VHM update – BUY

VINHOMES JSC (VHM VN)

Reiterate our Buy rating with target price of VND98,385 given strong pre-sales forecast in 2022

VHM announced 1Q2022 result with net revenue of VND8.9trn (-31% YoY) and PAT of VND4.7trn (-14% YoY), equivalent to 12% and 16% of its targets. The decline was mainly due to: 

(i) Lower number of retail units delivered (c.2,000 units vs. c.2,900 units), 

(ii) Lower adjusted bulk sales revenue* (VND5 trn vs. VND5.3trn),

(iii) SGA expenses increased by 25% YoY, to VND1.4trn, and

(iv) Financial expense increased by 32% YoY, to VND477bn given VND236bn of reversal of provision for investment recorded in 1Q2021.

Sales performance in 1Q2022 recorded impressive result with 9,400 units sold (+490% YoY) and contracted value of VND16.5trn (+175% YoY), of which three bulk sales transactions accounted for 44%. Unbilled bookings at the end of 1Q2022 slightly increased by 9% QoQ and 3% YoY, to VND57trn. 

2022 pre-sales target was ambitiously set at USD5-6bn (+25-50% YoY) given launches of low-rise components at new mega projects: Vinhomes Ocean Park 2 – The Empire (formerly known as Vinhomes Dream City), which was launched at the end of April, followed by Vinhomes Dai An (known as Vinhomes Ocean Park 3), Vinhomes Wonder Park and Vinhomes Co Loa. In Vinhomes Ocean Park 2 – The Empire, VHM has a total of c.5,300 low-rise units with ASP between USD1,300-2,200/GFA sqm** in the first launch which yielded very positive result as per management. Details of other new projects were summarized in Appendix 1. 

We expect good absorption rates of these projects with estimated 2022 pre-sales of USD4.8bn given limited supply in the landed properties market, stable demand from bulk-sales customers and VHM’s brand name.

In the recent AGM, the Chairman announced a plan to develop 500,000 social houses with area of 24-70sqm and expected selling price of VND300-950mn/unit under brand name ‘Happy Home’ in the next 5 years. Each project has an  area of over 50-60ha in the suburban areas of Hanoi, HCMC, Hai Phong, Quang Ninh, Da Nang, etc. The first project may be started in 8/2022 and delivered in 6/2023. 

This announcement had a positive effect on VHM’s social image given the shortage of houses for low-income citizens. VHM’s strategy is to support the government’s effort in alleviating the prominent social housing demand especially after Covid-19. A social housing aid package of up to VND65trn (or USD2.8bn) is proposed to support social housing developers and housing for workers, in which VND15tn lending package to low-income citizens has been effective since January 30, 2022. VHM will develop the social housing projects alongside other mega projects, which is expected help to boost the growth in revenue and profit further. A social housing project is exempted from land use fee payment, but there is a capped profit of 10% on total investment capital. We will reflect these projects in our valuation once the Company provides specific guidance on the execution plan.

The real estate market is currently affected by: 

(i) government’s inspection of land bidding and corporate bonds issuance, and

(ii) tightening credit for both developers and home-buyers. 

These factors led to a delay in project launches and deliveries, obstructed land bank expansion, and slowed retail sales. However, we think Vinhomes will stand firm during this challenging period and its long-term outlook remains positive given its 168mn sqm of land bank, strong financial health (net debt/Equity ratio decreased from 66.5% to 12.7% in 2016-1Q2022), proven capital raising capability and leading position (market share of 27% in all condominium segments and 19% in landed properties segment in 2016-2021).

We forecast 2022 net revenue of VND73.5trn (-14% YoY) and PAT of VND31.5trn (-19% YoY), equivalent to 98% and 105% of the company’s targets and expect a recovery in 2023 with net revenue of VND94.5trn (+28% YoY) and PAT of VND33.8trn (+7% YoY) thanks to strong 2022 pre-sales. We reiterate our Buy recommendation for this stock with 2022 target price of VND98,385/share, using the NAV method.

View details in full report below.