BUY

Current price: VND 84,000

Target price: 94,860 VND

Upside: 12.9%

Key takeaways

• Completed of the bulk sales strategy in 2Q2019
• Gross margin reached 40% in 1H19 (+11.7pts YoY).
• Increasing its effective interest in some projects.

VHM reported strong 1H19 preliminary revenue of VND26.8 tn,+72.4% YoY, fulfilled 43.9% of our annual forecast. Gross margin improved and reached 40% in 2Q19. In addition, block sales strategy for 3 mega projects yields good performance results. We believe that these factors confirm our assumptions in July 4 update, as follows:  1) Cash flows from the three mega projects have occurred quicker. 2) Higher gross margin assumption and average price estimate applied for 3 mega projects. Therefore, we maintained our BUY rating on VHM.

VHM announced that they have successfully completed the bulk sales strategy in 2Q19. The company has deposit agreements signed for 4 blocks of Vinhomes Smart City (Hanoi), and 10 blocks of Vinhomes Grand Park (HCMC) on the top of purchase agreements of 100% low-rise units of Vinhomes Ocean Park.

2Q19 revenue increased by 309% YoY to VND 20.9 tn, of which VND 15.2 tn revenue is mainly attributable to c.1,700 low-rise units (73.9%) of Vinhomes Ocean Park. The remainders mainly include Green Bay and Metropolis revenue. 1H2019 preliminary revenue of VND26.8 tn (+72.4% YoY) is equivalent to 43.9% of our FY2019 forecast.

Gross margin expanded by 11.7 percentage points to 40% in 1H19 (from 28% in 1H18). The significant increase in gross margin is mainly driven by high margin bulk sales of Vinhomes Ocean Park.

1H19 financial income reduced by 38% YoY to VND5.3 tn in which profit sharing from BCC projects declined by 53% YoY to VND2.7 tn due to the number of handed over units (e.g., Vinhomes The Harmony, Vinhomes Star City and Vinhomes Skylake) is lower than previous period.

Increasing its effective interest in some projects. As Vingroup has transferred 456ha Vinhomes Dream City Hung Yen (formerly Vincity Dream City) so VHM’s current effective interest is 100%. The company also plans to increase its effective interest in Vinhomes Grand Park (expected interest of 90%) and Vinhomes Marina (expected interest of 100%) in 3Q19.

For the complete report, please access here: VHM–Boosted by block sales strategy

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