Industrial Property sector – The glass is half empty

• We see some positive factors for industrial property are fading due to arising challenges in 2023-24F.
• We still like BCM, PHR regarding their prospect of earnings growth and the reward from high cash dividend.

IP market: Two major industrial hubs showed contrast trend in new supply

For whole 2022, total industrial land area in Southern market increased by 9.2% yoy to c.41,950ha, of which 66.6% is leasable, about c.27,950ha (+8.2% yoy). Northern market witnessed strong new supply in 4Q22, about 590ha leasable area (mostly from suburb area), leading to a 7.9% yoy increase in FY22 leasable area (c.11,923ha). FY22 total land area rose by 8.1% yoy to 16,915ha while occupancy rate dropped 1.0% pts qoq and 0.2% pts yoy to 79%. However, we see both the South and the North enjoyed rental price uptrend with about 10.5% yoy and 7.5% yoy, respectively.

Warehouse (WH) and Ready-built-factory (RBF) market: Continue robust growth

We believe the booming of E-commerce is leading to strong supply for WH and RBF in both the South and the North. Thanks to welcoming several projects in 2022, total supply of WH in the South and the North reached 3.87 m sqm and 1.52m sqm, respectively, of which most of new supply is modern supply. For RBF market, Southern and Northern total supply increased by 23.3%/1.6% yoy to 4.8m sqm and 2.3m sqm, respectively.

2023-24F outlook: Arising challenges

We see some positive factors for industrial property are fading due to arising challenges. Firstly, we believe that industrial property market will witness a scarcity of new supply in 2023F as approval process is delayed for legal procedure. Secondly, we see the competitiveness of Vietnam on FDI attraction is weakening in the region, coming from: 1) rising competition from Indonesia, Malaysia as these rivals has an attractive business environment for electric vehicle and semiconductor industries, 2) global minimum tax will be applied soon in 2024 may easing the advantage of preferential tariff.

Our stock picks are PHR and BCM while NTC is in watchlist

We believe some big developers own large ready-for-lease land bank with strategic location can turn these difficulties into opportunities. Following that, we like PHR and BCM for long-term investment, come from the prospect of earnings growth and the reward from high cash dividend. Upside risk: Stronger-than-expected FDI inflows from US. Downside risks: 1) increasing land compensation in many provinces, 2) prolong the legal procedure.

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