VHM–Undisputed champion, but fully valued

HOLD

Current price (03-20-2019): VND 92,200

Target price: VND 91,300

Upside:  -1%

Investment thesis

• Competitive advantages of scale that dwarfs the competition.
• Solid branding strategy & operating model.
• But the valuation is not cheap, and it’s too late to chase, in our view.

Our view: Caution on the current valuation. We believe that VHM’s undeniable scale advantages will allow it to maintain sector leadership for many years to come. However, we have a cautious cyclical view on property developers, and uncertainties regarding the timing of project approvals are further reasons for pause. The stock’s 25% rise YTD has helped VinGroup tickers lead the overall index higher, but we would not chase it at current valuations. We initiate coverage with a HOLD rating and target price of VND 91,300.

Dominating the property market. VHM’s land bank is 22x larger than that of its nearest competitor. This scale alone should enable it to dominate the Vietnamese property industry for many years. We also believe that VHM’s segmented branding strategy is sound, especially given our view that real residential demand should support the mid-end and affordable segments. This is despite expected weakness in high-end and luxury homes, which are typically favored by speculators/investors.

Valuation fully reflects the positives. The stock’s 25% YTD rally has priced in the positives, in our view. Our RNAV-derived target price implies -1% downside with no expected dividend support. The stock’s 9.4% VNIndex weighting could leave some investors facing benchmark risk, but we would not chase VHM here.

Yuanta vs consensus. Our 2019E net income forecast is 9% lower than the consensus mean, possibly due to a lower assumption for unit deliveries. We also assume that some projects in the pipeline will take longer to execute than VHM has guided for, which may be why our RNAV-based fair value is 4% below the Street.

Risks to our view. Approvals for several of VHM’s projects have yet to be issued, and uncertainties regarding licensing standards and land use rights fees are concerns. On the positive side, VHM is a leader in tapping the domestic debt capital markets and funding risk is less of a concern. Also, VHM’s large index weighting could result in continued stock price strength on inflows from benchmarked funds.

Please access the link for our complete report: VHM Initiation — Undisputed champion, but fully valued

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