Tuesday, June 3, 2008

Corporate: Potential Vietnam meltdown

Excerpts of CIMB report

Worries on Vietnam mounting. Investors have been concerned about the level of Vietnam exposure among major Singapore stocks recently. While Vietnam was among the favoured developing markets in 2006-07, there are now worries that the economy could be overheated, especially after the release of the latest inflation figures (+25% yoy). Although the Vietnamese dong (VND) has only depreciated slightly (-0.8%) in spot markets, its 12-month forward rates suddenly weakened in the past week. If the warnings signs from the latest inflation statistics and currency markets are right, the Vietnamese economy could be due for a major de-rating.

Property stocks have the biggest exposure. The biggest exposure to Vietnam comes from the property sector. Ascott Residence Trust, Keppel Land and Fraser & Neave all have 15-20% of their assets or revenue tied to Vietnam. These will be stocks most at risk.

Ascott REIT. ART is the only S-REIT with significant exposure to Vietnam. It has three properties there, contributing 20% of its revenue and 14% of its portfolio value. While direct exposure is significant, foreign-exchange risk from a depreciating VND is not as worrying. Although loans taken up for the acquisition of ART’s Vietnamese properties are all in US$ and lease receipts are only 70% in the VND and 30% in US$, we understand that VND leases are priced in US$ and merely billed in VND, at prevailing monthly exchange rates. This ensures some matching of cash flows with asset values. On the other hand, property-related expenses are all paid in VND and locked in for one year. Management is confident that any increases in these expenses, which are renewed annually, can be built into lease renewals of the serviced apartments.

CapitaLand. Minimal impact. We estimate CapitaLand’s RNAV exposure to Vietnam at 2-3%, with all its projects being high-end residential projects. Residential units for sale amount to only about 1,000 (or 2.6m sf GFA). Projects in Ho Chi Minh City include The Vista (219 units, 50% sold), a District 7 condo project (443 units, not launched), a District 9 condo project (79 units, not launched) and a District 9 villa project (302 units, not launched).

Sgbluechip says: I think this report shade light on Ascott 5.4% drop today. Allgreen is also exposed to the Vietnam market, though I am not sure the extend. It has fallen more than 5% since last month. The dipped in prices may signal buying opportunities for the dare devils. The dividend rate for Ascott is currently more than 7%.

I am also giving Ascott a miss though, as I have low risk appetite in investing properties.

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