VHM – Strategic expansion secures medium-term growth – Update

• We maintain our ADD rating with 50.2% upside. We decrease our TP by 22.3% while the share price has increased 8.5% since our last report.
• The main driver of our TP change is that we apply a 40% discount rate on our RNAV valuation anticipating risks related to a slower-than-expected property market recovery and higher exposure to risk from parent Vingroup.
• The current P/B of 1.1x is below the peer average (1.4x) and undervalues the company’s potential growth capacity.

Financial Highlights

• 4Q23 revenue declined 72.1% yoy to VND8,698bn (US$358mn). 2023 revenue totaled VND103,557bn (US$4,262mn), 66.0% higher than 2022’s result, fulfilling 97.7% of our full-year forecast.
• 4Q23 net profit slid 91.0% yoy to VND826bn (US$34mn). 2023 net profit reached VND33,371bn (US$1,373mn), completing 91.3% of our forecast.
• We forecast net profit to grow 4.9%/30.7% in FY24/25. We lowered our NP forecasts by ~19.6% pts as we pushed back our assumptions for deliveries of the Vinhomes Co Loa and Vinhomes Wonder Park projects by 12 months each and lowered our Vu Yen selling price assumption after the project was officially launched.

Investment Thesis

VHM is pioneering social housing development, which is the key to resolving the supply-demand mismatch in the residential market

In response to Government influence and financial support, residential property developers have been actively developing social housing projects to address a market imbalance given the oversupply of luxury housing. Vinhomes is a pioneer in this area, having broken ground on two social housing projects in 1Q2024 that should launch in the second half of this year. Although these projects have a lower gross profit margin than mid and high-end developments, they provide additional revenue opportunities and spread Vinhomes’ brand awareness to a broader range of homebuyers.

Adoption of amended property laws will strengthen VHM’s market position

Amid the Government’s continuing efforts to support the property market, we expect that the market will welcome regulatory clarifications of the law that help to smooth project approval processes. Any new regulations and policies that help resolve legal problems will support market sentiment. The amended laws (effective date expected in 2H24-1H25) will require developers to prove stronger finances, implementation capability, and legal adequacy, which should increase competitive advantages for leading companies like VHM.

Rising debt to supplement project development

During 2023, VHM’s total interest-bearing debt rose 58.9%. Long-term debt accounted for 67.7% (VND38.4tn/~US$1.6bn). Long-term debt surged 83.9% to finance the company’s large-scale projects. As a result, interest coverage declined by 4.4x ytd to 15.2x. However, VHM’s leverage remains quite manageable compared to peers, as the industry’s average net D/E in 2023 was ~0.4x and interest coverage was far lower at 3.7x.

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