NLG – Resilient through the property downcycle

RATING: BUY

Current price (01/22/19): VND 25,600

Target price: VND 32,000

Upside: 25%

Event catalysts

• Strong financial structure: low financial leverage and large cash position.
• Cooperating with prestigious partners to fund the firm’s big projects.
• Real demand. Rather than targeting speculators / investors, NLG’s sales are backed up by real and steady demand.

Our view: We believe that NLG will provide operational stability through a challenging property market in the years ahead. In our view, the Vietnamese real estate industry is in the process of adjusting to a sustainable product mix in which supply and demand will be focused on affordable and mid-end housing. Given NLG’s ample supply in these segments, the company is well placed to benefit from real market demand. And unlike some players, NLG also offers a strong financial structure. We believe the market has failed to perceive the company’s attractive position, leading to a valuation that we view as highly attractive. We thus initiate coverage with a BUY rating.

Beneficiary of the burgeoning middle class. We believe that NLG’s project location and pricing will continue to attract residential homebuyers in its core mid-end and affordable housing segments – which will continue to see steady demand for years driven by urbanization and growth of the middle class. Unlike high-end and luxury, we think that demand here should be only marginally affected by business cycle factors.

International partners benefit the brand. NLG’s cooperation with partners such as Japan’s Nishi Nippon Railroad and Hankyu Realty should help to build its brand value. These development partners offer deep experience in project management, urban planning, and apartment design. They also have secured financial resources to fund the firm’s major projects, which reduces the operational risks.

Valuation is attractive. We believe that the value of assets and discounted project cash flows are a better measure of valuation rather than a myopic focus on forward revenue and profit growth. Our target price of VND 32,000/share is based on an RNAV approach.

Yuanta vs consensus. Our fair value estimate is 17% lower than the mean consensus target price. We believe that our peers are overestimating the value of the Waterpoint projects based on DCFs that assume strong take-up and on-schedule completion, whereas we have taken a more conservative approach that discounts C&W’s valuation of these projects by 20%. However, we still see 25% upside for the shares, and we initiate with a BUY rating.

Please see the link for the full report: NLG Initiation report-final

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