Vietnam export recovery propels logistics, industrial park stocks: VinaCapital

Vietnam’s export recovery since mid-2023 has helped propel a rally in the stock prices of leading local logistics companies that focus on international trade, as well as those of industrial park developers, leading fund manager VinaCapital has said.

Export recovery drives logistics sector

Exports began recovering in mid-2023, resulting in a higher capacity utilization of ports in Vietnam. The recovery, coupled with an announcement that government-regulated port handling fees would increase by around 10% this year, has been the catalyst for a surge in logistics stock prices over the past year.

By early-2024, Vietnam’s total trade was growing at 15% per year and revenue from air and sea cargo handling was rising by over 30% year-on-year, which is one of the reasons logistics companies’ share prices have soared.

Exports to the U.S., Vietnam’s largest market, rebounded from a 21% drop in Q1/2023 to a 24% surge in Q1/2024. The sharp increase in exports boosted Vietnam’s air and sea cargo volumes by an estimated 40% and 30% year-on-year, respectively, in Q1/2024.

As a result, the stock prices of leading local logistics companies such as Gemadept (HoSE: GMD), Saigon Port (UPCoM: SGP), and Saigon Cargo Service Corp (HoSE: SCS) that focus on international trade have jumped 50% year-on-year, far outpacing the 20% year-on-year increase in the broader VN-Index.

VinaCapital expects Vietnam’s export recovery to continue beyond 2024. The strong U.S. economy is boosting exports across Asia, and U.S. imports grew at a remarkable 7% in Q1 and look likely to remain strong this year. Factories in Asia are reporting robust new orders, driven by strong demand from the U.S.

Increased capacity

Capacity at the Cai Mep-Thi Vai deep water port complex, which is 60 km from Ho Chi Minh City and includes berths owned and operated by Gemadept, Saigon Port JSC, and other logistics firms, is set to increase by more than 10% next year, and Gemadept will double the number of berths it operates in Cai Mep-Thi Vai.

Capacity at the Lach Huyen deep water port complex near Hai Phong city is set to increase 1.5x fold by next year, including an 80% capacity increase forecast for end-2024.

The government is also considering constructing a dedicated transshipment port at Can Gio, which is near Cai Mep-Thi Vai. This could compete with Singapore and Hong Kong in the transshipment business, as Vietnam’s port handling fees are still roughly half those in Singapore, even after the circa 10% hike in port handling fees that went into effect earlier this year.

In addition, construction of Long Thanh International Airport adjacent to HCMC is continuing to progress, with a new cargo terminal set to break ground later this year.

Export recovery supports industrial parks

The share prices of industrial park (IP) operators are up around 50% year-on-year, although the link between Vietnam’s export recovery and the surge in IP stock prices is not in direct correlation as with logistics firms, according to VinaCapital.

Higher exports are encouraging more FDI inflows, with newly registered FDI up more than 50% in the first five months to nearly $8 billion, or 4% of GDP, and most multinational manufacturers have set up factories in IPs.

In addition, multinational manufacturers of high-tech products are pushing up IP lease rates as they tend to be less sensitive about rental rates than producers of lower value added products such as garments and furniture.

Further to that last point, Vietnam’s export recovery is being driven by a surge in exports of high-tech products, which are typically shipped by air. Vietnam’s air freight volume growth (circa 40% year-on-year) is outpacing sea freight volume growth (circa 30% year-on-year).

Exports of laptops and other home electronics products grew by more than 30% year-on-year in the first five months of 2024, double the country’s 15% overall export growth, which is supporting current FDI inflows from manufacturers of high-tech products.

There is a limited supply of readily available IP land. Occupancy rates at IPs in the north of Vietnam, which attracts the majority of new high-tech FDI investment, are currently over 80% on average and occupancy rates at IPs in and around HCMC are over 90%.

The combination of price insensitivity by high-tech manufacturers, coupled with high occupancy rates, pushed up lease rates in the north and south by 35% and 15%, respectively, last year, and a further 7-10% nationwide increase in rental rates is expected this year.