FCN: Cheap play on infrastructure and renewable energy in Vietnam

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We visited FCN in Hanoi on 19 July. The management has shared strong preliminary 2Q19 PAT and strategic directions. Year to date, the company has added VND 1700 bn to its backlog. Recently, FCN has expanded its business to renewable energy with its first solar project, Vinh Hao 6 (FCN holds 40% stake) with installed capacity of 50 MWp.

Key Takeaways

• Strong 2Q19 results PAT growth of 176% YoY
• Expanding its backlog by VND 1,700 bn YTD.
• Invest in solar power to capture Vietnam’s shortage of electricity.

Business Risks

• Economic slowdown may affect construction sector
• Receivable risk is typical in infrastructure business.
• Solar power is subject to weak grid systems.

Strong 2H19 preliminary results. The company guided that 2Q19 PAT reached VND 121 bn (+176.2% YoY) bringing 1H19 PAT to VND 150 bn (+124% YoY), equivalent to 42% annual PAT guidance. The improved in 2Q19 PAT mostly driven by: 1) 27.2% YoY 2Q19 revenue growth; 2) VND 90 bn one-off profit from selling stakes in subsidiaries Vinh Hao 6 (60% – VND 40bn) and FCU (VND 50bn).

Expanding backlog and strategic direction. YTD, FCN has added VND 1.700 bn worth of contract value on the top of VND 800 bn backlog. In the long term, FCN said they want to progress from subcontractor specified in underground to EPC contractor, which typically has higher contract value. The management believes that this will enable them to expand their business.

Entering renewable energy. FCN currently holds 40% stake of a 50 MWp solar power project, Vinh Hao 6 which is benefit from favorable price 9.36 UScent/kWh (launched before June 30 2019). The company guided that they plan to invest in five other renewable energy (including solar, wind power) projects with the aims to hold 30%-50% stake and to be constructed by FCN.

Valuations. FCN is trading at an attractive valuation of 5.5x TTM earnings. ROE of 16.6% underpinned by 8.7% net margin and 35% net debt/equity.

Please access the link for our complete report: 20190719 FCN AM edited 2

Analyst: Binh Truong, binh.truong@yuanta.com.vn