VHM Update – BUY

VINHOMES JSC (VHM VN)

Adjust target price down by 23% to VND70,431 but reiterate our Buy rating as market price dropped 18% since our last update report and VHM maintained good financial health and expanded its land bank despite unfavourable market

A decline in 2022 was mainly due to lower bulk sales 

VHM’s 2022 result with net revenue of VND62,393bn (-27% YoY) and PAT of VND29,162bn (-25% YoY) was equivalent to 89% and 99% of our forecast. The underperformance in the top line was mainly due to a difference in accounting method to record bulks sales transactions (i.e. we forecast some bulk sales transactions as land sales and they were recorded in revenue and COGS rather than as stake sales and recorded in financial income), but there was no difference in the bottom line. If incorporating bulk sales and BCCs, adjusted revenue will be VND81.4trn (-14% YoY). The YoY decline in 2022 was mainly due to lower bulk sales and higher effective tax rate (24.5% vs 19.2%)

Sales performance was positive in 2022 but may adjust in 2023 due to unfavourable market

Sales performance in 2022 recorded impressive result. Although sales volume declined by 21% YoY, to 30,900 units, contracted value jumped by 63% YoY, to VND128.2trn mainly thanks to more low-rise units sold, especially at Vinhomes Ocean Park 2 with pre-sales of c.VND88trn and Vinhomes Ocean Park 3 with c.VND20.5trn. Bulk sales accounted for 68% of total pre-sold units and 37% of total pre-sales.

Unbilled bookings at YE22 was VND107.6trn (+105% YoY). High interest rate and conservative market sentiment may lead to delays in projects launch and affect retail sales. On the other hand, VHM’s projects still attract sub developers and the company may continue to record decent bulk sales transactions in 2023. We forecast 2023 pre-sales at c.VND72,000bn (-44% YoY) given our conservative perspective.

Maintain good financial status

At YE22, VHM had total debts balance of VND36.2trn, of which bank loans accounted for 49% and domestic bonds for 27%. Around 48% of total debts had fixed interest rate and there was no foreign currency denominated debt. Leverage ratios increased with Net debt/Equity of 12.9% and Net debt/EBITDA of 0.5x at YE22 compared with 7.8% and 0.2x at YE21. However, these ratios were below the industry average of 37.5% and 4.9x, respectively. Thus, we think financial health is not a concern in 2023.