FPT – Sustaining growth momentum in FY22F – Update

•  FPT’s 9M21 net profit rose 18.6% yoy, in line at 70.8% of our forecast.
•  Unrealized revenue of newly global and domestic IT services contracts surged 9.5% yoy in 3Q21 to VND5,763bn.
•  Reiterate our Add call with a higher SOP-based TP of VND118,500 by rolling over to FY22F with minor increases in FY21-23F EPS.

Solid earnings growth in 3Q21 despite the domestic 4th wave of Covid-19

We see the impact of Delta variant outbreak in 3Q21 to FPT was minimal. Among main segments, only Online advertising business delivered negative growth (-8.4% yoy) while other businesses still performed well. All in, FPT’s 3Q21 net revenue rose by 15.5% yoy to VND8,725bn driven by robust growth of IT services which included global markets (+25.7% yoy) and domestic market (+20.6% yoy). 3Q21 net profit rose strongly by 21.1% yoy to VND1,125bn (vs. -3.3% yoy in 3Q20 and +13.8% yoy in 2Q21).

9M21 results review: in line with our expectation

In 9M21, FPT’s net revenue rose 17.9% yoy to VND24,953bn, fulfilling 70.5% of our FY21F projection, while the net profit climbed 18.6% yoy to VND3,031bn, coming in at 70.8% of our full-year forecast.

Moving into FY22F with confidence

For FY22F, we believe that the trend of digital transformation will be stronger globally in the context of high vaccination rates. As a result, we forecast FPT’s FY22F revenue and net profit to grow 19.3% yoy and 20.1% 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 to gain 0.7% pt to 39.9% in FY22F, in our view.

Reiterate our Add call with a higher SOP-based TP of VND118,500/share

We reiterate our Add call with a higher TP of VND118,500 by rolling over our TP to FY22F with minor increases in FY21-23F EPS. Our valuation is still 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 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 shortage of high-quality IT personnel to achieve its long-term strategies and fewer tech contracts if COVID-19 prolongs and becomes more complicated.

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