UBS Updates ASEAN Highest Conviction Portfolio: Bullish on Vietnam Retail and Thai Energy
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UBS Updates ASEAN Highest Conviction Portfolio: Bullish on Vietnam Retail and Thai Energy
UBS releases its May 2026 ASEAN equity highest conviction portfolio, adding Vietnam's Vincom Retail and other stocks to the buy list, downgrading Thailand's BJC to sell, and emphasizing defensive and structural growth opportunities amid fuel supply risks.
- Adding Vincom Retail (VRE) as Vietnam’s top pick, raising its target price by 20% to a buy rating.
- Upgrading Tenaga Nasional (TNB) and Petronas Chemicals (PCHEM) to buy.
- Downgrading Thailand’s BJC to sell due to intensifying competition and lowered free cash flow growth expectations.
- Highlighting short-term stability of ASEAN fuel supplies but long-term visibility decline, with downstream chemicals facing pressure.
- Vietnam’s stock market performed strongly in April, with the MSCI Vietnam Index ranking third among ASEAN markets in terms of year-to-date performance, despite net outflows of foreign capital (US$1.7 billion since the beginning of the year).
Report interpretation
Overview
This report is UBS’s May 2026 ASEAN equity strategy report, focusing on updating its ‘Highest Conviction’ stock portfolio. The report consulted industry analysts and country strategists to select stocks expected to outperform local benchmarks, as well as those underperforming and receiving sell or neutral ratings. It specifically highlighted potential risks from fuel supply conditions in the current macro environment and adjusted sector allocations accordingly, emphasizing leading companies in Vietnam’s retail, Thailand’s energy, Malaysian utilities, and Indonesian banks, while warning about risks in Thai consumer goods, Indonesian leasing finance, and certain tech stocks.
Core views
Fuel Supply and Downstream Pressure: Although gasoline and diesel supplies in ASEAN remain stable thanks to inventory levels and rerouted cargoes, shipping data shows that the number of tankers entering major refining hubs has declined since early April, signaling increased supply-side risks once buffers run out. Downstream pressures have already emerged, with disruptions and shortages in hydrocarbon intermediates such as petrochemicals, plastics, PVC, and fertilizers, rising logistics costs, weakening manufacturing PMIs, and cautious corporate guidance. Vietnam Market and Retail Opportunities: Vietnam’s stock market surged in April, with the MSCI Vietnam Index becoming the third-best performing ASEAN market year-to-date, despite continued net outflows of foreign capital (US$1.7 billion since the beginning of the year). UBS is bullish on Vietnam’s retail fundamentals, seeing long-term growth driven by a rising middle class and consumption growth. Modern retail remains underrepresented, leaving room for new entrants to grow. Thus, UBS added Vincom Retail (VRE) to its top picks and raised its RNAV-based target price by 20%, upgrading its rating to buy. Sector Stock Selection Logic: 1. Thailand: Gulf Development (GULF) is favored due to strong post-merger financials, flexible cash flows, and competitive borrowing costs; conversely, Berli Jucker (BJC) was downgraded to sell because of intensified competition and lowered free cash flow growth forecasts. 2. Malaysia: Tenaga Nasional (TNB) was upgraded to buy due to a robust regulatory framework, high capital expenditure utilization, and winning gas-fired power plant tenders; Petronas Chemicals (PCHEM) was upgraded from neutral to buy because of limited raw material risks and benefiting from industry disruptions, with its target price significantly raised to RM6.90. 3. Indonesia: Cisarua Mountain Dairy (CMRY) was favored due to strong first-quarter execution, organic growth drivers, and management raising its FY2026 sales growth guidance to 15-20%; Bank Mandiri (BMRI) was seen as a top pick in the financial sector due to expanding net interest margins, strong fee income, and normalized credit costs. 4. Others: Singapore’s Jardine Matheson (JM) was favored for business simplification and focus on shareholder value; the Philippines’ ICTSI was recommended for its defensive quality and operational leverage; overseas, Sea Ltd and Grab were listed as top picks in the internet sector due to enhanced seller stickiness and expansion of total addressable markets.
Analysis framework
UBS adopted a bottom-up and top-down approach to build the ‘Highest Conviction’ portfolio. First, it identified systemic risks (such as supply chain disruptions) by monitoring macro indicators (like fuel inventories, shipping data, PMIs); second, it combined deep analysis by industry analysts on individual stock fundamentals, valuations, and catalysts (such as capacity expansions, policy changes, mergers and acquisitions) to select stocks with excess return potential; finally, it dynamically adjusted portfolio members by comparing their performance against local benchmark indices (such as MSCI ASEAN), removing stocks with downgraded ratings or underperforming relative to expectations, and adding newly discovered high-confidence opportunities. This approach emphasizes independent stock selection logic across countries and sectors, allowing the same stock to overlap in different dimensions.
Methodology notes
Supply-Demand Framework
The report analyzes supply-side data such as fuel inventories and tanker arrivals, as well as demand-side signals like shortages of downstream chemicals and rising logistics costs, to assess industry sentiment and potential risks, guiding sector allocation.
NAV Net Asset Value Method
When evaluating Vietnam’s Vincom Retail (VRE), the report used RNAV (Revalued Net Asset Value) as a valuation anchor, raising its RNAV target price to reflect its asset value and growth potential—a common valuation method for real estate and retail properties.
EV/EBITDA Valuation
The report used the EV/EBITDA multiple to value NagaCorp and IHH Healthcare, comparing them to historical averages or peers to determine whether their valuations were reasonable or had room for reevaluation.
Free Cash Flow Analysis
When downgrading Thailand’s BJC, the report explicitly pointed out its lowered forecast for free cash flow (FCF), indicating that cash flow generation capability is a key financial metric for assessing company value and rating changes.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Vincom Retail (VRE VN)Benefit: Direct beneficiary of Vietnam’s rising middle class and increasing penetration of modern retail
- Strengths
- Attractive valuation, RNAV target price raised by 20%, direct proxy for consumer demand
- Gulf Development (GULF TB)Benefit: Strong post-merger finances, low borrowing costs, flexible cash flows
- Strengths
- Solid financial position, entering a new investment phase
- Tenaga Nasional (TNB MK)Benefit: Robust regulatory framework, winning gas-fired power plant tenders
- Strengths
- High RP4 capital expenditure utilization, turnaround in domestic power generation business
- Berli Jucker (BJC TB)Damage: Intensified competition, lowered free cash flow growth expectations
- Weaknesses
- Competition intensifies, FCF growth forecast lowered
- Risks
- Downgraded to sell, target price reduced to Bt12.50
- BFI Finance Indonesia (BFIN IJ)Damage: Missed first-quarter earnings, high credit costs, risks in new equipment leasing business
- Weaknesses
- Credit quality concerns, cautious approach needed for new businesses
- Risks
- Maintains sell rating, target price lowered
Key data
- Vincom Retail (VRE) Target Price AdjustmentRaised by 20%Based on RNAV valuation, upgraded to buy rating
- Petronas Chemicals (PCHEM) Target PriceRM6.90Significantly raised from RM3.60, upgraded to buy rating
- Telkom Indonesia (TLKM) Target PriceRp4,100Raised by 28%, 2026-27 EPS forecast raised by 8-10%
- CMRY FY2026 Sales Growth Guidance15-20% YoYUpgraded from previous 10-15%
- MSCI Vietnam April PerformanceThird among ASEAN marketsDespite net outflows of US$1.7 billion since the beginning of the year
- NagaCorp Valuation4.1x 2026E EV/EBITDA1.7 standard deviations below two-year average, dividend yield 4.2%
Impact & implications
The report suggests that investors should focus on companies with defensive characteristics, strong cash flows, and clear growth catalysts amid current macro uncertainties. Fuel supply risks may benefit upstream companies with stable raw material sources or pricing power (such as PCHEM), while putting downward pressure on downstream manufacturers reliant on imported intermediates. Vietnam’s structurally growing consumer market offers long-term opportunities for retail property developers (such as VRE). Meanwhile, utility and industrial stocks in Singapore and Malaysia hold revaluation potential due to robust regulatory environments and order growth. For downgraded stocks (such as BJC and BFIN), the report warns of heightened competition, deteriorating credit quality, or overvaluation risks, recommending avoidance.
Risks
- Economic growth volatility causing earnings uncertainty
- Inflation fluctuations triggering interest rate uncertainty
- Political events impacting growth and risk premiums
- Trade wars leading to trade restrictions
- Adverse weather and natural disasters affecting consumption
- Company-specific risks: competition, regulation, high operating costs, currency depreciation, declining purchasing power, non-performing loans
What to watch
- Supply-side risks after fuel inventory depletion
- Shortages of downstream petrochemicals and intermediates
- Sustainability of Vietnam’s retail fundamentals and middle-class consumption growth
- Evolution of price wars in Thailand’s telecom sector
- Progression of credit cost normalization in Indonesian banks