Company update-NLG-Unlock upside potential by new projects

HOLD – Outperform

TP upside +5.9%

Close 30 Nov 2020

Price VND 28,800

12M Target VND 30,500

Previous Target VND 29,700

Change +2.7%

NLG has only fulfilled 26% of 2020 PAT guidance in 9M20. However, the company expects to reach this target in 4Q20 by delivering completed units (i.e., Waterpoint and Novia) and transferring shares in its subsidiaries (i.e., a 35% stake in the Waterfront project and 100% stake in the Paragon Dai Phuoc project).

High presales value fortifies future earnings. 9M20 presales value was VND3.3bn, increasing 23% YoY. Three projects (i.e., Mizuki, Akari, and Southgate) should be the main contributors to NLG’s earnings in upcoming years. So far, the company has sold 1,751 Akari units (for sales of VND3,785bn and 94% of the first phase’s units) and 976 Soughgate units (VND3,762bn of revenue and 57% of the first phase’s units). Additionally, the 760-unit Mizuki highrise project will be launched in 4Q20 and 63 lowrise units will be launched in 2021, which should contribute to 2022 earnings.

Unlocking new projects in 2021. The commencement date of three new projects (i.e., Waterfront, Hai Phong, and Can Tho) were postponed due to ongoing administrative issues. However, the company still expects the first phase of three new projects to officially launch next year. Also, two new projects with size area above 50ha in the east of HCMC are likely to be acquired in 2021, which could be a catalyst for NLG’s share price amid the shortage of HCMC landbank.

Our view: The attractiveness of Mizuki and Akari projects is beyond dispute given HCMC’s shortage of housing supply, and especially supply of mid-end housing. Although demand for the Southgate project is likely tepid, NLG has implemented a solid sales strategy (e.g., by carefully controlling the number of units launched, types of housing, and intervals between tranch launches) to maintain a certain level of “heat” for the project. We believe this explains NLG’s share price increase of 15.7% YTD and its stronger recovery of 67.4% since the pandemic-driven trough.

The potential for NLG’s new projects (e.g., NLG Can Tho, NLG Hai Phong, and new landbank) is unclear. We believe the market is concerned about the determinants of internal rate of return at these projects, including launch schedules, average selling prices, and take-up rates. Therefore, any signal of a successful launch from these new projects could unlock further upside for NLG’s share price. After changing some of our assumptions, new our per-share fair value estimate for NLG is VND30,500, which offers 7.6% expected 12-month TSR. We thus downgrade our recommendation to Hold-Outperform from the previous BUY.

For the complete report, please access here: Company update-NLG-Unlock upside potential by new projects-final