twice as many men as women have died.

If deaths get much, much higher, then we could see changes in the sex ratio, but that’s going to take hundreds of thousands of deaths. And we are nowhere near that now. Thank goodness.

Anyway, so there is a demographic time bomb coming up (already here for India and China), and it will be difficult to get through. Cheery thoughts for a Friday.

Short- and long-term effects of pandemics

It looks like we might be starting to see the end of the middle of the pandemic, slowly moving towards the beginning of the end, but not yet there. And people are getting antsy! I think basically everyone wants to be done with this, but it just isn’t clear when or how that will happen.

My concern is that the spread of the virus is slowing because everyone is in lockdown. When we release lockdown, how will we stop a new wave of cases? I ain’t go no answers.

First, we are starting to get data on the current economic situation:

ADB forecasts for 2020. Source: ADB

• Real GDP growth in 1Q2020 was just 0.42% in HCMC. “Five of the nine main industries recorded negative growth, including real estate (12.85 percent), education and training (26.57 percent), and accommodation and catering services (31.69 percent).”

• Foreign arrivals in the city were down 42%, which is much better than I would expect. I bet that will be down even more in 2Q, not only because there are so few flights.

• Fitch expects growth will fall to 3.3% in 2020 from 7.0% in 2019. Again, pretty optimistic, and the fastest among other Asian countries, according to ADB. To be clear, ADB is looking for a higher growth rate than Fitch at 4.8%, but even Fitch’s figure of 3.3% puts it just behind India.

• There is also a risk of inflation, not helped by continued high pork prices (which I assume is a leftover from last year’s swine flu).

To counteract these, the government is expanding the stimulus to VND180tr, up from VND80tr.

What will the long term impact be on the country and the world? There has been some economic research on this. I found this paper extremely helpful in understanding what could happen. It looks at 12 large pandemic events with at least 100,000 deaths. The conclusion is:

• Natural rates of interest fall in the forty years after a pandemic. About 2% at the lowest point, with the range of two standard deviations between a 1% and 3% decline.

• Real wages grow by almost 10% in the 40 years after a pandemic.

Why? Well, two main reasons:

• Labor could be in short supply. When demand is greater than supply, prices go up.

• People could be saving more, either to replenish savings lost or to be better prepared. In the US, you hear all of these stories about grandparents that pinched pennies because they lived through the great depression.

It’s hard to see if there will really be a labor shock from COVID-19, since the number of deaths is low compared to these past pandemics, especially in Vietnam. But I can clearly see why someone would want to save more. I can’t find the article now, but I saw something about a push to make the US government require companies have 3-months of savings (not going to happen).

I also found this paper on the Swedish economic response to the Spanish Flu to be very interesting. Their conclusions:

• Capital returns were negatively affected.

• Poverty rates increased. This could be because fewer people are able to work and support families, or because sick people, even after recovered, are unable to work.

• But there was no “discernible effect on earnings,” which would go against the first paper, which saw higher real wages.

Then there’s this paper that looks at babies born during/after the 1918 influenza pandemic. It shows reduced educational attainment, more physical disabilities, lower income, among other things. The paper doesn’t talk about why this happens, except it concludes that we should spend more money on fetal health. Hopefully, expecting mothers are able to self-isolate right now, in order to avoid COVID-19.

There are a lot more papers, some medical, some economic, some political, that can be found here.

Downgrades

There has been a lot of writing in the financial press about the impact of lower bond ratings, fallen angels, bond ETFs and what all this will mean for the bond market. To back up, many bond funds are unable to invest in bonds with non-investment grade ratings. This makes sense: You buy a fund that says it invests in investment grade bonds, so the fund manager needs to make sure that’s true.

Occasionally, some of those investment grade bonds (usually not many and not all at the same time) may be downgraded to a “junk” rating, which is anything below investment grade. The cut off is Baa (Moody’s) or BBB (S&P), which is the same score, different letters.

When a bond falls from investment grade to non-investment grade, it is called a fallen angel, and the funds have to sell them. For the fund, it’s probably fine, because it would just be one bond that makes up a small portion of the fund. But for the company that holds the bond, it can mean a very big fall in price because lots of funds may have to sell at the same time.

The situation with fallen angels today is different. Lots of bonds are being downgraded, and that means a lot of funds need to sell them. So some people are say: “Well, maybe the ratings agencies don’t have to be so quick on the draw here. Maybe they can wait a bit and see what happens.” Who is saying that? Surely, the companies that own the bonds. They don’t want their yields to go up (remember, prices and yields are inverse). Also maybe the funds: they don’t want to be forced to sell a bond that may jump back in price when the world opens up again.

Source: Moody’s, table by Vietecon.com

In Vietnam, this isn’t much of an issue, at least right now, because it doesn’t have any companies with ratings that are investment grade. But we did see the first round of ratings reviews from Moody’s yesterday.

These are mainly finance companies, and because both FE Credit and SH Bank Finance are subsidiaries of bigger banks, the parent banks ratings are also under risk of downgrade.

Moody’s has put all five entities under review for a downgrade. The reasoning is such:

The consumer finance industry in Vietnam is vulnerable to the disruptions given its risky borrower profile and heavy reliance on wholesale funding…Today's action reflects the impact on Vietnamese consumer finance companies and their parent banks of the breadth and severity of the shock, and the deterioration in credit quality it has triggered.

Basically, these consumer finance companies have riskier loans outstanding, and that was fine when we saw massive growth in GDP, income, wages, etc. But now, something that was only mildly risky before is much more risky, something that was high risk before is “don’t touch” levels. Consumer finance is generally medium or high-risk, depending on how aggressive the company was.

Ultimately, I think the government’s stimulus needs to be targeted towards making sure that the consumer and small businesses are solvent. Then that will help the bigger companies also say solvent, because people will still be paying their bills and buying things, when we come out of this. But it definitely is going to be a blow to consumer finance companies, and I could see them having to raise more capital if it gets really bad.

Mostly good news: Vingroup ventilators, telemedicine, metro & solar

The markets are up! Two days in a row! Hallelujah! To celebrate, I am going through a few updates:

First, this is a few days old: Vingroup will import parts to make ventilators from Medtronic (a big US medical device company) and then sell them at cost to the government. Vingroup will eat the cost of labor, manufacturing, transport and taxes. The order is comprised of 10,000 invasive ventilators and 45,000 noninvasive ones. The invasive ones take over someone’s breathing, as far I understand. Vingroup will also donate 5,000 non-invasive ventilators to the government.

It will be interesting to see if Vingroup start manufacturing medical devices after this. According to this settlement with the government, Medtronic manufacturers the majority of its products in the US, or in trading partners like Mexico and Ireland. Although it does manufacture in China and Malaysia as well. Maybe Vietnam is next.

Second, in more healthcare news, I found this announcement interesting. In the US, the healthcare market I know best, telemedicine is still nascent and getting a jumpstart with COVID-19. There are a lot of companies looking to do this, and so it is no surprise that telemedicine is happening in SE Asia as well through this new company Doctor Anywhere. The company just received $27m in funding.

In Vietnam, it is working with ViettelPay and Bao Minh insurance (all of the insurance company’s 7m customers will be able to use Doctor Anywhere.

Third, more good news for the metro in HCMC, it has finished more than 70% of construction and is hiring 58 train drivers. They will go through a year and a half of training (!) and be set to work the trains when the metro opens in 2021. I can’t wait until this is done. Hopefully the city will keep up the pace for extensions and other lines as well. It needs public transport.

Fourth, the government finally issued feed-in tariffs for solar. I have written about these before here and here. The new tariffs are:

• Floating solar power projects: $0.0769/kwh

• Ground-mounted solar power projects: $0.0709/kwh

• Rooftop solar power projects: $0.0838/kwh

Rooftop solar was higher in the first draft (not sure if it was a draft or just a news report), but then fell to this level in the second. It still isn’t too bad, but not as good as it was ($0.0935).

These are applicable to most projects as long as they are finished and connected to the grid by the end of this year (end of next year for some projects in Ninh Thuan province). For the ones not in Ninh Thuan, there is some concern that with COVID-19, it will be hard to make the deadline. I wonder how the government will treat these. Hopefully fairly.

After these tariffs expire at the end of this year (next for Ninh Thuan), all projects will go to competitive bidding. An auction system might be better for the country, because the government will be better able to manage where new solar goes in, and hopefully will get a better price. I just hope that they put tons of new generation contracts up for auction soon. It seems like they could start as early as the second half of this year.