DXG – New projects are moving forward – Update

• We maintain our Hold rating with 11.9% upside and a 0.0% dividend yield. We increase our TP by 11.0% while the stock price has increased 5.6% since our last report.
• The main drivers of our recommendation are the decline in the interest rate base, which stimulates homebuying demand, the easing of financial risk thanks to rising capital activity, and improvement in the legal procedures of projects.
• Current P/B of 1.2x is in line with its peers and fully reflects the outlook of DXG in FY23-24.

Financial Highlights

• 2023 net profit (NP) decreased by only 17.9% yoy to VND176bn (US$7.1mn) even though DXG recorded a loss of more than VND100bn (US$4.0mn) from an investment in an associate in 4Q23.
• 2023 SG&A expenses slid by 55.4% yoy to VND955bn (US$38.2mn) thanks to restructuring activities.
• DXG’s net debt/equity ratio saw a significant increase from 11% at end of FY21 to 35% at end of 2023. This jump was largely driven by DXG’s acquisition of new land bank in Binh Duong province.

Investment Thesis

Opal Luxury launch to drive DXG product supply diversity

DXG plans to new launch the Opal Luxury mid-range high-rise apartment project with approximately 3,400 units from 2H24. This will diversify the product segments it provides to the market from its two key projects (GSW and DXH Riverside) during the current period of market supply-demand imbalance. We expect this project to be well-received and contribute more than VND7,000bn (US$280mn) to pre-sales in 2H24-27.

DXG plans to recruit employees to catch up with market recovery

DXG plans to recruit 500 brokerage employees each quarter to catch up with the market recovery after a successful 2023 in DXG’s business restructuring efforts helped to optimize SG&A costs by 55% yoy to VND955bn (US$32.4mn). From 2024, DXG’s brokerage arm will focus on traditional brokerage activities rather than buying completed projects for sale as before, to minimize risks during market uncertainty.

Land bank expansion has dragged down operating cash flows

OpCF was almost continuously negative from 2018 to 2023 due to aggressive investment in land bank expansion and project development. DXG’s debt increased from 2016 to 2022, but fell 8.4% ytd in 2023 to VND5,289bn (US$211.8mn). However, net debt/equity at end of 2023 slightly decreased to 35% vs the industry average of 45-50%.
Real Estate Laws taking effect put additional financial pressure on DXG

New Real Estate Laws are expected to take effect on July 1, 2024. The Real Estate Business Law stipulates developers are only allowed to collect a maximum of 5% of the house value as deposit. In addition, the new land price framework is linked to the market land price, which may increase land costs, putting pressure on capital sources for DXG as it has housing projects that have not determined land use fees.

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