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November 07, 2023

Promising Sectors to invest in Vietnam for 2023

With its robust economic growth, young and skilled workforce, and favorable business environment, Vietnam continues to attract the attention of investors seeking opportunities to invest in Vietnam in various sectors. As we step into 2023, several industries stand out as promising investment sectors in the country that attract investment in Vietnam.

Foreign investment in Vietnam has played a pivotal role in driving the country's economic growth and development. Over the years, numerous industries have attracted foreign investors due to Vietnam's favorable business environment, skilled workforce, and strategic location within Southeast Asia. Here are some of the key industries that foreigners have been investing in Vietnam:

Technology and Digital Innovation

Vietnam's technology sector has been rapidly evolving, making it an attractive destination for investors who want to invest in Vietnam and looking to tap into the digital transformation wave. The country's youthful population and increasing internet penetration create a fertile ground for tech startups and innovations. E-commerce, fintech, health tech, and edtech are areas experiencing substantial growth. With the government's focus on promoting a digital economy, investments in tech infrastructure, software development, and digital solutions are likely to yield significant returns.

The technology sector in Vietnam has witnessed significant foreign investment, especially in software development, IT services, and electronics manufacturing. The country's growing talent pool and government support for tech startups and innovation have made it an emerging tech hub in the region.

Renewable Energy

The renewable energy sector is gaining momentum as Vietnam seeks to address its energy security and environmental concerns. The government has set ambitious targets for renewable energy capacity, providing incentives for investors in solar, wind, and biomass projects. The country's abundant natural resources and commitment to sustainable development make renewable energy a promising investment avenue. Also, foreign investment in Vietnam's energy sector, including oil and gas, power generation, and renewable energy projects, has been significant. The government's push for sustainable energy solutions and favorable policies have attracted foreign capital to projects like solar and wind power, making it a prime time to invest in Vietnam.

Manufacturing and Industry 4.0

Vietnam's strategic location, skilled labor force, and participation in various free trade agreements position it as a manufacturing hub in the region. The adoption of Industry 4.0 technologies, such as automation, artificial intelligence, and advanced robotics, enhances the country's competitiveness. Investors can explore opportunities in sectors like electronics, automotive, textiles, and machinery manufacturing. Specifically, foreign investors have been drawn to Vietnam's manufacturing sector, taking advantage of the country's skilled labor force, competitive wages, and favorable trade agreements. Industries like electronics, textiles, footwear, and machinery manufacturing have seen substantial foreign investment. Vietnam's strategic position in global supply chains has further fueled its attractiveness for export-oriented industries.

Healthcare and Pharmaceuticals

With an aging population and rising middle class, the demand for quality healthcare services and pharmaceutical products is on the rise. Vietnam's healthcare sector is undergoing reforms and modernization, offering significant to invest in Vietnam. Hospitals, medical equipment manufacturing, pharmaceutical production, and telemedicine are areas poised for growth. Besides, with an aging population and increasing health awareness, foreign investors have shown interest in the pharmaceutical and healthcare sectors.

According to Dan Tri, last July, Thomson Medical Group agreed to acquire a controlling stake in Phap Viet Hospital for US$381.4 million (approximately VND9,000 billion), the largest-ever commercial transaction in the healthcare sector.
Specifically, Singapore businesses will pay about 359.6 million USD in advance and will pay an additional 21.8 million USD if Phap Viet Hospital (FV Hospital) meets a few more criteria. Last month, Bloomberg also reported that Thomson Medical is in talks to buy FV Hospital from Quadria Capital. Thus, the company of the wealth ratio Peter Lim, one of the richest people in Singapore, beat other candidates to continue to join the French-Vietnamese hospital mix.

"France Viet Hospital gives us a strategic position in Vietnam. It is also a gateway to growth and focuses on future investment accounts in this rapidly growing market. ", Mr. Kiat Lim, vice president of Thomson Medical, told Bloomberg.

Infrastructure and Real Estate

As urbanization continues, Vietnam's infrastructure requirements expand. The government's focus on improving transportation networks, urban development, and connectivity creates opportunities for investments in infrastructure projects like roads, bridges, ports, and airports. The real estate sector, including residential, commercial, and industrial properties, also remains an appealing choice for investors. Specifically, foreign investors have shown interest in Vietnam's real estate market, particularly in commercial and residential properties. Urbanization and increasing demand for housing, office spaces, and retail developments have contributed to foreign investment in the construction and real estate sectors, making this sector a promising destination to invest in Vietnam.

In recent news, the esteemed news agency Reuters has conveyed that CapitaLand Development, the real estate division of Singapore's CapitaLand Group, is currently in discussions about acquiring a portion of Vinhomes Joint Stock Company (stock code: VHM) – a vital component of the prominent Vingroup conglomerate. As per sources cited by Reuters, the potential value of this proposed transaction is a substantial 1.5 billion USD. To delve into specifics, CapitaLand Development is exploring the prospect of obtaining a stake in Vinhomes' Ocean Park 3 project, an extensive resort-style urban development spanning an expansive 294-hectare area located in close proximity to Hanoi. Alternatively, the company is also considering engagement in another project situated to the north of Hai Phong City.

Agribusiness and Food Processing

Vietnam's agricultural sector is a vital contributor to its economy. Investments in agribusiness, food processing, and value-added agriculture products are gaining traction. The country's fertile land, diverse climate zones, and exports of products like seafood, fruits, and coffee make agribusiness an attractive investment proposition. Investors recognize the country's potential for exporting the mentioned products.

Education and Training

As the Vietnamese population becomes more education-oriented, the demand for quality education and training services is rising. Edtech platforms, vocational training centers, international schools, and higher education institutions offer investment avenues in the education sector. Also, as education becomes a priority for Vietnamese families, foreign investors have entered the education and training sector. The opportunities to invest in Vietnam in international schools, vocational training centers, and educational technology platforms are on the rise.

Consumer Goods and Retail

With a growing middle class and changing consumption patterns, consumer goods and retail sectors are experiencing significant growth. Investors can consider opportunities in retail chains, consumer electronics, fashion, and fast-moving consumer goods. Also, Vietnam's rising middle class and changing consumption patterns have attracted foreign investment in the retail and consumer goods sectors. Investors see opportunities in supermarkets, convenience stores, fashion brands, and fast-moving consumer goods.

Specifically, SK Group, one of South Korea's major chaebols with the aim to invest in Vietnam, has significantly injected capital into Masan through various financial ventures in Vietnam. Back in 2018, SK allocated around $470 million to acquire 110 million treasury shares of Masan.

In April 2021, SK made another significant financial investment in Vietnam, investing $410 million for a 16.26 percent stake in Masan Group's VinCommerce, now known as WinCommerce.
Collectively, the Korean conglomerate has infused more than $1.2 billion into Masan and its affiliated entities. This marks SK's largest financial commitment within Vietnam. Woncheol Park, representative director of SK Southeast Asia Investment, expressed the group's strong support for Masan Group, emphasizing their unwavering investment in the company. He highlighted their confidence in Masan's growth strategy, which revolves around introducing the 'mini-mall' concept and establishing a robust consumer platform, ultimately yielding substantial benefits for all stakeholders involved.

Furthermore, in May 2021, a consortium of investors, including Alibaba Group and Baring Private Equity Asia, with the purpose of investing in Vietnam, executed a financial deal amounting to $400 million. This transaction secured a 5.5 percent ownership in The CrownX, Masan's integrated consumer retail platform that brings together Masan Consumer Holdings and WinCommerce (WCM). This financial agreement further solidifies the shareholders' vision of creating Vietnam's inaugural tech-enabled consumer-retail ecosystem while extending its outreach to cater to consumers nationwide. Invest in Vietnam's growing tech and retail landscape is evidently gaining traction.

Besides, in a recently issued report, J.P. Morgan underlined: "Vietnam represents the most captivating and remarkable growth narrative for consumption in Asia" and offered a positive perspective on Vietnamese consumer stocks within the upcoming 12 months. In accordance with the assessment provided by the organization, Vietnam's consumer retail market is poised for robust expansion due to a rapidly growing economy, the expansion of the middle class, and the increasing pace of urbanization. J.P. Morgan predicts that Vietnam is on track to become a prominent growth driver in consumption across the region.
Furthermore, as outlined in this report, utilizing the SOTP (sum-of-the-parts) approach, J.P. Morgan assessed Masan group stock price to be valued at 102,000 Vietnamese dong per share, marking a 26% increase from the price of 80,500 dong per share observed on July 18. The SOTP method involves valuing each subsidiary or business division of a company independently, subsequently aggregating these valuations to determine the overall company value.

In terms of projections, a target P/E (price-to-earnings) ratio for 2024 stands at 34x, indicating a valuation roughly 40% higher than similar companies in the region. This projection is supported by an anticipated year-over-year EPS (earnings per share) growth of 36% from 2023 to 2025.
In essence, the valuation of Masan stock price at 102,000 VND/share by J.P. Morgan is underpinned by these factors.

Financial Services and Banking

The financial services sector, including banking, insurance, and fintech, has attracted foreign investment to invest in Vietnam due to Vietnam's growing consumer base and increasing demand for financial products and services.

Recently, VPBank stands at the threshold of executing a monumental equity transaction that is set to make history in the Vietnamese banking sector. This pivotal move holds the promise of enriching its financial offerings and expanding a burgeoning portfolio of Japanese clientele through a strategic partnership with the formidable institutional entity, SMBC.

In a recent development, Sumitomo Mitsui Banking Corporation (SMBC), a crucial subsidiary of Sumitomo Mitsui Financial Group (NYSE: SMFG), has formally injected a substantial amount of $1.5 billion into VPBank. This significant investment cements SMBC as a strategic ally for VPBank, marking a milestone as the largest merger and acquisition (M&A) deal ever accomplished in the history of Vietnam's banking industry. Importantly, this transformative investment elevates VPBank to the position of the second-largest bank in terms of equity within the national financial landscape, second only to Vietcombank. In a previous instance, a fellow member of SMFG, the consumer finance powerhouse SMBC, had undertaken a noteworthy venture by investing $1.4 billion to acquire shares of FeCredit, valuing the financial institution at $2.8 billion.

Vietnam's dynamic economy and proactive government policies present a range of promising investment sectors for 2023. However, navigating the market requires careful research, an understanding of local regulations, and strategic planning. Whether investing in technology-driven innovations, sustainable energy projects, or emerging industries, those who make informed decisions are likely to reap the rewards of Vietnam's economic potential in the years to come. Invest in Vietnam wisely to harness its growth potential.

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