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May 12, 2016

Disclaimer: The opinions expressed herein are that of  HSC Securities and not of VietnamAdvisors. This is NOT a solicitation to buy or sell securities.


  • DXG released mixed Q1 result showing strong sales growth of 84% y/y to VND315 billion while NPATMI dropped by 19.7% y/y to VND29.4 billion.
  • Q1 numbers somewhat disappointing as margins drop due to the falling in sales weight of high margin brokerage segment.
  • We keep our net sales forecast of VND2,224 billion (+59% y/y) and NPATMI forecast of VND459 billion (+36% y/y), giving a fully diluted
  • EPS of VND1,930.
  • This stock is trading at forward P/E of 6.1xs and forward P/B of 1.2xs.
  • Valuations look very cheap at current levels.
  • However, we are somewhat concerned about the degree of dilution.
  • Reiterate Outperform.

DXG Q1 numbers somewhat disappointing as margins fall. Outlook still positive. Reiterate Outperform



DXG released mixed Q1 result showing strong sales growth of 84% y/y to VND315 billion while NPATMI dropped by 19.7% y/y to VND29.4 billion. This result only fulfilled 14.3% and 5.8% of net sales and NPATMI target for the whole year respectively.

Q1 FY2016 revenue increased significantly y/y – As revenue from real estate development segment increased although revenue from brokerage & wholesale segment dropped sharply. In more detail;

  • Revenue from brokerage & wholesale segment fell by 43.7% to VND87.6 billion, accounting for 27.8% of total revenue. In Q1, total sales volume dropped to 1,080 units (-20% y/y) and their nationwide market share also declined sharply to 8% from 16% in FY2015.
  • Meanwhile, revenue from development segment surged to VND199 billion from VND1.2 billion in Q1 FY2015 as a result of booking of units sales in the Sunview Town apartment project totaling VND178 billion and land plots in the Gold Hill project totaling VND21 billion.
  • Construction division contributed VND28.5 billion (+93% y/y) as the company continued recording revenue from projects namely Full House (Binh Tan) and Topaz Garden (Tan Phu).

Gross profit was flat as the sales weight of high margin brokerage fell sharply – at VND100.3 billion and GPM dropped significantly from 58% to 32% due to worsening product mix. Two factors at play here. Firstly the weight of high margin brokerage segment revenue fell sharply. Even so the GPM of brokerage & wholesale segment increased slightly from 64% to 65%. Secondly development segment GPM collapsed to 21% from 54% even as the sales weight here increased dramatically. Lastly the GPM of construction activity increased from 0% to 8%.

Brokerage segment market share and revenues dropped significantly in Q1 as that DXG focused more on selling units in the affordable and mid-end segment rather than high-end segment even as the proportion of high-end units as a % of total sold units increased compared to last year. According to CBRE, in Q1, high-end segment contributed around 38% of total transaction, increasing from 24% in Q1 last year. Meanwhile affordable segment contributed around 21% of total transaction, down from 35% in Q1 last year.

Net financial income turned negative – They reported a loss of VND(1.2 )billion compared to VND8.8 billion in Q1 last year as the company recorded higher interest expenses after raising more debt to finance their projects. By the end of Q1, total debt amounted to VND543 billion, increasing 23.7% YTD and 203% y/y, including VND282 billion in short term bank loans and VND261 billion in long term bank loans. Although DXG increased using of leverage recently to finance land bank acquisition and project development, debt/equity ratio is still at low of 0.32xs.


SG&A expenses increased considerably by 97% y/y to VND77.7 billion while SG&A to sales ratio rose slightly from 23% to 24.6%, mainly due to an increase in marketing expenses related to project launches.

The company also recorded VND14 billion profit from associate companies mostly from Long Dien Group (LDG). At the end of Q1, DXG held a 41.5% stake in LDG of which 16.2% was directly held by DXG and the balance of 25.3% was indirectly held through 2 subsidiaries. Recently, one subsidiary registered to sell a 4.67% stake in LDG to reduce its holding from 9.33% to 4.67%. We also saw a new investment in an associate company namely Phu Lac real estate & tourism company in Phu Quoc worth VND118 billion. According to DXG, this is an investment of its subsidiary in a project in Phu Quoc however we don’t have any details on this project.

Recent AGM approved 116% increase in chartered capital – At the recent AGM, DXG’s shareholders approved for a plan to issue 135,786,405 new shares to increase its chartered capital from VND1,173 billion to VND2,530 billion (+116%) through a right issue to existing shareholders at the rate of 1:1 and price of VND10,000 per share, stock dividend at the rate of 15% and 1 million ESOP shares.

HSC looks for a 36% increase in NPAT in FY2016 – We keep our net sales forecast of VND2,224 billion (+59% y/y) and NPATMI forecast of VND459 billion (+36% y/y), giving a fully diluted EPS of VND1,930. At the current price, this stock is trading at forward P/E of 6.1xs and forward P/B of 1.2xs.


Investment thesis – Reiterate Outperform. The stock has had a difficult quarter and now Q1 earnings were less than stellar. Mostly as GPM fell rather sharply. The company is transitioning from a pure brokerage to a more development based model and one consequence of that is lower margins. Valuations look very cheap at current levels. In term of NAV valuation, we estimate their RNAV at VND22,935 per share, which means that the stock is trading at a 34% discount to NAV. DXG has a good track record in the brokerage segment and a decent development pipeline. However, we are somewhat concerned about the degree of dilution. While we hope the company will do better than Q1 in subsequent quarters.





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