Company visit: NVL — Moving into the hospitality segment

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Current price (05-02-19): VND 58,500

Target price:  N/A

Upside:  N/A

Key Takeaways

• Expanding business development into hospitality.
• Legal problems at projects acquired from SOEs continue to impact investment efficiency.
• FY2019E targets: 17.7% sales growth and 0.7% PAT growth.

Expanding into hospitality projects to ensuring stable cash flows. Management discussed the progress of the company’s hospitality projects in Binh Thuan and Can Tho, which were launched starting in June 2018. NVL says that these projects will compensate for the lack of cash flows and profit from its core business, which has been beset by ongoing delays related to legal issues at several residential projects in HCMC.

Legal problem related to land acquired from SOEs continue to drag on NVL’s efficiency. Since the authorities strengthened legal controls over real estate developers, several of NVL’s residential projects have been delayed (e.g., project launch date, hand-over date, and issuance date of land use rights certification). NVL acknowledged that this has delayed the timing of revenue recognition and also impacted NVL’s brand name.

FY2019E targets: 17.7% sales growth and 0.7% PAT growth. Novaland expects to complete the handover phase at 12 projects in HCMC (i.e., projects in Districts 2, 4, and 9, and Tan Phu, Phu Nhuan, Tan Binh, and Nha Be). However, HCMC People’s Committee has suspended development at three of these projects (i.e., Newton Residence, Golden Mansion, and Orchard Parkview). According to NVL’s legal director, the procedural delay at these three projects is related to the process of land use fee determination, and NVL is attempting to resolve the legal issues to ensure that sales and purchase agreements with end-clients are undertaken on schedule.

Our view: We don’t cover NVL and have no investment view on the stock. However, we are cautious on the property sector as a whole. NVL’s specific business strategy of extending into hospitality appears rational and could be supportive of its operations in the long term. In addition to building recurring income from hospitality services, NVL could also benefit from increased valuations of real estate projects after it has successfully built a resort-level service brand. The authorities have not issued official announcements regarding legal problems related to projects acquired from SOEs. However, this would appear to be a critical risk factor for NVL’s operations. The company’s target for high sales growth but low PAT growth in 2019 could be a reflection of this risk, as interest expenses and SG&A costs may be rise as a result.

Please access the link for our complete report: Novaland — AGM Takeaways Moving into the hospitality segment

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