FPT Corporation and the Lure of Vietnam's Growth Potential
“Invest for the long haul. Don’t get too greedy and don’t get too scared.” – Shelby M.C. Davis
I came across this quote by Shelby M.C Davis while I was researching the Chinese insurance giant Ping An (2318.HK) recently, and its message resonated. Here I am at the end of quarter one in 2024 with the US markets, gold, Bitcoin and seemingly everything else reaching for the stars, so what’s a humble, retail investor to do?
Should I sit on cash and wait to take advantage of the next big crash (whenever that may be) or is it time to puff out my chest and bet with the conviction of a Gypsie at a bare-knuckle fight? I’ve no idea, but what I do know is that there are regions of the world where ‘bargains’ are falling from the sky right now. However, whether these picks play out in the long run is anyone’s guess, but I like to find value for my investments, even if it means I have to turn and face the strange once in a while.
Currently, Vietnam is beeping and flashing on my stock radar, and even as a type I get an uneasy feeling thinking about the place. I feel like the groaning man in the queue at the dentist hunched over and stuffing a rag into the corner of his mouth. He breathes heavily and sweat rolls down his beetroot-red face. The question is why Vietnam and why now?
Vietnam had an unimaginable twentieth century kicking off with a defeat of France in the French Indochina War in 1954, after which Vietnam was divided into the communist-dominated North and the democratic South. Then from 1955 a twenty-year war of attrition with the US raged across the nation, killing millions of civilians, and when the North Vietnamese tanks rolled through the presidential palace in Saigon in 1965, the two-decade long war ended abruptly. This resulted in the US Army and the county’s famous confidence taking a hit. The following year North and South Vietnam were reunited under a communist flag, discrediting of the U.S. theory that the emergence of a unified, communist Vietnam would produce a "domino effect" involving the spread of communism throughout the rest of Southeast Asia. After disposing of the US, the Vietnamese went on to fight another short-lived war with neighboring Cambodia, where the radical communist movement known as the Khmer Rouge seized power and caused the deaths of at least 1,500,000 Cambodians before being overthrown by Vietnamese troops in 1979. It’s difficult to imagine the horrors experienced by the people of Vietnam during this time.
Over the past half a century, Vietnam has developed from one of the poorest countries in Asia to one of the fastest growing economies on the planet, with a GDP growth rate of more than 8% in 2022, and a projected rate of 6% in 2024. These economic pyrotechnics have been achieved through a resilient manufacturing sector, strong domestic demand, diverse export markets, participation in major free trade agreements, rising levels of education and also having a young workforce.
No company embodies this economic miracle more than FPT Corporation, which in 2023, marking it thirty-five-year milestone, attained a new stature on the global stage. The company became a billion-dollar IT service enterprise, providing inspiration for a whole generation of tech-entrepreneurs in Vietnam.
FPT has seen a huge upward movement in its share price over the past few years as investors pile into business growing at a rate of about 20% per year, presently.
So, what exactly is this business doing right and is it a good time to get some skin in the game?
For the first time ever in 2023, FPT surpassed 1 billion USD from revenue in IT services in foreign markets.
The company is working with over 400 car manufactures and car part suppliers globally to supply software products for electric vehicles.
As a side note here, my wife bought a BYD a year ago and after driving it for the first time, I remarked to her, “It’s like driving a laptop!” Currently FPT has a team of 4000 engineers working in this area, one that is set to grow massively as many parts of the world attempt to become carbon neutral etc.
The company has also been focusing on cloud and big data within its digital transformation sector, helping healthcare, banking, insurance and delivery services to name a few streamline their existing services and push for growth.
On top of this, domestically, FPT provide end-to-end consultancy solutions for companies looking to transform digitally and also develop in line with ESG standards.
FPT are collaborating with the NVIDIA and invested in Landing AI. Thus, AI is seen as a huge growth engine of the near future.
In Vietnam, FPT provide telecommunication service solutions including internet, data centers as well as sports and music streaming content.
FPT has many colleges and schools in which the youth of Vietnam learn skills to ready them for the demands of the 21st century economy.
FPT is also getting into the semi-conductor game, but I can’t find info on exactly how this will happen.
Here’s what Simple Wall Street have to say about the company:
This is a company with a lot of irons in a ton of fires. I had to re-read this a few times myself before getting a clearer picture.
The Stock
As of today, 5th April 2024, FPT’s market cap is just over 144 T Vietnamese Dong or just under 6 billion USD with a stock price of 113,700. The fundamental landscape looks as follows:
Price/earnings (P/E): 24.63x
Price/sales (P/S): 2.7x
Price/book: 5.85
Earnings per share (EPS) 4.65
Return on Equity: 26%
Dividend 1.8%
Payout ratio: 19%
Discounted Cash Flow Analysis
The company looks fairly valued at the moment. It’s not cheap, but the growth potential is real.
Will I be investing in this company?
This appears to be an extremely well-run company with good growth potential and a flawless balance sheet. It falls into the compounder category for me. I would prefer a significant pull back before investing, but regardless FPT is going to continue generating revenues and the share price will most probably follow this upwards. For me the elephant in the room in the Vietnamese Dong which presents significant currency risk through devaluation in the future.
Make Money Rating (3/5)
Difficult to tell at current share price. But could well do well over the next 5/10 years all being well. I might do well in this stock if I follow the advice of Shelby M.C. Davis and “Invest for the long haul. Don’t get too greedy and don’t get too scared.”
None of the above is financial advise. DYOR.