INTERIM REPORT 2019 Vietnam Enterprise Investments Limited Vietnam Enterprise Investments Limited - Interim Report 2019 Contents Name Abbreviations 1 Chair’s Statement 2 Portfolio Manager’s Report 3 Board of Directors 7 Report of the Board of Directors 8 Independent Auditors’ Report on Review of Interim Financial Information 11 Statement of Financial Position 12 Statement of Comprehensive Income 13 Statement of Changes in Net Assets Attributable to Ordinary Shareholders 14 Statement of Cash Flows 15 Notes to the Condensed Interim Financial Statements 16 Corporate Information 36 Investor Information 37 1 Vietnam Enterprise Investments Limited - Interim Report 2019 Name Abbreviations In the Chair’s Statement and the Portfolio Manager’s Report, entities or securities are referred to by their short names as follows: Full Name Short Name Airport Corporation of Vietnam ACV Asia Commercial Joint Stock Bank ACB Dat Xanh Real Estate Service & Construction Corporation DXG FPT Corporation FPT FPT Digital Retail Joint Stock Company FRT Ha Do Group Joint Stock Company HDG Hoa Phat Group Joint Stock Company HPG Joint Stock Commercial Bank for Foreign Trade of Vietnam VCB Khang Dien House Trading & Investment Joint Stock Company KDH Military Commercial Joint Stock Bank MBB Mobile World Investment Corporation MWG PetroVietnam Gas Corporation GAS PetroVietnam Technical Services Corporation PVS Phat Dat Real Estate Development Corporation PDR Phu Nhuan Jewelry Joint Stock Company PNJ Saigon Beer Alcohol Beverage Corporation SAB Viet Nam National Petroleum Group PLX Vietjet Aviation Joint Stock Company VJC Vietnam Dairy Products Joint Stock Company VNM Vietnam Engine and Agricultural Machinery Corporation VEA Vincom Retail Joint Stock Company VRE Vingroup Joint Stock Company VIC Vinhomes Joint Stock Company VHM 1 Vietnam Enterprise Investments Limited - Interim Report 2019 Vietnam Enterprise Investments Limited - Interim Report 2019 Chair’s Statement Dear Shareholders, war between the US and China, it a share price that reflects VEIL’s Continuing the positive trends of will come at the cost of unwanted fundamental value. 2018, Vietnam’s economy remained attention from the US. solid in the first half of 2019 with We remain positive on Vietnam’s leading indicators performing in line The Vietnam stock market gained outlook for the second half of 2019. with Government forecasts. Vietnam 10.1% in the first quarter of 2019, There are some international trade continues to grow and have a greater with strong inflows from foreign concerns given US President Trump’s footprint in international trade and investors driving the market, before rhetoric on countries abusing trade while there may be some concerns falling for three consecutive months. practices. This was followed by the regarding global geopolitics, we This resulted in a total year-to-date implementation of 400% tariffs on believe this progress emphasises performance increase of 6.8%. certain Vietnamese steel products, there is limited risk towards Vietnam. Further evidence of the concerns however, Hanoi has taken immediate of a continued trade war between steps to mitigate the situation by The figures for Vietnam were the US and China are evident in imposing tariffs on certain products encouraging given weaker global the average stock market liquidity coming from other Asian nations demand and the high level of trade for the first half of 2019 which was in order to deter transhipment. At to GDP. GDP growth reached 6.8% in US$188m, below the US$250-300m the same time, Vietnam is expected the first half of 2019 while average average daily turnover of 2018. to increase imports from the US, inflation came in at 2.6% year-on- However, foreign inflows remained including food products, gas/fuels, year (“yoy”), the lowest level in three strong and continued to impress with and civilian aircrafts. We believe the years. The industrial sector was the net foreign inflows of US$424m. In risk of a trade war with the US is low, main growth driver, posting an 11.2% market development, derivatives as the US will seek allies in Asia to yoy rise in the first half. In contrast, products within VN30 Index Futures pivot against China. Trade aside, a the agricultural sector lagged have proved to be attractive as the number of key metrics favour strong behind, rising just 1.3% yoy due to daily traded value increased from domestic performance; 2019 GDP African Swine Fever, which caused just a few US$ millions when first growth is expected to reach 6.7%, a 4.7% decline in pig production. introduced in July 2017 to almost inflation is anticipated to remain Other performance factors include US$400m by the end of June 2019. 4.0% and the local currency remains the El Niño effect which resulted in a Covered warrants started trading on stable thanks to both the trade lack of water for irrigation, adversely the Ho Chi Minh Stock Exchange on surplus and high foreign reserves. impacting farm productivity. 28 June 2019 attracting high demand from investors. Covered warrants Finally, with our domestic market’s As for trade, Vietnam posted a trade are indicative of market access valuation still trading at attractive surplus of US$1.59bn in the first half improvement as they offer a way for levels, we are confident in our unique which was softer than the previous investors to get exposure to foreign- ability to execute on the long-term US$3.26bn achieved in the same constrained names like MWG, FPT buying opportunity. With our top period last year. Vietnam’s total and PNJ. 60 companies expected to deliver export value reached US$122.53bn, 11.1% earnings per share growth on an increase of 7.2%, while the import Vietnam Enterprise Investments 12.3x forward earnings, Vietnam value nationwide hit US$120.94bn, Limited (“VEIL”) underperformed is less expensive compared to up 8.9%. It’s important to note the market in the first half of 2019 regional peers such as Thailand, The that import demand often surges by 6.5%. All the underperformance Philippines, Malaysia and Indonesia. substantially in May while exports came in the first quarter whereas Thus, VEIL offers shareholders value often peak in June-August, thus it slightly outperformed in the and access to invest in a dynamic the net export surplus is expected second quarter. Some of the economy with downside protection to increase in the second half. In underperformance was due to the amidst sensitive global macro addition, FDI built on its strong 2018 portfolio being underweight in large factors. We remain committed to performance with total disbursement caps which have been pushed up by investing in Vietnam’s growth and growing 8.1% to US$9.1bn in the strong ETF flows and institutional unlocking value for the benefit of our first half. New registration totaled buying. An important positive was shareholders. US$18.5bn in the first half of 2019 that VEIL’s top holding, MWG, vs. full year 2018 registration started to surge in June thanks to Thank you for your continued of US$35.5bn. From a currency impressive earnings growth of 37.7% support. perspective, the Vietnamese Dong in the first half, while posting better (“VND”) depreciated by 1% in the than expected development of its first half and an expected weaker new grocery business. We strongly US$ following the Federal Open believe the portfolio has other Market Committee’s June meeting value-oriented stocks with similar implies less pressure on the VND upside potential. To emphasise our Stanley Chou vs. the US$ in the second half. As confidence in and commitment to Chair outlined, although the country is our strategy, VEIL re-implemented its Vietnam Enterprise Investments clearly a beneficiary of the trade buyback programme as we continue Limited to manage the discount level to offer 9 September 2019 2 3 Vietnam Enterprise Investments Limited - Interim Report 2019 Vietnam Enterprise Investments Limited - Interim Report 2019 Portfolio Manager’s Report 1. Performance Overview underperformed its benchmark, the 2. Attribution Analysis After a difficult 2018, Vietnam’s VNI TR$ by 6.5%. VEIL’s banking sector holdings, equity market returned to winning which have been the main drivers ways in the first half of 2019. The (*) Seven of the Index's top-10 are of outperformance for VEIL over VN Index’s total return in US$ VIC, VCB, GAS, VHM, VRE, PLX and the last two years, rose 1.4% but terms (“VNI TR$” or the “Index”) VNM. underperformed the Index’s banking delivered 6.8%, underpinned by the sector by 4.8%. VEIL’s two major performance of a small number of The banking, energy, retail and overweight holdings in banking are large-cap stocks. In fact, just seven of software & services sectors ACB which disappointedly fell 2.8%, the Index’s top-10(*) delivered almost were the greatest contributors and MBB which performed well, 100% of the VNI TR$ gain in the first to VEIL’s overall return whilst rising 9.8% in the period. ACB saw half of the year. As the market leaned materials & resources and real improvements across the board with toward favouring large-cap stocks, estate & construction dragged on rising Net Interest Margin (“NIM”) especially stocks with foreign room performance. It is worth noting from 3.3% in the first half last year to available, active managers such as that among VEIL’s holdings, VEA in 3.5% in the first half this year. Asset VEIL lagged behind in the period. the capital goods sector was a star yield also rose to 8.2% compared to VEIL posted a modest gain of 0.3% performer in the period. 8.0% in the same period last year,