VIC [BUY +30%] –Residential sales delivering on lofty expectations

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VNM [BUY +22%] – Hoisting Vietnam’s Champion for a re-rating

September 15, 2015

Vingroup (VIC), Real estate & consumer retail

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* VIC remains our favourite to play Vietnam’s property market recovery thanks to its sustainable advantages to succeed in the high-end segment.

* 7M15 residential sales exceed our expectation, reaching VND 30.6t vs VND 16.4t in the whole FY14 and our full-year forecast of VND 37.3t. VND 22.5t came from projects in HCMC and Hanoi with the rest from resort villas.

* 7M15 cash received from residential projects excluding resort villas amounted to VND 14.9t, fuelling VIC’s fast-track construction across projects.

* We expect market sentiment on VIC to pick up going forward as these upbeat results will be materialized on P&L come 2016 and 2017.

* FY15 NPAT forecast revised by -11%. Unexpected VND devaluations caused FX loss while hospitality’s GPM came below forecast, offset by the transfer of an office tower to be booked in 4Q15. See full forecast revision on page 3.

* The new consumer retail business remains a drag on earnings, with a PBT loss of VND 502b in 1H15, in line with our expectation.

Revenue -10% and NPAT – 63% in 1H15 vs 1H14, mainly due to lower handover of apartments, loss from consumer retail business and FX loss (see page 5 for our full comments). 1H15 results are broadly in line with our expectation.

We have not modeled for the Ba Son project (24ha in CBD, HCMC, approved-in-principle), which would significantly push up our capex projections.

VIC has expanded its retail space (GFA) by 17% YTD to 620,000 sqm, targeting one million sqm within 12 months to shore up its recurring income stream and at the same time build up the platform for its consumer retail business.

Since our re-initiation report in May, VIC has launched four specialty store chains and an e-commerce (B2B2C) website (www.adayroi.com), essentially making it the most diversified retailer in Vietnam.

Financial Statements

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P&L Forecast

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7M15 residential sales delivering on lofty expectations

VIC sold over 5,600 apartments in 7M15, already 40% higher than the amount achieved throughout 2014 and implying a market share of over 30% in HCMC and Hanoi. Its market share will be even greater in value terms as VIC mostly sells high-end products.

The aforementioned VND 30.6t new contract value excludes those from wholesale transactions (P5 & P6 towers at Vinhomes Central Park project for example), which if included would increase the total new contract value YTD to above VND 40t according to VIC.

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1H15 – core businesses on track with our expectation

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Consumer retail – fast-paced footprint expansion further supported by the launch of e-commerce website

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In June, VIC launched four specialty store chains to widen its presence in the consumer retail sector, including BeautyZone (cosmetics), SportsWorld (sportswear), ShoeCenter (shoes) and Fashion MegaStore (fashion), operating under subsidiary VinDS. VinDS targets at opening 74 stores in the next 12 months and over 300 stores in the next three years. Like VinMart and VinPro, these specialty stores are being located within VIC’s own retail properties; therefore, their expansion will go alongside with that of the retail property segment, which is set to grow rapidly as VIC aims at opening an accumulated 30 retail properties (from 12 currently) in one year’s time.

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First glance at VIC’s e-commerce website www.adayroi.com

– www.adayroi.com (ADR) is a B2B2C marketplace, similar to Tmall. However, unlike Tmall, ADR also provides to enterprises/suppliers a full suite of services ranging from picture and content creation, sales to customer services and delivery. This will allow ADR to maintain the quality and consistency of its services to consumers.

– Sales commission and price discount will constitute most of ADR’s revenue.

– ADR’s collection of product categories is the most diverse, ranging from fashion, consumer electronics and stationery to less popular categories like groceries and even cars.

– During the pilot period, ADR will only serve HCMC and Hanoi markets with a maximum number of orders of 1,500 per day and 300 per hour. At this point, ADR will focus on the existing customer base derived from Vingroup’s ecosystem (Vinhomes, Vincom Retail, VinPearl, VinMart, VinPro etc.), which is a privilege other e-commerce players did not have when they started.

– See our re-initiation report for an overview of Vietnam’s e-commerce market and its competitive landscape.

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Target price unchanged at VND 54,500

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RECOMMENDATION HISTORY

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VCSC Information

VCSC Rating System & Valuation Methodology

Absolute, long term (fundamental) rating: The recommendation is based on implied total return for the stock defined as (target price – current price)/current price + dividend yield, and is not related to market performance. This structure applies from 27 May 2015.
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Valuation Methodology: To derive the target price, the analyst may use different valuation methods, including, but not limited to, discounted free cash-flow and comparative analysis. The selection of methods depends on the industry, the company, the nature of the stock and other circumstances. Company valuations are based on a single or a combination of one of the following valuation methods: 1) Multiple-based models (P/E, P/cash flow, EV/sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, and historical valuation approaches; 2) Discount models (DCF, DVMA, DDM); 3)Break-up value approaches or asset-based evaluation methods; and 4) Economic profit approaches (Residual Income, EVA). Valuation models are dependent on macroeconomic factors, such as GDP growth, interest rates, exchange rates, raw materials, on other assumptions about the economy, as well as risks inherent to the company under review. Furthermore, market sentiment may affect the valuation of companies. Valuations are also based on expectations that might change rapidly and without notice, depending on developments specific to individual industries.

Disclaimer

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