Company visit: KDH’s AGM Takeaways — Solid foundation for the cyclical reset

Not Rated

Target price:  N/A

Upside:  N/A

Key Takeaways

• Low 2.7% revenue growth target.
• Finalization of legal procedures for land bank in southwest HCMC is not yet complete.
• Solid financial structure.

Subdued revenue guidance. KDH guided for FY19 top-line growth of 2.7% YoY to VND 3 trillion. This growth target is 11ppt lower than KDH’s 2018 guidance delivered a year ago (+14% growth, which it missed by 17ppt). KDH expects the bulk of 2019 revenues to comprise sales of Jamila Blocks A and B, with other projects also contributing.

Legal procedures for southwest HCMC land bank not yet complete. In 2018, the firm fully acquired real estate developer BCI and consolidated the acquired firm’s c. 480 hectare land bank at a low cost. However, KDH must still complete the legal procedures related to compensation for land clearance, change of land use purpose, and investment procedures for this land bank before it is ready for development.

Maintaining a healthy financial structure with a large amount of cash and low debt/equity (D/E) ratio. KDH’s D/E ratio is currently the lowest among its peers at just 14% in 4Q18. Looking at the past, KDH’s D/E ratio reached 86% in 2014 and 70% in 2015 before gradually declining. In addition, for FY19, Shareholders’ Meeting also approved the increase of charter capital by issuing stock dividends (5% of charter capital – 20.701.167 shares) and issuing new shares (25% of charter capital – 103.505.838 shares).

Our view: We don’t cover KDH and have no investment view on the stock. Our assessment of the revenue potential for Jamila Blocks A and B in 2019 is less than KDH’s guidance for total revenue. We are uncertain of the source of the discrepancy. However, we appreciate the business strategy (i.e., its product, finance, and land acquisition plans) at this stage of the real estate cycle. In particular, a judicious employment of debt in the current real estate market is wise, in our opinion. Real estate is a cyclical industry and all real estate developers must face cyclical risk. However, KDH’s careful planning in terms of finance, land bank acquisition, and product strategy should position the company quite well to weather the cyclical reset that we believe is occurring now.

Please access the link for our complete report: KDH AGM Takeaways — Solid foundation for the cyclical reset

Analyst: Tam Nguyen, tam.nguyen@yuanta.com.vn