KDH update – BUY

KHANG DIEN HOUSE TRADING AND INVESTMENT JSC (KDH VN)

KDH remains a strong developer in the mid to high-end residential real estate segment with active management team, clear legal status, good product design and on-time delivery. We reiterate our Buy rating with a target price of VND34,467/share with expected market recovery from 2H23 

A mixed 1Q23 result

Khang DIen posted a mixed 1Q23 result with a three-time YoY increase in net revenue to VND425bn but a 33% YoY decrease in PAT, to VND201bn. The increase in the top line was mainly thanks to delivery of around 20 units at Classia project while the decline in the bottom line was mainly due to over VND300bn of surplus from revaluation of the acquisition Doan Nguyen Ltd. which owns 6.1ha Emeria project in Thu Duc City which includes 616 apartments and 67 villas. Given challenging real estate market, the company sold around 45 units at the Classia project in 4M23, leading to an accumulated absorption rate of ~85%. 

Partner with Keppel to develop 2 projects in Thu Duc City

Near the end of May, 2023, Singapore-based Keppel Group and Keppel Vietnam Fund (KVF) announced a cooperation agreement with KDH in two adjacent residential projects with a total value of VND3,180 bn. In which, Keppel owns 49% and KDH owns 51%. They plan to jointly develop more than 200 townhouses/villas and more than 600 apartments at two projects, including Emeria (6,1 ha) and Clarita (5.8 ha) both located in Binh Trung Dong ward, Thu Duc City. Keppel estimated the total development cost of these projects (including land costs) at around VND10,200 bn. Both projects obtained master planning and land use right certificates.

We think foreign capital flowing to the real estate market during difficult time is normal and predictable given positive outlook of the sector in the long-term. KDH usually completes a project before launching, so it needs capital at this stage to speed up the construction progress. Besides, the company need to record financial income from selling stakes in projects in order to fulfill its 2023 profit target as profit from delivery remaining villas at the Classia project is not enough.