Property Development & Investment – Better days are still some distance away

• We saw 1H22 sales volume strongly rebound in both HCMC and Hanoi, underpinned by the surge in new launches while selling prices cool down.
• We see demand outlook in 2H22 to be more challenging due to cost-push inflation, limited credit room for property sector and interest rate hikes.
• Our top picks are VHM, NLG, DXG.

Developers have boosted sales activities to improve cashflow in 1H22

According to CBRE, the 1H22 condo sales volume surged by 70% yoy and 34% yoy in HCMC and Hanoi, respectively, underpinned by the surge in new launches. We saw condo primary prices in luxury and high-end segments to cool down due to credit restrictions. Developers sped up their contracted sales to improve cashflow in 1H22, with VHM (+234% yoy), NLG (+87% yoy), NVL (+27% yoy), in-line with our previous expectation. We believe the improvement in contracted sales and operating cash flow in 1H22 should support listed property companies’ debt maturity in the next 12 months despite refinancing challenges.

We see more headwinds than tailwinds into 2023

We see increasing headwinds weighing on sector outlook, including: 1) tightening bank loans into property sector and stricter supervision in corporate bond issuance; 2) rising mortgage rates will hinder the housing purchasing decisions; 3) we believe any significant improvement in tackling bottlenecks for residential projects would not happen before the Land Law 2013 amendment completed in 4Q23F. On the positive side, we expect the building material prices to cool down in 2H22 which will support public investment and tame home prices.

Demand to be more challenging while home prices to cool down in 2H22F

We believe property demand likely to be more challenge in 2H22F due to cost push inflation, expected interest rate hikes and limited credit room. We forecast new launches of the top five developers under our coverage are backloaded in 2H22F amounting to VND88,600bn vs. VND159,400bn in 1H22. We continue to expect developers will keep employing the strategy of pricing primary flats in 2H22F, especially for luxury and high-end segments, to enable high absorption rate.

Our top picks are VHM, NLG, DXG

We believe investors should focus on quality names that possess following traits: 1) huge land bank, which is already completed legal procedures as well as infrastructure to be launched in 2H22-2023F 2) high exposure to the mid-range and affordable condo segments as these segments are driven by real end-user demand and 3) sustainable earnings growth and scalable business models with a healthy financial position (low leverage, strong liquidity) to counter the risk of tightening credit for the real estate market as discussed above. We believe NLG, VHM, DXG are on this list as they meet above key criteria.

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