March 25, 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 above target numbers on very strong revenues from all three core businesses.
- GPM however fell on a deterioration in product mix and as the divisional margins in the already lower margin construction and development segments fell further.
- DXG was very active to acquire projects from failing developers at reasonable cost and so expanded their land bank as a result.
- HSC forecasts that FY2016 NPATMI will increase by 58% y/y to VND532 billion.
- Capital raising plan will double chartered capital this year.
- Very reasonable as it is trading at 6xs fully diluted forward P/E and a 25% discount to RNAV.
- Growth potential clear given active project M&A although dilution may be a future concern if they continue to expand at this pace.
- Reiterate Buy.
DXG numbers on track. Forward potential good. Reiterate BUY
MAIN TAKEAWAY – Above target numbers on very strong revenues from all three core businesses. However GPM fell on a deterioration in product mix and as the divisional margins in the already lower margin construction and development segments fell further. Net financial income slipped although luckily so did SG&A as a % of sales. DXG was very active to acquire projects from failing developers at reasonable cost and so expanded their land bank as a result. Several new projects coming in a fairly active pipeline. HSC forecasts that FY2016 NPATMI will increase by 58%. Capital raising plan will double chartered capital this year.
ACTION – Reiterate Buy. Very reasonable as it is trading at 6xs fully diluted forward P/E and a 25% discount to RNAV. Growth potential clear given active project M&A although dilution may be a future concern if they continue to expand at this pace.
Dat Xanh Group (DXG – BUY) recently released above target numbers – FY2015 audited consolidated results came out showing net sales of VND1,395 billion (+175% y/y) and NPATMI of VND337 billion (+101% y/y) which were 3.3% and 39% above the company’s target respectively. This result was broadly in line with our forecast however. In our model, we forecast FY2015 net sales of VND1,385 billion (+174% y/y) and NPATMI of VND331 billion (+97% y/y).
Brokerage division saw a big advance in revenues – DXG’s brokerage division had a fairly successful year with total sales volume amounting to 8,955 units (+33.2% y/y), or a 16.1% nationwide market share (down from a 24% share in FY2014). And the brokerage services and wholesale investment segment contributed VND753 billion in revenues (+145% y/y) of which revenue from wholesale investment alone accounted for VND87 billion (+54% y/y).
Real estate development revenues more than doubled – Revenue from real estate development came to VND488 billion (+216% y/y), coming from 2 key projects namely Sunview Town (VND438 billion; there were no bookings in FY2014) and Gold Hill (VND50 billion; -41% y/y);
- By the end of FY2015, DXG had sold all 1,639 units in the Sunview Town project (Thu Duc) at an average selling price of VND14.5 million per sqm (including VAT). This four-block project was launched in Q3 FY2013 and to date, DXG has finished construction of 2 blocks totaling 660 units. During the 2-H FY2015, the company already handed over around 592 units to buyers and they plan to hand over the remaining 1,047 units in FY2016.
- For the Gold Hill residential area project which covers 26.57 ha in Dong Nai, DXG sold 180 land plots in FY2015. To date, the company has sold 967 plots out of a total of 1,044 land plots at an average selling price of VND3.5 million per sqm. And then finished infrastructure and handed over 619 plots to the buyers.
As did the construction division – The construction division which is managed by its subsidiary, ECI construction, contributed VND153 billion in revenue (+244% y/y) from 3rd party projects such as Full House (Binh Tan) and Topaz Garden (Tan Phu). Total new signed con-tract in FY2015 amounted to VND2,601 billion (+396% y/y) and by the end of FY2015, we estimate total backlog transferring to FY2016 is around VND2,708 billion (+432% y/y).
GPM slipped as product mix worsened – Gross profit came to VND659 billion (+118% y/y). By division gross profit from brokerage & wholesale investment came to VND544 billion (+136% y/y); gross profit from real estate development came to VND108 billion (+83% y/y). While gross profit from construction activities came to VND7.8 billion (-37% y/y). Then overall gross profit margins dropped to 47.3% from 59.6% in FY2014 as GPM of all segments dropped. We saw a greater revenue weight of low gross profit margin divisions while the GPM itself in those divisions fell back noticeably. We saw that the GPM for brokerage & wholesale investment dropped slightly to 72% from 73% meanwhile GPM for real estate development declined to 22% from 40% and GPM for construction segment were at 5% compared to 28% last year.
Net financial income decreased by 66% y/y to VND28.3 billion mainly as the one-off gain totaling VND67 billion from project disposals dropped out in FY2015. Financial income came to VND36.8 billion (-56% y/y), mostly from interest income. While financial expenses rose to VND8.5 billion (+1,066% y/y) on the combination of a loss from financial investment disposal and an interest expense increase given higher debt.
SG&A expenses increased significantly by 97% y/y to VND269 billion although the SG&A to sales ratio still dropped from 27% to 19%. Mainly due to an increase in marketing expenses related to project launches.
The company also recorded VND67 billion profit from associate companies, mostly from Long Dien Group (LDG) which is engaged in residential, urban area & resort development. Long Dien focuses on residential development in other provinces such as Dong Nai, not focus on HCMC like DXG. They also invest in a resort in Phu Quoc DXG currently holds a 41.5% stake in LDG of which 16.2% is directly held by DXG and the balance of 25.3% is indirectly held through 2 subsidiaries.
Available land has increased almost 50% due to active project M&A – In FY2015, DXG engaged in some significant M&A acquiring a total of 8 projects related to affordable and mid-end apartment projects. After acquiring these 8 projects, DXG’s total land bank increased to 44.5 ha from 30.2 ha. There are at various stages with most having cleared land. However in 4 projects the LUR has been paid and in 4 projects it has not yet been paid.
Acquisition trail continues – Recently, the company also announced that they will acquire further 4 projects including an office building project and 3 residential projects. Of which, there is a large project in district 2, namely Venice, which covers an area of 6.7 ha and is designed for 3,100 apartments with total investment capital of VND5,145 billion.
Steady launch of new projects – DXG launched a new 2-block project namely Luxcity in district 7 into the market from Q3, FY2015 at the selling price ranging from VND23 million to VND26 million per sqm. To date they have sold around 300 units out of a total of 426 units. They also plan to launch 2 new projects in Q1 FY2016 namely Opal Riverside in Thu Duc and Auris City in district 8. However, the company has not disclosed the expected selling price yet.
HSC forecasts NPAT will expand another 58% this year – For FY2016, we forecast net sales of VND2,462 billion (+76% y/y) and NPATMI of VND532 billion (+58% y/y) given our assumptions:
(1) We forecast sales growth of 11% y/y in the brokerage & wholesales division, to VND833 billion based on our assumption that they will sell 9,350 units on behalf of client.
(2) We expect sales from development segment will total VND1,453 billion (+198% y/y) as the company continues to book revenues from the Gold Hill (VND115 billion) and Sunview Town (VND1,029 billion) project. We also assume that the company will book part of the revenues from the Luxcity project (VND309 billion) as they plan to hand over the bare-finished units (a total of 426 units) in Q4 FY2016.
(3) We assume the construction segment will grow 15% y/y to VND176 billion given the likely pace of construction progress of the current pipeline.
(4) We also forecast gross profit of VND941 billion (+43% y/y) and a lower GPM of 38.2% for the second consecutive year. By division, we assume GPM from brokerage will be stable at 72% meanwhile we assume that the GPM from residential development will be 23% and that construction segment GPM will be just 5%.
(5) Assume that SG&A expenses will increase to VND322 billion (+19.7% y/y) on higher sales.
(6) Assume net financial income will rose slightly by 9.5% y/y to VND31 billion given higher interest income as cash balance improves.
(7) As a result, we forecast FY2016 NPATMI of VND532 billion (+58% y/y).
Capital to more than double on capital raising plan – The company plans to raise capital through the issuance of new shares to existing shareholders at the rate of 1:1 and a price of VND10,000 per share. Accordingly, total capital raised would come to VND1,172 billion to be used to invest in the new project such as Venice in district 2 as we mentioned above. The company will ask shareholders’ approval in this year AGM which will be hold in February 26th. DXG also plans to pay stock dividend at the rate of 20:3 (shareholders hold 20 shares will get 3 new shares) and then issue 1 million ESOP shares to employees. After that, total chartered capital will increase to VND2,530 billion (+116%).
Given our assumption, FY2016 fully diluted EPS will come at VND2,240, giving us a forward P/E of 6xs which is very cheap compared to other peers.
Strong balance sheet although sharp growth reflected in expansion – By the end of FY2015, total inventories increased significantly to VND1,122 billion (+125% y/y) as the company acquired more projects in FY2015. Total receivables also rose to VND925 billion (+221% y/y) given higher deposit for both project acquisition and wholesale investment. However, we also note that total advances from customers also surged by 172% y/y to VND832 billion, mostly related to pre sales on the Sunview Town, Gold Hill and Luxcity projects.
Due to the capital needed to acquire and develop project, DXG increased their bank loans to VND439 billion, increasing by 265% y/y, however the debt/equity ratio is still quite low at 0.25xs.
Very reasonably valued despite dilution – In term of NAV valuation, we estimate their RNAV at VND24,136 per share, which means that the stock is trading at a 25% discount to NAV. We note a cheap valuation, good track record in the brokerage segment and strong growth potential with a decent pipeline. However we are a little concerned the degree of dilution as the company may need yet more capital going forward to acquire land bank and develop their pipeline. Reiterate Buy.