CRE – Solid outlook already priced in – Update

• 1H21 net profit (NP) surged 121% yoy to VND250bn, fulfilling 70% of our FY21F forecast.
• We revise up FY21-22F NP by 12.8%-7.8% following strong 1H21 results which were driven by secondary investment activities.
• Reiterate Hold with a higher TP of VND49,000.

Better than expected 1H21 performance
CRE posted VND1,644bn (+277% yoy) in 2Q21 revenue, on the back of (1) VND1,292bn (+845% yoy) of secondary investment activities, which mainly came from two residential projects, Louis City and Hinode Royal Park in Hanoi, and (2) VND474bn (+82% yoy) of brokerage business, driven by 120% yoy growth of transaction volume. However, 2Q21 gross profit margin (GPM) decreased to 16.7% vs. 41.2% in 2Q21 on higher revenue contribution from secondary investment (which delivered only 15.1% of GPM in 1H21) and lower margin of brokerage. CRE is aggressively acquiring market share by low brokerage fee strategy. Thus, 2Q21 earnings grew 40.7% yoy to VND127bn. For 1H21, revenue jumped 422% yoy to VND3,685bn while NP increased 87% yoy to VND250bn, fulfilling 70% of our FY21F forecast.

Dealing with short-term headwinds but long-term outlook still intact
The government’s stricter nationwide social distancing protocols which have been imposed since early-Jul, blocked the residential sale activities in 3Q, or even in 4Q. Thus, we lower CRE’s FY21F brokerage transactions volume to 9,024 units (+7% yoy), down 28% vs. previous forecast. However, we expect property market to warm up from 4Q21F onward with surging demand amid low mortgage interest rates. CRE’s FY22 brokerage transactions volume is expected to grow 40% yoy, bringing FY22F brokerage revenue up 37% yoy to VND1,819bn.

We raise FY21-22F net profit forecast by 12.8%-7.8%
Despite a downgrade on brokerage business in FY21, we revise up FY21-22F revenue of secondary investment by 61.1%-44.5% following better-than-expected performance in 1H21. Louis City and Hinode Royal Park are the key revenue growth drivers for FY22F. Consequently, we expect revenue to accelerate 141.5% in FY21 and slow down to 22.2% in FY22F. CRE’s NP is forecasted to increase 40.5%-22.4% over FY21-22F.

Reiterate HOLD rating with a target price of VND49,000
Our TP is based on an equal weighting of (1) a target P/E of 11x on average FY21-22F EPS and (2) a target P/B of 1.7x on average FY21-22F BVPS. Upside catalyst is a larger-than-expected scale of the company’s secondary investment. Downside risks include a prolonged pandemic, which would impact brokerage activities and the launch of real estate projects.

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