KBC update – BUY

KINH BAC CITY DEVELOPMENT HOLDING CORPORATION JSC (KBC VN)

Adjust down our 2022 forecasts given low 1Q2022 results and ongoing market challenges. Reiterate our Buy rating with a lower target price of VND69,998.

Kinh Bac’s 1Q2022 result was below our expectation with net revenue of nearly VND700bn (-65% YoY) and PAT of VND523bn (-27% YoY) due to the outbreak of COVID-19 in the first quarter, which affected project deliveries (nearly 9ha at Tan Phu Trung IP and 3.6ha at Trang Due urban area compared with 66.5ha at Nam Son Hap Linh, Quang Chau, Trang Due, Tan Phu Trung IPs and 1.3ha at Trang Due urban area delivered in 1Q2021). Gross margin declined by 16 ppts YoY, to 40% given low margin of the Tan Phu Trung IP. PAT declined at a lower rate than revenue thanks to nearly VND500bn of revaluation surplus from increasing ownership at Sai Gon Nhon Hoi IP from 10% to 35.35%. The company completed only 7% and 12% of revenue and profit targets, respectively.

We note that growth in 2022 primarily depends on handover of Trang Cat urban area which is forecast to account for 45% of total revenue and 53% of gross profit. This project has received interests for bulk sales or cooperation from foreign investors, however, no transaction has been finalized at the moment. According to the company, this project has completed land filling of 100ha and is expected to double to 200ha by the end of this year. KBC is adjusting 1/500 Plan to increase the total area of this project from 585ha to 900ha.

Using the NAV method, we adjust pre-issued target price down by 7% to nearly 70k but reiterate our Buy rating for this stock as we still have a positive outlook for the industrial real estate segment thanks to stable demand, the China+1 trend and more government’s investment in infrastructure development. KBC will pay stock dividend at the ratio of 3:1 or 191.9mn shares near the end of this month. Then the company plans for a private placement of 150mn shares or 26% of current outstanding shares at undisclosed offering price which may put pressure on the stock price. Taking the most recent share offering as an approximation, where KBC issued shares at a 15% discount to market price in 2021, we assume the offering price at VND40k/share, which translates to a post-issued target price of VND50,455/share.