VRE Update – BUY

VINCOM RETAIL JSC (VRE VN)

Reiterate our Buy rating with a target price of VND33k given solid performance of property leasing and a jump in property sales.

VRE posted a positive 1Q23 result with net revenue of VND1,943bn (+42% YoY) and PAT of over VND1,000bn (+171% YoY), equivalent to 19% and 22% of its targets mainly thanks to strong growth of leasing activities which was driven by no tenant support disbursed in 1Q23 vs VND464bn in 1Q22 and 3 new malls opened since 2Q22, namely VMM Smart City, VCP My Tho and VCP Bac Lieu with additional retail GFA of ~93,000sqm. Gross margin jumped from 44.6% to 61.2% thanks to outperformance of the leasing segment with leasing NOI of VND1,478bn (+62% YoY), average occupancy rate of 85.4% (+2.7 bps YoY), a 7-10% increase in rental rates vs 2019 and cost optimization solutions such as auto parking and solar power installed for 50/83 operating malls till the end 1Q23.

On the other hand, property sales declined significantly by 97% YoY, to VND3bn because VRE delivered only 1 shophouse at Thai Hoa project compared with 20 units in 1Q22. VRE is expected to start delivering Dien Bien Phu and Dong Ha Quang Tri projects from the end of Jun which will push property sales to bounce back in 2H23.

As VRE focuses on optimizing operation of current 83 malls rather than expansion its coverage in 2023, it revised number of new malls opened from 6 to 2, i.e. VMM Grand Park with GFA of 45,700sqm in Oct and VCP Ha Giang with GFA of 9,500sqm in Dec. Thus, we revise estimated revenue down by 9% to VND10,215bn (+39% YoY). Conversely, VRE’s deposits for developing projects to Vingroup (HSX: VIC) and related parties increased by over 30% to over VND5,800bn in 1Q23 (equivalent to ~13% of total assets) which doubled YoY financial income to VND224bn. Thus, we adjust 2023 PAT up by 2% to VND3,877bn (+40% YoY).

Given healthy financial position (net cash/equity of 12.2%), active management team and leading market share, VRE is expected to continue to benefit from rising middle class, new urban areas and continuous expansion of international brands in Vietnam. Combining EV/EBITDA, P/B and DCF methods, we suggest a target price of VND33,054 at YE2023, slightly higher than our previous target price. 

VRE’s risks include: (1) opening of new malls depends largely on progress of Vingroup’ projects while the residential market is facing many challenges such as high interest rate, slow legal process and corporate bonds issue though these challenges show signs of decrease, (2) inflation and interest rate concerns may affect shoppers’ consumption of non-essential goods and (3) rapid growth of e-commerce.

View details in full report below.