The IT sector is expected to see robust growth

In 2021, the digital transformation was moving rapidly at both state-owned and private enterprises.

Software exports maintained positive growth with many new contracts signed thanks to the growing demand for software solutions and digital transformation worldwide as businesses have sought to improve business performance and save costs in the context of COVID-19. For FPT Group (FPT), software export revenue jumped 21% YoY and the number of new contracts signed expanded by 30% YoY by the end of November 2021.

In 2021, the digital transformation was moving rapidly at both state-owned and private enterprises. It was the pandemic that forced businesses to reform and apply new technology to reduce costs and improve business efficiency. According to the Ministry of Information and Communications, the total revenue from telecommunications in 1H21 hit VND66,000 billion (5.29% YoY). The broadband internet was still the growth momentum of the IT industry during the COVID-19 pandemic, with the number of new Fiber to the Home (FTTH) subscribers reaching 2,152 million (27.9% YoY) in the first 11 months of last year.

KB Securities said domestic digital transformation would continue to make breakthroughs in the coming period. Because the potential of Vietnam's digital transformation remains strong in the future. The digital economy in 2020 was worth USD 14 billion, which is 4.7 times higher than that of 2015 and is expected to hit USD 52 billion in 2025. As per the 8th National Congress, it should rise to 30% of GDP in 2030.

Besides, there is still a lot of growth potential for software exports in the long term. KBSV assesses that Vietnam's software outsourcing segment still has a lot of growth potential thanks to: (1) requirements for a large number of employees; and (2) Vietnam’s low-cost labor as compared to other leading countries in the outsourcing segment, such as India and China, amid high world demand.

In addition, telecommunications could continue to grow thanks to the broadband internet. In the long run, KBSV believes that there is still room left for the broadband internet to grow when: (1) the fixed broadband penetration rate in Vietnam stays low (only 62% in 2020) as compared to other countries like China, Korea, and Japan; and (2) developing mobile broadband internet, including 4G-5G, will open up more opportunities for telecommunications businesses.

Among IT stocks, KB Securities recommended watching FPT Group (FPT). Because it maintained a positive growth in 3Q21 with earnings up 19.7% YoY to VND1,375 billion on revenue of VND8,725 billion, up 15.5% YoY. Of that, in October and November, the group’s earnings were VND5,851 billion (up 19.8% YoY) and its revenue was VND6,848 billion (up 31.6% YoY). The software outsourcing segment in the US, EU and APAC markets experienced impressive growth in 3Q, reaching 64% YoY, 25% YoY and 22% YoY, respectively, while the Japanese market represented the largest proportion, up 9% YoY.

In the first nine months of 2021 (9M21), the value of new orders for IT services from abroad gained 33.5% YoY to VND12,807 billion. Meanwhile, high demand for domestic digital transformation in both public and private sectors is the driving force behind the development of the domestic IT service segment. The telecommunications segment should be driven by steady growth in broadband and FPT Play.

Based on valuation results, business outlook, as well as considering possible risk factors, this stock company recommended buying FPT stock with a target price of VND123,000/share, 30.1% higher than the price on December 15, 2021.