[Update] VHM — Focusing on mid-end housing and accelerating capital returns

Upgrade to BUY

Current price: VND 82,000

Target price: 94,860 VND

Differential: 15.7%

Key catalysts

• We are positive on the shift into mid-end housing.
• Block sales/land sales strategy also makes sense, in our opinion.
• The three mega projects appear to be on schedule.

VHM has shifted into mid-end housing, a segment that is backed up by real demand from Vietnam’s expanding middle class. VHM is also taking advantage of its undeniably superior landbank by its strategy of block sales and selling buildable land – a scarce resource – to third party developers. This allows VHM to accelerate capital returns and to benefit from the high-end/luxury segments without incurring undue development risks of its own. Meanwhile, the progress of pipeline projects appears to be on schedule. VHM’s three mega projects should provide a substantial boost to cashflows over the next several years. Despite the strong fundamental story, VHM’s share price has declined 11% since our March initiation. We think the stock offers value here, and we upgrade our recommendation to BUY with 17% expected 12-month total return. VHM is now our top pick in the property sector.

Mid-end housing: a proxy on middle class growth. VHM has only launched mid-end segment projects since 2H18. We like this strategy given our bullish outlook on the mid-end segment, which is a proxy on the growth of Vietnam’s middle class, vs. our more cautious view on the high-end and luxury segments.

Blocks sales and land transfer strategy is also a positive. VHM’s master planning and investment in facilities is attractive to sub-developers and block buyers. Block sales to real estate brokers and land sales to third-party developers allows VHM to monetize its undeniably superior landbank, accelerating capital returns without taking on undue development risk. VHM expects block sales and land transfers to contribute c. 50% of this year’s contract sales and 20-30% over the long term.

Mega projects exhibit VHM’s advantages. The three mega projects (i.e., Vinhomes Ocean Park, Smart City, and Grand Park) offer facilities from other Vingroup subsidiaries, increasing their attractiveness to homebuyers. As of May 31, the take-up rate at Ocean Park was 79.6%, with six blocks sold to a local developer. Separately, the take-up rate at Smart City was 72.6% for The Sapphire 1&2 and 100% for Green Villas, while the initial tranche at Grand Park was oversubscribed.

Please access the link for our complete report: [Update] VHM — Focusing on mid-end housing and accelerating capital returns

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