SIP update – BUY

SAIGON VRG INVESTMENT CORPORATION (SIP VN)

A strong industrial park developer with distinct utilities income and healthy balance sheet. We issue a BUY recommendation with a target price of VND178,369/share as the company prepares to shift from the UpCOM to the main HOSE board

Saigon VRG Investment Corporation (SIP) is one of the biggest industrial park (IP) developers in the Southern Key Economic Zone (SKEZ) with a total industrial area of nearly 3,200ha. The company currently has four IPs and four adjacent urban areas which are well located in HCMC, Dong Nai and Tay Ninh provinces. SIP’s unique proposition from other developers as it can distribute electricity and water directly to its tenants, which has accounted for ~80% of total revenue over the past four years. Thus, SIP has a more stable business and is less affected by fluctuations in investment inflow to industrial parks (IPs) compared to other developers. The company is preparing to shift from the UpCOM to the HOSE this year.

In 2016-2021, despite the COVID-19 pandemic, SIP recorded an impressive CAGR of 25% in net revenue, to VND5,578bn and 42% in NPATMI, to VND833n in 2021. This stellar performance was mainly thanks to high demand of industrial land, increasing tenants’ consumption of water and electricity and a 7 times increase in interest income generated from a high cash balance. 

During the last five years, SIP maintained a very low debt balance and did not use long-term debts in 2019-2020. As of 31/3/2022, SIP had a debt balance of VND867bn, of which VND861bn was short-term, and a cash & cash equivalent balance of over VND5,000bn, equivalent to  nearly 1/3rd of total assets, which is being maintained for upcoming investments in additional IP projects. Net debt/Equity ratio was -119.5% as of 31/3/2022. The company maintained cash dividend payment of VND1,800-2,800/share in the last four years and plans to pay at least VND2,000/share in this year.

For 2022, we forecast total revenue at VND6,519bn (+17% YoY) and PAT at VND1,033bn (+14% YoY), equivalent to 125% and 155% of targets, respectively. Our projected outperformance compared to the company’s targets is bolstered by their recent results which have outperformed business plans by 45-327% of its revenue/profit targets over the last three years. Using the NAV method, we derive a target price of VND178,369/share at YE2022 and give a BUY rating given positive outlook of the industrial property segment, SIP’s strong financial status, solid income source from electricity and water distribution, good management team and stable cash dividend. Our main concerns for this stock are low liquidity (which is one reason to move the listing to the HOSE) and cross-ownership among SIP and member companies of Vietnam Rubber Group.