Which sector will benefit from China's reopening?

The reopening of China will benefit the Vietnamese aviation industry.

>> Aviation stocks perform well on positive signs

Aviation sector

By easing travel restrictions for foreign tourists, China is gradually resuming international air activity. In particular, visitors only need to quarantine at home for 5 days instead of being quarantined centrally for 7 days, and international newcomers only need to have one negative test result in 48 hours instead of two as before.

Beginning in December 2022, China permited Vietnamese airlines to fly regular routes into and out of China 15 times per week as opposed to just two. As a result, many Vietnamese airlines have opened up services to China quickly, including Vietnam Airlines, Bamboo, and Vietjet.

Mr. Vu Manh Hung, an analyst at VNDirect, expects the number of international flights between China and Vietnam to increase again. Accordingly, it is predicted that in the first, second, third, and fourth quarters of 2023, the number of international passengers entering or leaving China will return to 20%, 40%, 60%, or 80% of their pre-pandemic levels. Thus, the second and third quarters of 2023 will see a significant increase in Chinese travelers.

35% of all Vietnamese immigrants arriving internationally during the pre-pandemic were from China. The reopening of China will benefit the Vietnamese aviation industry.

Fisheries sector

Despite some difficulties in the first half of 2012, China continues to be an important supporter of the Vietnamese pangasius sector.In 10M22, Vietnamese pangasius had an export value of US$2.1 billion. in which the value of imports into China and Hong Kong climbed by 58% year over year to US$638 million, or 30%.

Mr. Vu Manh Hung thinks that in 2023F, one of the major catalysts for the production growth of exporting aquaculture product enterprises will be China's reopening. Businesses with a significant revenue and market share in China, however, will benefit the most, particularly ANV (14% of total revenue comes from the Chinese market), IDI (40%), and VHC (a 10% market share in China).

Cement sector

China is the biggest export market for the Vietnamese cement sector, accounting for 54% of total sales volume in 2021. The reopening of China will resume construction activities and boost infrastructure investment, thereby leading to a recovery in cement demand in China. Furthermore, the prospect of increased export sales volume will persuade Vietnamese cement companies to improve factory utilization, thereby improving gross margins in the near future (due to lower depreciation per unit).

"BCC will be the listed cement company to benefit as China is the company's long-standing export market, accounting for about 15-20% of the company's total annual consumption,"  said Mr. Vu Manh Hung.

>> Domestic cement consumption expected to rise as exports fall

Rubber sector

China is the largest natural rubber consumer in Vietnam, accounting for 70–80% of Vietnam’s total rubber export value. Vietnam is also one of the largest rubber suppliers to China, with a market share of 16.7% in 10M22, just behind Thailand with a market share of 33.6%. The reopening of China's imports not only tackles the bottleneck in rubber output but also creates a price hike thanks to the high demand for rubber for China's tire production.

"Leading companies with large rubber exports to China, such as PHR and DPR, will benefit the most,"  said Mr. Vu Manh Hung.

Steel sector

The reopening of China's economy will aid in resuming construction activities and boost infrastructure investment, supporting the recovery of the country's construction steel demand. Steel prices are also expected to rebound. Rising demand for industrial manufacturing in China will also aid in the restoration of global supply chains. Thus, it indirectly benefits companies exporting galvanized steel.

In Mr. Vu Manh Hung’s view, the leading galvanized steel companies, such as HSG and NKG, will have the opportunity to increase export volume as global industrial production recovers. HPG is able to export steel to China because of its low production costs. In 2020-21, the company sold 1.7-1.2 million tonnes of billet to China, respectively.

Textile sector

Vietnam's most important yarn export market is China, which accounts for 48% of total yarn export value.As a result, China's reopening will stimulate demand in the Vietnamese textile and garment (T&G) industry. Furthermore, Mr. Vu Manh Hung forecasts that US inflation will fall to around 2-4% in 2023, which will play a vital role in the recovery of Vietnam's textile and garment industry, particularly the yarn segment.

>> Tailwinds for textiles and garment export

"Yarn manufacturers will benefit, of which ADS is the biggest beneficiary as China is the main export market for ADS, accounting for 80% of export revenue in 2021,"  forecasted Mr. Vu Manh Hung.

Consumer goods

The ICT distributor will benefit from the recovery of Apple’s product supply. Reopening the Chinese economy will ensure the supply of Apple products to help ICT distributors and retailers reduce the impact of the decline in consumption as demand for Apple products remains higher than that for other ICT products. Mr. Vu Manh Hung expects ICT distributors and retailers will have a better result in the next few months than in the period of October–November 2022, when there was no supply of Apple products.

"The stocks with large exposure to Apple products can be mentioned as DGW (about 25–30% of revenue), FRT (about 20% of revenue), and MWG (about 11% of electronics and phone revenue),"  said Mr. Vu Manh Hung.

In addition, some listed businesses in the fields of rice production and fertilizer could benefit from China’s reopening.