ACG – Back to positive momentum – Initiation

• ACG is the country largest engineered wood manufacturer with about 55% market share.
• We expect earnings to soar 29.7%/28.7% yoy over FY22-23F thanks to the recovery of residential property market and a boost in export markets.
• We initiate coverage on ACG with an ADD rating and TP of VND88,800.

Riding on the recovery of civil construction
The key growth driver of ACG’s domestic segment comes from the property industry’s prospects. We expect the residential property market will bounce back in 2022-23F, supported by: 1) a board-based recovery of macro fundamentals propelling the property market in 2022F; 2) housing purchasing decisions underpinned by affordable mortgage interest rates; and 3) a surge in new supply thanks to the loosening of regulatory bottlenecks. As a leading wooden panel manufacturer with strong client base, ACG has more advantage to win the contracts of supplying wooden furniture for major residential projects in 2022F. We forecast ACG’s domestic revenue to grow 36.9%/12.0% yoy in FY22/23F
The new MDF board factory will improve ACG’s profitability
ACG aims to set up a JV with Sumitomo Forestry to produce MDF board — an input material for decorated wooden panel. This US$110m-factory will inaugurate in 3Q23, making ACG to be the 4th largest MDF board manufacturer in Vietnam. The new factory will meet about 40% of ACG MDF demand and help to lift gross margins up 0.3-0.7% pts over FY23-25F.
Back to growth territory since 2022F
We expect ACG’s revenue to rebound in FY22-23F on the back of the residential real estate market’s recovery. With strong ready-to-build backlog of big developers, including ACG loyal customers, we believe that the company is well-equipped to capture the vibrant period of construction and completing in residential projects in FY22-23F. As a result, we forecast ACG’s topline and bottom line to surge 37.7%/29.7% yoy on FY22F and 28%/28.7% yoy in 2023F.
Initiate ADD recommendation with a target price of VND88,800/share
Our target price is based on 10-year DCF valuation (WACC: 9.1%; long-term growth: 1.5%). We like ACG for its leading position and strong brand name in wooden furniture. Additionally, the company plan of moving to the main bourse is a catalyst in short-term. Upside catalysts include: (1) higher-than-expected domestic demand of building material, and (2) MDF factory to commence earlier than expectation. Downside risks include: (1) a stronger-than-expected raw material prices; (2) property market might cool down as interest rates pick up.

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