FPT – Steady growth on strong fundamentals – Update

• FPT’s 4M22 net profit rose 35.1% yoy, in line at 33.3% of our forecast.
• Unrealized revenue of newly global IT services contracts surged 40.3% yoy in 4M22 to VND9,018bn.
• Reiterate our Add call with a higher SOP-based TP of VND140,200 by rolling over to mid-FY23F with slight increases in FY22-23F EPS.

4M22 results: double-digit revenue growth across all business segments
FPT’s net revenue rose 24.5% yoy to VND12,991bn in 4M22 thanks to double-digit revenue growth across all business sectors, forming 31.1% of our forecast. Therein, 4M22 top line witnessed an impressive growth in main segments including Technology revenue (+27.5% yoy), Telecom (+17.2% yoy), and Education & others (+42.3% yoy). As a result, 4M22 net profit increased by 35.1% yoy to VND1,682bn, in line at 33.3% of our full-year projection.

Digital transformation (Dx) remains the key driving force from FY22F
In 4M22, revenue of digital transformation services (Dx) reached VND2,231bn (+90.2% yoy), accounting for 30.2% of technology revenue. For FY22-23F, we believe that the trend of Dx will be stronger globally in the context of high demand post pandemic. We forecast FPT’s FY22F technology revenue will surpass US$1bn, of which Dx revenue will account for 31.5% of technology revenue. 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 to gain 1.6% pts to 39.8% in FY22F, in our view.

Reiterate our Add call with a higher SOP-based TP of VND140,200/share
We reiterate our Add call with a higher TP of VND140,200 by rolling over our TP to mid-FY23F with slight increases in FY22-23F EPS. Our valuation is based on the sum-of-parts methodology, with P/E-based multiple approach for its three main business segments. We still apply multiples which are derived from the regional FY22F P/E median corresponding to each segment with a discount of 15% on technology and telecom peer’s median 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 shortage of high quality IT personnel to achieve its long-term strategies and fewer tech contracts if COVID-19 becomes more complicated. Short-term attractiveness can come cash dividend of 10% and share dividend of 20% during Jun-Jul 2022.

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