NVL update – HOLD

Despite 1H2022 results which were affected by the COVID and tighter access to credit for the property sector, NVL is the second largest listed property developer with an expected land bank of nearly 10,600ha, strong fund raising track record and well positioned to benefit from the high demand of second/leisure homes from the rising middle class in Vietnam. Reiterate our Hold rating with a higher target price of VND90,403/share given the addition of Marina City, Aqua Marina and Binh Chau Onsen projects.

Along with the recovery of the hospitality segment, in 1H2022, NVL sold over 3,500 units (-20% YoY) with a total value of nearly USD2.4 bn (+23% YoY), of which 78% from hospitality projects and 22% from residential projects. Unbilled revenue at the end of 2Q2022 was USD9.9bn (+62% YoY). In 2Q2022, NVL launched two new projects Aqua Marina in Dong Nai and Binh Chau Onsen in Ba Ria – Vung Tau with impressive absorption rates of 90% and 85%, respectively. (Please see Appendix 1 for details.)

In 3Q2022, NVL plans to launch Marina City project in Mui Ne, Phan Thiet with a total area of 682ha, over 11,000 units, 80ha marina, etc. This project is 10 minutes away from Phan Thiet airport which is expected to complete construction in the next year. In 4Q2022, NVL expects to launch 2 more projects in HCMC (Grand Sentosa and another big project).

We think the government will grant more credit for the real estate sector in 4Q2022 to support economic growth and NVL will continue to benefit from the high demand of second/leisure homes from the rising middle class in Vietnam and more government spending on infrastructure projects nearby NVL’s projects such as Dau Giay – Phan Thiet Expressway, Bien Hoa – Vung Tau Expressway, Long Thanh and Phan Thiet airports, etc. 

As the company actively expands its land bank under research and development to nearly 10,600 ha (+96% YoY), its net debt balance increased from VND42.4 trn to VND50.9 trn and Net debt/Equity ratio from 103.1% to 114.4% in 1H2022. NVL successfully issued USD250mn convertible bonds in 2Q2022 with conversion price of VND93,960/share. 

Overall, NVL is the second-biggest listed property developer with an expected land bank of 10,600ha, a professional sales force, and proven fundraising capability. It is expected to benefit from the high demand of second/leisure homes from the rising middle class in Vietnam and more government spending on infrastructure projects. We maintain our 2022 forecast with net revenue of VND20trn (+35% YoY) and PAT of VND5.5trn (+59% YoY). 

Using the NAV method, we reiterate our Hold rating for Novaland with a higher target price of VND90,403/share, 9% higher than the previous target price given the addition of the Marina City, Aqua Marina and Binh Chau Onsen projects. Besides, we note high leverage ratios and dilution risk from USD300mn of convertible bonds issued last year and USD250mn of convertible bonds issued this year.