BCG: Gross margins rise sharply thanks to real estate and electricity business

Recommendation: BUY

Closing price (VND): 14,550

Target price (VND): 18.293

Exchange: HOSE

Sector: Special Finance (ICB: L4)

BCG announced it’s 2Q2021 business result with net revenue reached VNN814bn (+56%YoY) and NPAT-MI reached VND218bn (+1.286% YoY). Strongly growth thanks to (1)  Hand over 5 villas of King Crown Infinity project  (2) VNECO Vinh Long (49 MWp) and Phu My (phase 1 – 214  MWp) solar power plants started generating electricity in 1Q2021 and stable operation in 2Q2021.

The gross profit margin of 2Q2021 reached 37.2%, increased sharply from 13.7% in the same period last year thanks to the real estate and power generation business which have high gross profit margin.

Financial income reached VND714bn, an increase of 3.6 times over the same period thanks to income from stocks and bonds investment reached VND320bn and the income from investment cooperation contracts was VND386bn. During the period, BCG also paid VND190bn in expenses payable for investment cooperation contracts.

Interest expenseincreased +196% YoY to VND214bn as the company increased borrowing and issuing bonds to supplement capital for renewable energy and real estate projects. General & administrative and selling expenses increased by  104% YoY and 30% YoY, respectively.

In 2Q2021, BCG’s power plants (excluding rooftop power projects) produced nearly 153 mn kWh compared to only 14.5 mn kWh in 2Q2020. Exception of GAIA Power Plant (BCG – CME Long An 2), which has electricity output fell out of expectations, other plants achived the plan.

For real estate business, RE projects in Ho Chi Minh City (King Crown Infinity and Amor Riverside Villa) are currently suspending construction to serve anti-epidemic measures of local government. Hoian D’or project (Hoi An, Quang Nam) was officially started in mid-April, the project has a total investment of VND2.330bn and a scale of ~24.5 ha.

In 2Q2021, BCG and  its member companies  signed notable cooperation agreements with major global corporations.  BCG Energy  and SP Group (Singapore Power Group)  have established a joint venture to invest in the energy sector in Vietnam (BCG Energy owns 51% of the venture) with the initial goal of developing a capacity of 500 MW rooftop solar energy by 2025.

In addition, BCG Land and Lotte Land (under Lotte E&C – Korea) have signed a strategic cooperation to jointly develop real estate projects in Vietnam. BCG has also signed a memorandum of cooperation with Deo Ca Group, according to which BCG and its strategic partners will participate in investing in shares of Deo Ca Transport Infrastructure Investment Jsc (UPCOM: HHV) with a minimum of 50 million shares. BCG will cooperate in research and investment in major transport infrastructure projects across the country, such as Can Tho – Ca Mau expressway, boulevard connecting Ho Chi Minh City with Tan An city (Long An province), Can Tho bypass route…

Investment perspective

Currently, we recommend BUY for BCG with a target price of VND18,293 which is equivalent to a price increase of 26%. BCG will hold a meeting with analysts on August 13 and we will update the information disscus with the Company’s management along with the new forecast and valuation in the next updated report.

See full report via this link: BCG-Q2.2021_Update.Eng

Analyst:

Quach Duc Khanh

+84 28 3622 6868 ext 3833

khanh.quach@yuanta.com.vn

Bloomberg code: YUTA