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August 30, 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.


  • VIC announced very strong 1-H FY2016’s consolidated results with most segments outperformed expectations. Net sales came to VND24.2 trillion (+95% y/y) and NPAT grew 322% y/y to VND2.9 trillion.
  • Gross profit was VND7.2 trillion; up 65% y/y even as GPM falls because of a deteriorating product mix, especially leasing segment acts as a drag
  • as new resorts continue to offer heavy discounts to attract customers.
  • One – off gains of VND2.2 trillion from the disposal of the Star City project contributed to a 322% y/y jump in NPAT.
  • Thus HSC has revised up our NPAT forecast calls for 186% y/y growth which may reach VND4.3 trillion (+186% y/y).
  • VIC has shareholder approval for a bonus share issuance at a ratio of 1000:225 by Q4 FY2016. The chartered capital will increase 22.5% from
  • VND21,532 billion to VND26,377 billion.
  • Issue with TTF needs further investigation before VIC can make any official announcement, hence our current numbers don’t take into account
  • any impact from this event.
  • Beyond FY2016 forward prospects look positive with a crop of major residential projects’ booking even though the rapid expansion in all segments especially retail line causes concern that we think the process should slow down a bit to improve the services quality provided.
  • The share price was hit quite hard a few weeks ago before rebounding and currently is trading at a 19.6% discount to our RNAV.
  • Reiterate OUTPERFORM.

VIC’s consolidated results above expectations. HSC revises bottom line. Reiterate Outperform



MAIN TAKEAWAY – VIC had an above expectation bottom line thanks to one-off financial income in Q2 FY2016, boosting NPAT more than 3 times y/y. Most segments outperformed expectations including the core residential segment. Although the Hotel & entertainment segment as introduced resorts continue to offer heavy discounts to attract customers. GPM fell because of that and a deteriorating product mix. Even so HSC has revised up our NPAT forecast after a one – off gain and now calls for 186% y/y growth. Whilst maintaining our forecast for the core businesses. We still suggest that the crop of major residential projects’ booking will run strong also into FY2017. The retail business expansion continues at breath neck speed raising some concerns over stainability.

ACTION – Reiterate OUTPERFORM. The stock is trading at a 19.6% discount to our RNAV of VND60,429 per share after paying stock dividend in July. Catalysts include decent earnings prospects and continued access to CBD projects. TTF issue not a major concern. However we continue to watch the retail segment expansion closely.

Vingroup (VIC – Outperform) NPAT jumped over 3 times – VIC the leading real estate developer announced very strong 1-H FY2016’s consolidated results showing decent top and bottom line. Specifically, sales came to VND24.2 trillion (+95% y/y) whereas NPAT grew 322% y/y to VND2.9 trillion. The results fulfilled 54% and 98% of the company’s sales and NPAT’s target for FY2016, respectively. And also fulfilled 54.7% of HSC forecasts for FY2016 sales and 103% of our NPAT forecast.

Sales led by strong residential bookings – with the bulk of current generation residential bookings starting from FY2016, residential sales reached VND14.9 trillion (+91% y/y). We estimate the bookings in 1-H FY2016 mostly came from Vinhomes 54A Nguyen Chi Thanh (VND1.7 trillion), Vinhomes Central Park (VND7.1 trillion), beach villas (VND3.8 trillion) and other projects (VND2.3 trillion). The company’s sales last year of over 10,000 units (up more than 10 times y/y) and 900 beach villas (these were only offered from last year so no y/y comparison is available). The trend also suggests that bookings will run strong also into FY2017 and FY2018.

Leasing continues to grow at a fast pace – Leasing segment revenues grew by 46% y/y to VND1.55 trillion, attributable to a more than 2 times increase in leasing floor space to 950,000 sqm compared to the same period last year. The total number of operating shopping malls is now 25 (compared to 9 units at the end of the 1-H FY2015) and VIC plans to increase the geographic coverage of shopping malls nationwide to reach 40 malls by the end of FY2016. From FY2017 onwards, VIC is looking to put up urban centers in Tier 2 or Tier 3 cities. Consolidating its grip on the rural market by constructing 50-80 “Big box” malls where VIC’s own brands will be major tenants together with some selected anchor tenants. The scale of the “Big box” stores will even be smaller than the Vincom plazas of 20,000-40,000 sqm for the time being.

We estimate the average occupancy rate of the Vincom centers at over 93% while that of the smaller scale Vincom plazas is less at around 85%-90%; of which 30% is generally occupied by internal tenants such as Vinmart, Vinpro, VinDS, etc. The provincial centers are finding tougher to get anchor clients and the result is a wide variances in rents per sqm. In fact the rent ranges from USD50 -65/sqm for Vincom Centers and from USD12- 25/sqm for Vincom Plazas.


Hotel & Entertainment segment grew 58% y/y as room count surged – 1-H Hotel & Entertainment segment revenues came to VND2.1 trillion (+58% y/y) boosted by the opening of 4 new resorts namely Vinpearl Phu Quoc Resort & Villas, Vinpearl Nha Trang Bay Resort & Villas, Vinpearl Golf land resort and villas and Vinpearl Ha Long Bay Resort. This brings the total number of resorts to 8. The total room number is now 5,000 (+41% y/y).

And while we estimate the average occupancy rates at nearly 60% this greatly varies by project and seasons in the year. For example, the occupancy rate is usually very high in the summer during school holidays. We estimate that REVPAR (revenue per available room) fell to about VND1,460 million/room/year, down 11% y/y as many of the new rooms carry special promotional rates to boost occupancy. Since new resorts carry high initial fixed costs having just been put into operation, we think that the company will stop new construction for the time being while focusing on improving resorts quality in order to retain customer loyalty and enhance the segment’s performance.

Hospital sales showed considerable growth by 49% y/y to reach VND483 billion – VIC continues to expand its network by co-operating with more insurance providers which has helped to substantially expand the client’s base while adding more specialty departments through collaboration with worldwide health providers. In Q2, VIC put into operation VinMec Nha Trang, which increases the number of international hospitals and clinics to 4 and 2, respectively.

While the total number of beds has risen to 1,024 beds (+77% y/y). We estimate that another 400 beds (+ 33%) will be added when under-construction hospitals in Can Tho and Da Nang are been completed in FY2017. VIC’s strategy is to incorporate the healthcare system into all of their residential projects as a value added services for buyers. Which also provides an increasing source of recurring income for the company. We also know that VIC has invested US$50 million for a high quality human resource training program to assure highest quality healthcare services.

Education segment revenues also rose significantly by 51% y/y – Similarly to the hospital segment, Education segment revenues rose significantly to VND320 billion (+51% y/y) in 1-H FY2016. VIC now operates 1 elementary, 1 high school and 1 nursery in VinhomesTimes City, along with other 4 nurseries in Vinhomes Riverside, 54A Nguyen Chi Thanh, Royal City and Times City respectively. With approximately 12,000 students now, compared to 6,300 students one year ago. By the end of FY2016, the number may reach 12,500 (+38% y/y). Tuition fees for each pupil is roughly VND56 million/ year for nursery, VND33 million/year for elementary and VND36 million/year for high school excluding additional fees for F&B, transport, uniforms, books etc.

The Vinschool education system now offers education from nursery through to high school also offering international orientation through exchange programs for study abroad. The growth of the education segment reflects an untapped demand for well facilitated education aimed at middle income people. We think the revenue growth rate will remain at current growth rates for now closely mirroring the number of completed residential projects especially the large scale projects such as Vinhomes Central Park.


Retail business revenues increased over 2.5 fold given robust expansion – The fairly new retail business saw 1-H revenues jump to VND4.4 trillion (+255% y/y) in sales. At the end of the 1-H FY2016, we estimate the total number of Vinmart stores was 50 (up 7xs y/y) with Vinmart+ standing at 825 units (up 26xs y/y). The supermarket chain now covers 56 out of 63 cities and provinces nationwide. VIC plans to open 60 Vinmart and 1,000 Vinmart+ by the end of FY2016. We also see growing competition both from foreign retailers such as Aeon (Japan), Emart (Korea), BigC and Metro (bought by a Thai investor) and domestic participant like MWG with Bach Hoa Xanh retail chain.

In that circumstance, VIC pro-actively created its competitive advantage by partnering with 250 domestic suppliers under a major program designed to promote consumption of local products by which enhance the supply chain quality by optimizing their production, increase the products’ quality, cut costs and make their brands stronger.

Retail sales have also been boosted since their retail website Adayroi was incorporated online. After a year running the trial version, the website has just been officially launched and this promises to be a powerful advantage over their competition. Moreover, VinEco agriculture products complying with VietGAP and GlobalGAP are also being distributed through Vinmart and Vinmart+ and online shopping. The company keeps expanding their land bank for agriculture; most recently adding 213 ha in Thua Thien Hue in Central Vietnam at a total investment of VND525 billion. They now have 11 operating farms which distribute more than 20 tonnes/ day of fresh vegetables compared to 15 tonnes/day last year. Given the risk of food contamination in Vietnam there is strong demand for safe foods.

Gross profit came to VND7.2 trillion; up 65% y/y even as GPM falls – However, aggregate GPM dropped to 29.8% vs. 35.2% last year. The slide in GPM can be traced to (1) deteriorating product mix and (2) falling margins in major segments. The normally high margin components including residential, leasing, and especially hotel& entertainment segment saw a drop in total sales contributions and then individual sector GPM for a variety of reasons;

1. Residential for sale margins dropped – Despite gross profits growing 89% y/y to reach VND5.8 trillion, residential for sale GPM slightly dropped to 38.9% vs 39.9% last year. Given that the margins for high end apartments slid during the 1-H. We expect residential margin will bounce back to 43% by the end of FY2016 as more beach villas which carry higher margin will be booked for 2-H FY2016.

2. Leasing GPM slipped as new provincial malls, which carry lower margins act as a drag – total leasing gross profits came to VND766 billion (+28% y/y). However compared to last year, GPM dropped from 56.4% to 49.4% which we think was because of the higher weight of smaller provincial based shopping malls which carry lower margins. In addition these malls are still at the beginning of their operational life with less than optimal occupancy rates and rentals while still incurring high initial cost.

3. Hotel & Entertainment made a loss due to heavy promotions and discounts – The segment made a loss of VND(169) billion vs a gross profit of VND298 billion last year. Since new resorts carrying heavy initial fixed cost have just been put into operations, they also had to offer more promotions and discounts to attract visitors. Leading the segment’s GPM to fall into negative territory.

4. Retail segment GPM stablised despite new store opening soars – gross profit reached VND466 billion, up 239% y/y. GPM came to 10.7% vs. 11.2% last year. VIC clearly put considerable effort into maintaining GPM levels even as the number of new stores accelerated during that period. We expect the speed of new stores opening will slowdown from now as the company focuses on improving traffic and quality of those stores that have already been built. Even so, we think the GPM of the retail segment will find it hard to move much above 10% for this year.

One – off gains contributed to a 322% y/y jump in NPAT – During Q2, VIC had a one – off gain of VND2.2 trillion from the sale of the Star City project which helped to boost financial income up by 229% y/y. Star City is a 4 ha project bought from Ocean Group last year. VIC decided to sell off this project because they still have plenty of potential projects in this area to develop. After the transaction, VIC recorded a net financial gain of VND1.4 trillion compared to a loss of VND(678) billion last year. Financial expense made a gradual increase of 3% y/y to reach VND1.65 trillion.

HSC revises up and now forecasts 186% growth in FY2016 NPAT due to one-off financial income in Q2 – Our earlier forecast for FY2016 profits was a bit more pessimistic than the company targets in relation to NPAT. Because of the rapid expansion of retail segment which carries extremely low margins together with higher expenses Originally HSC had forecast sales of VND44.2 trillion (+30% y/y) and NPAT of VND2.8 trillion (+85% y/y). We keep the sales forecast, however, due to the one – off financial income in Q2, we revise up the forecast for NPAT which may reach VND4.3 trillion (+186% y/y). Apart from that, our expectation and forecast for the core businesses remain unchanged for the whole year.


Forecast based on the following assumptions:
1. We expect residential real estate bookings for the whole year will come to VND24.4 trillion (+16.2% y/y) with the remaining booking of VND500 billion from Royal City, VND1.7 trillion from 54A Nguyen Chi Thanh, VND5 trillion from Times City Phase 1&2, VND8.7 trillion from Central Park and VND8.5 trillion from resort villas.

2. We assume leasing income grows 15% y/y given the rapid expansion in shopping malls. GPM to range between 50% and 55% over the next 2 years.

3. Estimate that Hotel & Entertainment income will grow around 40% y/y on new room growth. However, we expect the GPM will improve much this year that will be around 20% since too many rooms have just been added. New resorts need more time to settle down after initial heavy investment, we think the GPM can be rebound in FY2017 onwards.

4. We assume that Retail revenues grow over 100% y/y as the ramp-up still continues. Given the new stores opening pace and assuming no inventory provisions we estimate GPM will remain under 10% for this year.

5. Expect education, management services and construction services to continue to grow at roughly the 1-H pace.

6. Project overall GPM drops to 33% vs. 34.2% last year given lower margins in key segments. However we see margins improving on the 1-H due to a greater weight in high margin segments such as villas and residential bookings helping to anchor GPM.

7. Assume net financial income comes to VND1,247 billion as helped by a one-off financial income and that SG&A expenses will rise about 23% to VND8.4 trillion due to the rapid expansion of various segments.

Aggregating all the above assumptions, we forecast the company will deliver an EPS of VND1.993 (+213% y/y), diluted EPS of VND1,627 (+156% y/y) and leading to a forward P/E of 24.3xs, plus a diluted P/E of 29.8xs, respectively.


Continue to launch new projects nationwide – VIC is maintaining its market-leading position in most segments of the property development sector with a long list of both active projects such as Vinhomes Central Park (HCMC), Vinhomes Times City – Park Hill (Hanoi), Vinhomes Gardenia, Vinhomes Riverside 2 (Hanoi) and on-going construction activities at new projects such as Vinhomes Paradise, Vinhomes Springlake. After launching Vinhomes Golden River where VIC ‘s ownership stake was increased to 39% from 19%, in HCMC during Q1, VIC has also launched a string of upscale residential projects in Hanoi.

One of these, called Vinhomes Metropolis located in Ba Dinh District, is one of the hottest projects in Hanoi at the moment given its location and selling price. The project consists of three high-end apartment buildings and two office towers. Vinhomes Metropolis will encompass four kinds of apartments, from one to four bedrooms with areas ranging from 54 sqm to 150 sqm. We estimate a price of at least VND70 million per sqm for such a prime location.

VIC has been fairly aggressive in all of their operating segments especially land bank acquisition. The total land bank by end of FY2015 was 34.8 million sqm (equivalent to 3,479 ha) (+6% y/y) of which the area for developing real estate accounted for 76% amounting 2,783 ha (+56% y/y). While the residential land bank is mainly in major cities such as Ha Noi and the HCMC, the resort projects are evenly located in various beach/ tourism cities along the coastline.

VIC signed a US$300 million international syndicated loan agreement in July to finance their development projects. The five-year amortizing loan pays coupon of Libor + 5% p.a. Credit Suisse AG is Mandated Lead Arrangers (“MLABs”) and also acted as one of the Coordinators for the loan. VIC so far is still the first Vietnamese real estate company to successfully tap into the international syndicated loan market. The new deal enjoys better conditions compared to the first international syndicated loan deal in FY2013 amounting US$200 million with longer term and lower interest rate. We estimates VIC’s debt will hit VND46 trillion by the year end, leading to a debt/equity ratio of 0.98xs. It is pretty healthy for now given the large CAPEX requirements as the company is expanding their footprint both into new real estate projects and other segments adjacent to their core businesses. New issuance plan to existing shareholders at the ratio of 1000:225 by Q4 FY2016. The company seeks shareholder approval for a bonus share issuance at a ratio of 1000:225. Accordingly, VIC plans to issue 484,447,828 shares to increase its chartered capital from VND21,532 billion to VND26,377 billion, up 22.5%. Capital surplus will fund it and timetable is within Q4 FY2016. The stock won’t be restricted to transfer.

We await more information on the TTF issue – TTF is a local timber and furniture manufacturer. In FY2015, Tan Lien Phat Investment and Construction JSC.(TLP) bought a 49.9% stake and become a strategic partner in the hope of strengthening the supply of furniture products for its retail centers as well as for residential projects such as Vinhomes, Vincom, Vinpearl, etc. However several weeks ago, TLP, announced that there were serious discrepancies in the inventories and receivables data provided by TTF. Resulted in an cumulative loss of VND1 trillion for TTF at the end of 1-H FY2016.

Apart from their 49.9% stake in TTF, TLP also has 2 convertible loans worth over VND1.2 trillion, due in September 2016 and January 2017 respectively at a corresponding conversion price of VND14,200/share and VND22,000/share. VND603.5 billion will be converted into 42.5 million shares at the conversion price of VND14,200/share and VND598.4 billion converted into 27.2 million shares at VND22,000/share.

TLP has now suspended this and looks likely to renegotiate the loans swap and terms as a consequence of the errors. Further investigations are being conducted before VIC/TLP will make any further official announcement. TTF has been placed under special control from August 9th 2016 by HSX. Accordingly, TTF can only be traded in the afternoon session of the day via order matching and put through transactions. The price collapsed to a low of VND7,600/share before rebounding recently. With the limited information available at the moment, it’s hard to estimate the potential loss and any impact on VIC’s consolidated results. We will adjust numbers once the final outcome is revealed. Hence our current numbers don’t take into account any impact from the TTF event.

Beyond FY2016 forward prospects look positive – Longer term prospects beyond this year look positive given a leading real estate developer position with large land bank owned. The rapid expansion in all segments especially Retail line causes concern that we think the process should slow down a bit to improve the services quality provided. Based on the projects information we obtained so far, we estimate RNAV is VND60,429 per share after paying 11% stock dividend in July, meaning the share prices is trading at a 20.89% discount.

HSC forecasts NPAT growth of 22% y/y for FY2017 – HSC expects net sales of VND63 trillion (+43.7% y/y) leading by the residential real estate bookings which will come to VND40.5 trillion (+66% y/y) while other major segments’ sale such as leasing of VND3.3 trillion (+15.4% y/y), hotel& entertainment of VND4.3 trillion (+6.1%), retail of VND11.8 trillion (+26.8% y/y). Overall GPM to range between 31% and 35%. Net financial income comes to VND(1) trillion without one-off financial income. With this we forecast NPAT of VND5.2 trillion (+22% y/y). Delivering a forward EPS of VND1,986/ share and FY2017 forward P/E of 24xs.

Investment conclusion – Reiterate OUTPERFORM. The share price was hit quite hard a few weeks ago before rebounding. Given the TTF issue. Plus the bonus share issuance by Q4 raises some dilution concerns. VIC’s share price is now up by 13.6% YTD and trading about 34.7% above the 12 month low. The available FOL is still ample amounting to about 373.7 million shares or 11.6%. VIC is approaching the earnings peak of the current cycle.





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