Vietnam Enterprise Investments Regulatory News (VEIL)

Vietnam Enterprise Investments (VEIL)

14/09/2023

Results analysis from Kepler Trust Intelligence

Vietnam Enterprise Investments (VEIL) has published results for the half year period ending 30/06/2023. The trust saw NAV total returns of 10.3% over the period, compared to equivalent returns of 12.2% in the VN Index, both in US dollar terms. Long-term performance remains strong, with NAV total returns of 48.0% over three years, compared to 40.1% in the benchmark.

Sectors that experienced a tough 2022, such as materials, real estate, and manufacturing, have experienced a strong bounce back in 2023. VEIL's top contributors to performance were steel conglomerate HPG and financial services firm Asia Commercial Bank.

Large global companies continue to shift manufacturing to Vietnam, with FDI hitting $10bn in the first half of 2023. Notably, VEIL holding KBC - an operator of industrial parks - saw its share price surge, in part because Foxconn, which produces over 70% of iPhones globally, signed a $62.5m leasing agreement with the company.

Chairman Gordon Lawson said: "I have faith in the Company's ability to identify the best businesses for long-term success, profitability and solid management, thanks to the highly experienced investment manager and the nation's largest and most knowledgeable in-house research team."

Kepler View

Vietnam Enterprise Investments (VEIL) is one of the only investment trusts that provides dedicated exposure to Vietnam. The trust is managed by Dragon Capital, which has been investing in Vietnam for close to three decades and prior to the country's stock market being launched. The trust's extensive, on-the-ground team has delivered annualised returns to shareholders in excess of 12% over more than two decades of investing in the country's equity market.

We noted earlier this year that 2022 was something of a 'perfect storm' for Vietnam. A stronger dollar, rising inflation, and higher rates all put pressure on the large weightings that VEIL has to financials, materials, and real estate. However, we also said that the drawdowns the market experienced last year had pushed valuations to attractive levels, something that was compounded by the fact that VEIL's discount had widened substantially.

The fact that GDP growth of 3.7% in H1 of this year was seen as subdued, is an indication of how impressive growth in Vietnam has been over the past two decades. Moreover, Dragon Capital's Top-80, a group of companies that the asset manager tracks, are projected to deliver average earnings growth of 24.4% in 2024. We would note that this is an indicator of growth in the wider economy as well, given these companies are much more domestically focused than their listed peers in developed markets tend to be.

Despite these positives, VEIL continues to trade at a wide discount of close to 20% as at 13/09/2023. Valuations in the underlying portfolio also remain at comparatively low levels. For example, the companies in Dragon's Top-80 are trading at 8.1x forward earnings, despite the high levels of projected earnings growth.

As a result, and with the usual proviso that nothing is guaranteed and capital is at risk in this volatile market even if things look positive - we may be at a juncture that ultimately proves to be an attractive entry point for investors. Assuming earnings growth comes through and the Vietnamese authorities continue their supportive economic policies, share prices may ultimately follow, with VEIL investors enjoying the potential for additional returns if this results in the discount tightening.

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