DXG update – BUY

DAT XANH GROUP JSC (DXG VN) 

We issue a Buy rating on DXG with a target price of VND56,550 given market recovery, land bank expansion and upgrade in selling prices

2021 Overview

DXG posted a good result in 2021 with net revenue of over VND10trn (+249% YoY) and NPATMI of VND1,157bn compared with a loss of nearly VND500bn in 2020 thanks to:

1. Property sales jumped by 18.3x YoY, to over VND7,200bn given delivery of Gem Sky World (~1,200 units) and Opal Boulevard (over 1,400 units).

2. Revenue from brokerage services increased by 32% YoY, to VND2,541bn mainly thanks to market recovery in 1H2021.

3. VND220bn of financial profit from transferring 55% out of 100% of Xuan Dinh, a main developer of a project in Hiep Binh Phuoc, Thu Duc City.

4. A 37% YoY decrease in financial expenses given a loss of VND526bn from transferring Long Dien associate incurred in 2020.

Land bank expansion

DXG wants to expand its land bank to 4,148ha, up by 81% YoY by accumulating more large-scale urban area projects such as Gem Diamond Bay in Ninh Thuan (915ha), DXH Opal Green City in Binh Phuoc (300ha), Gem City Riverside in Quang Nam (278ha), etc. It will transfer small projects (1-2ha) in HCMC to focus on large-scale projects in provinces that have more affordable selling prices and lower land costs than HCMC. 

Capital raising

As DXG is acquiring more large-scale projects, the need to use more long-term debts is rising. The company plans to issue maximum VND4trn of 3-year corporate bonds to the public with expected coupon rate of 10.5%/year and collateral of DXG’s subsidiary stocks – DXS. It also wants to issue USD300mn of 5-year convertible bonds with conversion price of no less than VND62,000/share. Thus, we forecast Net debt/Equity ratio will increase to 28.0% at YE2022 compared with the 5-year lowest level of 10.9% at YE2021.

Forecast and valuation

DXG is expected to have solid growth in 2022 with estimated net revenue of VND11,101bn (+10% YoY) and PATMI of VND1,424bn (+24% YoY) thanks to delivery of Gem Sky World and St Mortiz projects and continuous recovery of the brokerage service with expected more proportion of full brokerage service compared with traditional brokerage service than last year. 2022 pre-sales are forecast at nearly VND15trn (+3x YoY), equivalent to over 3,000 units (+109% YoY) at Gem Sky World, Gem Riverside and Opal Cityview. 

Overall, DXG is a popular property developer with a leading market share in brokerage service, active management team and healthy financial status. Using the sum-of-parts valuation method, we suggest a target price of VND56,550/share at YE22 and give a Buy rating for this stock.