29/09/2023 - 10:37
FPT initiation: Muti-year growth engine powered by tech & education
Proven ability to deliver IT services to global markets. Japan revenues expanded by 12.5% CAGR in 2017-2022 to account for 17% of 2022 total sales. FPT has also unlocked the US market, posting +50% YoY revenue growth to account for 13% of total sales in 2022.
FPT’s cost advantage is a key attraction. FPT’s COGS-per-employee of USD25k considerably lower than the peer median of USD32k. The company’s relatively low ratios of revenue- and COGS-per-employee demonstrate that it is a low-cost IT services provider.
Education is the next profit driver, as a fast-growing and high-margin business. Full-time students have reached 100k, an increase of 5x in just 5 years. Underpinned by aggressive capex and facility expansion, education PBT should expand by 45.6% CAGR over the next five years to account for 42% of consolidated revenue in 2027.
Yuanta vs the Street. Our PATMI forecasts are above the consensus by 9.8% for 2024E and by 16.0% for 2025E, likely due to our positive view on growth for the high-margin education business. Our fair valuation estimate is 29% higher than the median target price (source: Bloomberg).
We initiate coverage with BUY and target price of VND120,740 based on FCFF (50% weighting) and PER comps (50%). FPT has consistently delivered 20%-plus ROE over the past four years, driven in part by high asset turnover, with strong operating cashflow and a net-cash balance position. We forecast FPT’s 2023E ROE to reach 23.5% ROE, which is substantially higher than that of the regional peer median of 18.7%.
In the short term, timing is everything. The stock has risen by +35% YTD even following the ~7% correction over the last three weeks. Of course, the current correction could continue in the days ahead, and if so we would take it as an excellent opportunity for investors to buy this multi-year growth story in IT services (for the world) and education (for Vietnam). Simply put, FPT is among Vietnam’s most attractive stocks.
