NLG – Thorough preparation for the new growth cycle – Update

• We remain our rating to Hold with 1.4% upside and an 2.0% dividend yield. We increase our TP by 8.7% while price has increased 17.2% since our last report.
• The main driver of our change in TP is the WACC revision.
• Current P/B of 1.2x is equal to peers fully reflect the earnings forecast FY23-24 of 1.4x.

Financial Highlights

• 2023 revenue dropped by 26.7% yoy to VND3,181.4bn (US$128.5m). However, it would have increased 69% yoy to VND7,343bn (US$296.7m) if revenue from the Mizuki joint JV project was consolidated into its top line.
• The 17.0% increase of inventory to VND17,348bn (US$700.9m) as end of 2023 compared to end of 2022 largely stems from increased development expense of Akari, Izumi, Southgate, Nam Long II (Can Tho) projects.
• We expect FY24 net profit growth of 19.4% to VND578,0bn (US$23.4m) thanks to the of divestment earnings from a 25% stake in Paragon project and the handover of Akari, Can Tho, Southgate and Izumi projects.

Investment Thesis

We expect a recovery of the residential property market from 2H24

Multiple factors drive our sector outlook in 2024: 1) falling interest rates will stimulate demand from homebuyers and developers; 2) regulatory agencies are working to resolve projects that are stuck in legal procedures; and 3) businesses have reduced debt and are strengthening partnerships with large partners.

Supply crunch in affordable and mid-end housing is a key driver for NLG

Currently, there is an imbalance between supply and demand with an oversupply in the high-end segment. NLG focuses on the affordable and mid-end segments, which matches the market demand. In 2024-25, NLG presales mostly come from products in the mid-end segment of the Can Tho project (Ehome, Landed-plot subdivision) and Southgate project (Ehome phase 2 & 3).

Akari, Mizuki, Izumi, Can Tho II will drive 2024-25 presales turnaround

We expect FY24/F25 presales value to increase 73.4% yoy/ 23.5% yoy to VND6,800bn (US$275m) / VND8,400bn (US$340m) compared to low-base 2023. FY24-25’s presales come from Southgate, Can Tho, Mizuki projects, surpassing the 2022 peak. We believe that take-up rate of NLG’s projects remains impressive as products launched in 2024-25 focus on the mid-end segment.

Strong legal foundation helped to bolster NLG’s financial capacity

According to Real Estate Business Law (Amended), developers are only allowed to collect a maximum of 5% of the value of future-developed housing products, compared to the current regulation of 30%. However, most of NLG’s projects have obtained sale permits before launching, including two key projects of NLG are Can Tho and Waterpoint Southgate, which have both received sale permits. Therefore, NLG can still collect pre-fund sources of up to 30% of the value of future-developed housing products from customers.

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