SIP Update – BUY

SAIGON VRG INVESTMENT CORPORATION (SIP VN)

Flat 9M2023 results with revenue in line with our forecast while profit below expectation. Adjust 2023 NPAT down by 16% and reiterate our Buy rating with 2024 target price of VND77,926 (+31% upside). 

9M2023 business results went sideway

SIP recorded a flat 9M2023 result with net revenue of nearly VND4.8trn (+3.6% YoY) and NPAT of VND663bn (-5.2% YoY), equivalent to 75% and 59% of our forecast. The slight increase in the top line was mainly thanks to a 4.6% YoY growth in revenue of power and water supply. The slight decline in the bottom line was mainly due to:

1. A 30 bps YoY decrease in gross margin from 13.7% to 13.4% which was primarily driven by a lower gross margin of land leasing in industrial parks (IPs) (57.5% vs 71.0%) when the company adjusted the total investment of Loc An Binh Son IP.
2. Higher financial expenses (VND71bn vs VND21bn) due to higher interest expenses from higher debt balance and higher provision for investments in Casumina (HSX: CSM) and Vietnam Rubber Group (HSX: GVR).

Net cash/Equity of 60.7%, still in the Top 3 highest in the industry

In 9M2023, SIP’s total debts increased by nearly VND600bn, to nearly VND1.3trn while cash & cash equivalent dropped by nearly VND600bn, to over VND3.6trn, equivalent to 18% of total assets. Net cash/Equity ratio declined from 96.2% to 60.7% during this period but still much higher than the industry median of 12%. 

Stop lending to An Loc company and start lending to VCBS

During 2Q2023, SIP’s VND1.8trn loan to its biggest shareholder – An Loc Urban Development & Investment JSC – reduced to zero. In 3Q2023, to utilize free cash, the company lent over VND700bn to Vietcombank Securities (VCBS) with an interest rate of 6-7.3%/year and no collateral. Thus, deposit and lending interest income decreased by 17.6% YoY, to VND187bn in 9M2023. On the other hand, Vietinbank Securities (HSX: CTS) plans to borrow maximum of VND2trn from SIP.

Forecast and valuation

We keep our estimated 2023 revenue virtually unchanged at VND6.4trn (+5.5% YoY) but revise estimated 2023 PAT down by 16% to VND948bn (-6.1% YoY) given lower gross margin of the IP segment and higher financial expenses than expected. For 2024, we project revenue at nearly VND6.9trn (+8.1% YoY) and PAT at VND951bn (+0.3% YoY) given more tenants operating at Phuoc Dong IP, more rooftop solar panels installed but lower financial income and higher financial expenses. Using the NAV method, we derive a target price of VND77,926/share at YE2024 and reiterate our BUY rating. Our main concern for this stock is low liquidity although it shifted from UpCOM to HOSE.