FPT – Moving into FY21F with confidence – Update

• FPT’s 10M20 net revenue rose 7.4% yoy while net profit rose 7.7% yoy to 83.3% of our full-year forecast, which is in line with our expectations.
• We forecast FPT’s FY21F revenue and net profit to grow by 17.1% and 20.3% yoy, respectively.
• Reiterate our Add call with a higher SOP-based TP of VND67,800.

FPT’s 10M20 earnings in line with our expectations

10M20 net revenue rose 7.4% yoy to VND23,635bn, fulfilling 76.4% of our full-year projection, while net profit increased 7.7% yoy to VND2,927bn, in line at 83.3% of our full-year forecast. Blended GPM widened 66bp yoy to 41.8% in 10M20 on higher revenue contribution from digital transformation (Dx), which earns high margins. Particularly, 10M20 Dx revenue jumped 38% yoy to VND2,704bn, equivalent to 11.4% of FPT’s total revenue (vs. 8.9% in 10M19).

We expect 4Q20F net profit to see sharp growth

We expect 4Q20F net profit to increase 26.6% yoy due to the low base effect as 4Q19 saw higher employee bonus costs and loss of VND20bn at FPT Retail (FRT VN, Non-rated, CP: VND22,700) and loss of VND12bn at FPT Securities (FTS VN, Non-rated, CP: VND12,800). For the whole FY20F, FPT’s revenue and net profit are projected to increase 10.1% yoy and 12.1% yoy to VND30,930bn and VND3,514bn, respectively.

Return to solid growth on the back of vaccine availability in FY21F

For FY21F, we expect the pandemic situation to improve with the availability of vaccines. As a result, we forecast FPT’s FY21F revenue and net profit to grow by 17.1% and 20.3% yoy, respectively. We believe FPT’s GPM will further improve on the back of the higher proportion of the Dx business line in technology revenue. In particular, FPT’s blended GPM will gain 0.3% pts to 39.5% in FY21F, in our view.

Reiterate Add with a higher TP of VND67,800

Our higher TP is based on a sum-of-parts methodology and derived from an unchanged P/E-based multiple approach rolled forward to FY21F for its three main business segments. The multiples are extracted from the regional FY21F P/E median corresponding to each segment with discounts given the difference in interest rates between countries. We hold our positive stance on FPT’s long-term outlook, especially when the pandemic blows over.

Re-rating catalysts and downside risks

Potential re-rating catalysts are a successful M&A deal with an overseas technology company and higher-than-expected signed IT services revenue. Downside risks include shortage of high-quality IT personnel to achieve the company’s long-term strategies and fewer technology contracts if the pandemic prolongs.

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