Novaland (NVL VN)

HOLD-Outperform

Upside +12%

Close 07 Nov 2019

Price VND 58,100

12M Target VND 65,000

Sizeable landbank in prime locations. NVL’s total landbank is second largest among listed Vietnam developers and includes 1) 672 ha of residential land in HCMC, of which c. 90% is in eastern HCMC which is the focus of infrastructure investment; 2) 219 ha of suburban landbank adjacent to HCMC; and 3) 2,762 ha of hospitality-zoned land in non-HCMC areas that are attractive for tourism development.

Legal issues are the key headwind… Legal issues related to HCMC property development have been a drag on the overall sector and NVL in particular given its HCMC-centric business. We see this as the main reason for the stock’s underperformance (-25ppt YTD vs the VNI). Unfortunately, we have no visibility on the context or timing of a potential solution to these issues, so shareholders may have to tolerate relatively high volatility.

… but strong YTD sales performance underpins revenue visibility over the next three years. Homebuyers are broadly aware of the legal issues but appear to retain trust in the company. The proof is in the sales performance pudding: NVL sold 4,676 units in 9M19 (+872% YoY) and booked VND28.9 trillion (US$1.2 bn) in sales. Thus, unbilled contractual value has increased 53% YTD to reach VND57 trillion (USD 2.5 bn) at the end of 3Q19.

Yuanta vs consensus. Our valuation is 1.1% higher than the Street, which may be due our relatively positive view on ASPs as reflected in our model.

We initiate coverage on NVL with a HOLD-Outperform rating and RNAV-derived target price of VND 65,000/share. The legal headwinds may require investors in NVL to tolerate a certain level of medium-term volatility, but such risk tolerance may lead to higher returns in the longer term.

Please access the link for our complete report: Initiation-Novaland (Hold-Outperform)_A southern real estate market proxy 1

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