10 May 2023

Vietnam Enterprise Investments Limited

("VEIL" or the "Company")

2023 Update - First Quarter

VEIL is a London listed investment company investing primarily in listed equities in Vietnam and a FTSE 250 constituent. The Company's NAV performance for Q1 2023 is set out in this notice.

Company Highlights                                                             

·          In Q1 2023, VEIL's NAV increased 5.5% over the previous quarter against a rise of 6.7% for its reference index, the Vietnam Index ("VNI"), both in total return US dollar terms.

·          The Company's NAV per share was US$8.28 as of 31 March and its total NAV was US$1.7bn. In USD terms, the Company's share price increased 1.4% for the quarter and -28.4% over one year.

·          VEIL's one year NAV per share performance in US dollar terms is -32.5%, +85.2% over three years and -0.8% over five years. Over the same time periods, the performance of the VNI was -29.4%, +69.3%, and -3.9%, respectively.

·          In GBP terms, the Company's NAV per share was £6.70 as of 31 March (+2.6% for the quarter and -28.1% over one year) and its total NAV was £1.4bn. The Company's share price fell 1.4% for the quarter and 23.7% over one year.

·          The Company's discount to NAV averaged 12.4% for the quarter. As of 31 March 2023, the discount to NAV was 14.2%, compared with 10.7% as of 31 December 2022.

·          The Company spent US$4.8m repurchasing 707,373 shares in Q1 2023, compared with 70,000 shares repurchased Q4 2022. Year-to-date to 31 March 2023, 0.3% of shares outstanding as of 1 January 2023 have been repurchased.

Dien Vu, Portfolio Manager of VEIL, commented:

"After weak Q1 2023 economic data, the Vietnamese government proactively addressed changes to its monetary policy to support local capital markets, introducing more accommodative measures aimed at helping restart the bond market and supporting the banking sector, as well as lowering interest rates. We believe this has the potential to create a more favourable operating environment for Vietnamese corporates, thus supporting improved economic growth.

"The VNI increased 6.7% (in USD terms) in Q1 2023, with average daily liquidity declining from US$515m in Q4 2022 to US$421m in Q1 2023. VEIL underperformed the VNI by 1.2% in the first quarter, primarily due to its retail holdings, in which Mobile World Group ("MWG") and Phu Nhuan Jewelry PNJ suffered from a slowdown in consumer demand.

"MWG was VEIL's only top ten stock to fall during the quarter, declining 9.5%. It's a company held since its IPO in 2014 and has displayed remarkable growth in this time, in which the management team has also helped to lead Vietnam's  modernisation of customer service standards . At the time of investing MWG had just over 300 stores, and today operates more than 5,000 stores nationwide covering mobile phones and accessories, consumer electronics and groceries. Consolidated revenue for Q1 2023 was US$1.2bn and NPAT was US$17m, -26.0% and -72.3% year-on-year, respectively.

"Following a restructuring of MWG's grocery store chain, total revenue rose 6% year-on-year despite closing nearly 20% of its 2,127 stores since Q1 2022. The mobile phone and consumer electronics chains recorded a 33% fall in revenue against Q1 2022, primarily due to weakened consumer demand and the company's strategy of prioritising inventory clearance over maintaining margins. This push to maximise cash flow enabled the complete clearance of MWG's net debt of US$62mn at YE2022 and turned it into net cash of US$110mn at the end of Q1 2023, and is reflected in a 31% increase in the company's cash and short-term investments balance. Aided by the restructuring of the grocery store chain, as well as an increase in retail spending, particularly in consumer electronics, the Investment Manager anticipates that earnings will start increasing by Q4 2023.

"VEIL's two largest holdings, Vietnam Prosperity Bank ("VPB") and Asia Commercial Bank ("ACB"), outperformed the market in Q1. VPB's performance follows the acquisition of a 15% stake by strategic partner Sumitomo Mitsui Banking Corporation at a valuation reported to be more than 40% above market value, and ACB was in favour due to its high asset quality and optimism on the new management's plan to increase market share through its digital transformation strategy which they expect will help acquire an additional two million new customers.

"In addition to the retail and banking sectors, VEIL continues to favour real estate companies with strong fundamentals, and industrial park players with proven track records. VEIL's  largest real estate holding, Vinhomes, announced US$1.2bn in consolidated revenue for Q1 2023 with NPAT of US$508m, increases of 228% and 163% year-on-year, respectively, which was partly attributed to the handing over of 2,600 units in a flagship project.

"VEIL has also increased its holdings in two construction steel companies, including Hoa Phat Group ("HPG"). We believe the sector is now entering the early stages of recovery following weak domestic consumption in Q1 2023 which resulted in crude steel production being down 42% and sales volumes falling 35.2% year-on-year.

"HPG became VEIL's third largest holding due to a gradual increase in our position throughout the quarter and a 16.3% appreciation in its share price. This appreciation was despite HPG's consolidated Q1 2023 revenue of US$1.1bn and NPAT at just US$16m, declines of -39% and -95% year-on-year, respectively.

"In the second quarter the export of hot rolled coil is expected to become a key driver of sales volumes and HPG also announced the expansion of its iron and steel production complex, which is expected to be finished by 2025, equating to 5.6m tons of extra capacity. The company has additional plans to expand  its land bank of industrial parks and commence some large-scale residential projects.

"After the recent measures taken by the government, including liquidity injections via open market operations, the issuance of Decree 08 to ease corporate bond issuance, and cuts to policy rates, we believe more policies could soon be introduced with the aim of improving banking system liquidity, the corporate bond market, and economic growth."

Macroeconomic Commentary

·    GDP growth registered at 3.3% year-on-year in Q1 2023, the second lowest Q1 growth since 2011 after Q1 2020 (3.2%).

·    The service sector was the key economic driver with 6.8% growth, contributing 95.9% to the total GDP increase for the quarter. GDP from the industrial and construction sector fell 0.4% year-on-year, which was the first Q1 decline for the sector for more than a decade and is attributed to reduced external demand.

·    FDI disbursement fell 2.2% year-on-year to US$4.3bn in Q1 2023, and total FDI registrations (new + expansion + M&A) decreased nearly 39% year-on-year to US$5.5bn due to fewer mega-projects announced compared to Q1 2022.

·    March CPI fell 0.23% month-on-month but increased 3.4% year-on-year, leading to an average CPI of 4.2% year-on-year in Q1 2023.

·    Exports and imports in Q1 2023 amounted to US$79.2bn and US$75.1bn, declines of 11.9% and 14.7% year-on-year, respectively. This was due to weakening global demand, and most heavily impacted were textiles and garments (-17.4% year-on-year), mobile phones (-15.0%), and electronics and PCs (-10.9%).

·    The trade surplus for Q1 2023 was US$4.1bn, more than double the surplus of US$1.9bn in Q1 2022.

·    The Vietnamese dong ("VND") appreciated 0.7% against the USD in Q1 2023, and depreciated 2.0% against the pound sterling over the same period.

Top Ten Holdings (66.8% of NAV)

Source: Bloomberg, Dragon Capital

NB: All returns are given in USD terms

For further information, please contact:

Vietnam Enterprise Investments Limited

Rachel Hill

Phone: +44 122 561 8150

Mobile: +44 797 121 4852

[email protected]         

Jefferies International Limited

Stuart Klein                                                                                                                        

Phone: +44 207 029 8703

[email protected] 

Buchanan

Charles Ryland / Henry Wilson / George Beale

Phone: +44 20 7466 5111

[email protected]

LEI: 213800SYT3T4AGEVW864