Digital transformation continues to underpin the IT sector

FPT sets a business plan for 2023 that includes VND 52,289 billion in revenue, a 19% increase, and a pre-tax profit of approximately VND 9,055 billion, an 18% increase over the previous year.

>> Domestic digital companies urged to go global to tap into trillion-dollar market

IT revenue increased 17.8% year on year to USD72.5 billion in 1H22. The number of ICT enterprises reached 67,205 (up 4.2% year on year), with software production accounting for 5.5% of the increase (5.5% YoY).

Software exports remained positive, with rising newly signed contracts reflecting the global demand for software solutions and digital transformation. FPT Corporation (FPT) expects global IT services revenue to increase by 30.0% year on year, with newly signed contracts increasing by 40.5% year on year by the end of November 2022.

State-owned and private enterprises were undergoing significant digital transformations in 2022. According to the Ministry of Information and Communications, 43.2% of administrative procedure documents were processed online in 9M22, a 13% increase year on year. In terms of telecommunications, the Ministry reported 9M22 revenue of VND248.5 trillion, a 7.1% increase year on year. Due to fierce competition in both the fixed and mobile markets, businesses were forced to lower service prices, causing revenue growth to slow.

According to Mr. Nguyen Anh Tung, senior analyst at KB Securities, Vietnam's digital transformation will continue to make strides in 2023. Domestic digital transformation would continue, fueled by the significant benefits it provides.

According to the 7th Southeast Asia Digital Economy Report, Vietnam's digital economy is worth USD23 billion (28% YoY) in 2022 and is expected to exceed USD50 billion by 2025.

Furthermore, there is still a lot of room for long-term growth in software exports. There is still a lot of room for software export growth because: (1) the effectiveness of digital transformation and the rise of new platforms and applications can boost worldwide IT spending; and (2) due to Vietnam's lower labor costs, Vietnam has a significant advantage over others in the global shortage of tech workers.

In addition, telecommunications also experienced divergence as a result of digital transformation. In the face of increased competition and saturated traditional telecommunications services, digital transformation would support telecommunications revenue growth.

>> Digital transformation to boost exports

Given the high cost of IT infrastructure, large investment, and long payback time, Mr. Nguyen Anh Tung believes that businesses with solid financial foundations will outperform others. "We believe IT enterprises will continue to enjoy double-digit growth in 2023. Investors should consider stocks like FPT that have good software export growth, strong digital transformation, a healthy financial position, and a reasonable valuation.

FPT anticipates that revenue in the company's main export markets will increase by double digits this year. In this case, revenue in Japan could rise by 20% over the same period, up from 16% in 2022, assuming the JPY/VND exchange rate remains stable. In the US market, the company anticipates that lower service prices compared to peers will continue to be its main competitive advantage in the face of weak demand.

FPT sets a business plan for 2023 that includes VND 52,289 billion in revenue, a 19% increase, and a pre-tax profit of approximately VND 9,055 billion, an 18% increase over the previous year.

However, IT stocks may face some risks. Due to negative macroeconomic factors and rising inflation, global IT spending growth may fall short of expectations.