FPT – Rerating on surging new tech contract – Update

• FPT’s 4M21 net profit rose 19.6% yoy, in line with 29.2% of our forecast.
• Unrealised revenue of newly contracts surged 43.1% yoy in 1Q21 to VND4,489bn.
• Acquiring Base.vn is a strategic piece to help FPT boost technology revenue at domestic SMEs and develop in-house products.
• Reiterate our Add call with a higher SOP-based TP of VND117,000 by rolling over to mid-FY22F with minor increases in FY21-23F EPS.

4M21 results: double-digit revenue growth across all business segments
FPT’s net revenue rose 18.0% yoy to VND10,431bn in 4M21 thanks to double-digit revenue growth across all business sectors, forming 30.0% of our forecast. 4M21 net profit increased by 19.6 yoy to VND1,245bn, in line at 29.2% of our full-year projection. Therein, 4M21 top line witnessed an impressive recovery in Domestic IT services revenue (+45.2% yoy), Online advertising sales (+25.9% yoy), and Education & others (+58.6% yoy) after being hit by COVID-19 in 1H20. Signed revenue in 1Q21 reached VND4,489bn, increasing 43,1% yoy.

FPT acquires Base.vn to accelerate domestic digital transformation (Dx)
FPT announced its acquisition in Base.vn – a software as a service (SaaS) startup which provides cloud-based technology solutions to help small and medium enterprises (SMEs) assign their workflows, project, and human resources management via Dx. Base.vn currently has more than 5,000 customers in different sectors, 50 of which are the top ones in Asia. Per FPT, Base.vn align perfectly with FPT’s strategy to target the market of over 800,000 SMEs in Vietnam, boosting the revenue of the domestic IT sector.

Reiterate our Add call with a higher SOP-based TP of VND117,000/share
We reiterate our Add call with a higher TP of VND117,000 by rolling over our TP to mid-FY22F with minor increases in FY21-23F EPS. Our valuation is still based on the sum-of-parts methodology, with the P/E-based multiples approach for its three main business segments. We still apply multiples which are derived from the regional FY21-22F P/E average corresponding to each segment with a discount of 15% on technology and telecom peer’s average P/E due to the distance in interest rates between Vietnam and other observed countries.

Re-rating catalysts and downside risks
Potential re-rating catalysts are a successful M&A deal with an overseas tech company and higher-than-expected signed IT services revenue. Downside risks include a shortage of high-quality IT personnel to achieve its long-term strategies and fewer tech contracts if COVID-19 prolongs and becomes more complicated.

Please follow this link for the full report