IDC – The country third-largest IP in term of leasable landbank – Initiation

• IDC is the third-largest remaining rental area (751ha) and one of few IP developers in Vietnam allowed to distribute electricity directly to its tenants.
• We forecast FY23-24F earnings to decline 11.1% yoy/17.9% yoy due to lack one-off revenue recognition from fully IPs, arising challenges for IP demand.
• Initiate coverage with a Add rating and SOTP-based TP of VND42,600

Third largest listed industrial land bank spanning across Vietnam

IDC is the third-largest listed IP company in terms of remaining rental area (751ha) spanning across Vietnam’s strategy location. We see more challenges for IP developers in the next two years due to the slow project approval process and limited funding sources. However, this likely turns out opportunities for developers that own ready-for-lease land bank, like IDC. We forecast FY23-24F IP revenue to plunge 14.8% yoy/13.4% yoy on high base FY22. However, we estimate FY25F IP revenue to bounce back 36.2% yoy thanks to the launch of new 470-ha IP, Tan Phuoc1.

Capacity expansion for energy business to speed up

IDC is one of few IP developers in Vietnam allowed to distribute electricity directly to its tenants in Nhon Trach IPs. Additionally, IDC is likely to operate 189MVA power substations in Huu Thanh IP before 2026F, which could help IDC’s energy distribution volume CAGR of 7.2% in 2023-2030F period. Besides, the company has started construction its first rooftop solar project with installed capacity of 1.1MWp in 3Q22 and expected to enhance that of capacity to 120MW until 2026F. Together with the recovery of hydropower output to 440 million kWh (+19% yoy) in FY23F on Dak Mi 3 resumption, we forecast energy revenue CAGR of 12.6% over FY23-25F.

Earnings to drop over FY23-24F but rebound strongly in FY25F

We forecast IDC’s FY23-24F net profit to drop 11.1% yoy/17.9% yoy to VND1,571bn/VND1,290bn due to lack one-off revenue recognition from fully IPs. For FY25F, we expect the company could start to monetize new 470-ha IP, Tan Phuoc 1 in Tien Giang which could increase IDC’s leasable industrial land by ~30-40% yoy and would drive land sales revenue from FY25F (contribute c.5% IDC’s FY25F revenue), in our view. Thus, we estimate IDC’s FY25F net profit to strongly rebound 37.9% yoy to VND1,867bn.

Initiate with Add and SOTP-based TP of VND42,600

Our Add recommendation was underpinned by (1) healthy balance sheet with sustainable cash flow to counter the risk of tightening credit; (2) attractive valuation with a 18% upside. Upside catalysts: 1) higher-than-expected rental prices and land lease area; 2) sooner-than-expected launches new projects. Downside risks are: 1) lower-than-expected IP land sales, 2) delays in obtaining permits for new launches.

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