[VHM VN] Company update — Standing firm amid coronavirus pandemic

VHM VN

BUY

TP upside +22%

Close  11 Sep 2020

Price    VND 77,700

12M Target     VND 94,860

What’s new?

► Project construction is ahead of schedule, which has helped to offset the negative impact of COVID-19.
► Unit presales and handover at the three mega projects are also on track. VHM delivered 7,600 units in 2Q20
► The increased pace of urban transport infrastructure construction is positive for urban periphery property demand.

Our view

► VHM is cashing in on its undeniably superior landbank through block sales and property transfers to third party developers.
► The three mega-projects should continue to provide a substantial boost to cashflows over the next several years.
► Top pick in the property space. As Vietnam’s leading property developer, the stock is a proxy on rising national wealth in the decades ahead.

Risks to our view

• 2021 earnings comparison will be difficult given the high base effect of strong earnings in 2020. This is a function of accounting recognition rather than a fundamental factor, as property developer stock valuations are based on NAV and not P/E multiples, but domestic investors tend to focus on current-year earnings. This could be a negative headwind for the share price performance in 2021, although a resurgence of foreign flows into Vietnam would likely more than offset this issue.

• Upside risk from 3Q20 earnings. We believe that VHM will likely post strong results in 3Q20, possibly higher than our current expectations and those of the Street. As discussed in item 1 above, quarterly earnings are not really a fundamental driver for property developers, but earnings surprise could nevertheless attract domestic investors. As such, the shares could outperform our expectations heading into the end of 2020.
• Risks of the two new mega projects. VHM has already allocated large amounts of capital to the two new mega mega projects (i.e., Long Beach Can Gio (2,870ha in HCMC) and Green Ha Long (7,000ha in Quang Ninh)). We believe that Long Beach Can Gio may incur much higher costs than VHM’s other projects due to the required engineering improvements due to the soft ground. Separately, the size of the Green Ha Long project is quite large and possibly greater than what Quang Ninh’s population can support. On the other hand, the former risk can be mitigated by unit pricing, while the latter may be overcome by urban vacation homebuyers and foreigners.

For complete report, please access here: VHM update — Standing firm amid coronavirus pandemic

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