KBC – Additional costs dented 4Q20 earnings – Earnings Flash

• KBC posted VND176bn in 4Q20 NP (-57.8% yoy). Consequently, FY20 NP plunged 77.5% yoy to VND206bn, making up only 34% of our forecasts.
• Unlocked residential projects namely Trang Cat, Phuc Ninh and Trang Due will boost earnings growth from FY21F onwards.

4Q20 net profit subdued on GP margin contraction

• Kinh Bac City Corp (KBC) 4Q20 revenue jumped 69.3% yoy to VND1,224.6bn, with IP land lease soaring 676% yoy to VND1,019.8bn while residential sales fell 87.1% yoy to VND74.7bn.
• KBC revised its outdated development cost for 90ha land area at Quang Chau IP in 4Q20, which dragged blended GM to 15% in 4Q20 from 85% in 4Q19. We expect blended GM to recover to 70%-80% level in FY21F.
• Overall, 4Q20 net profit plunged 57.8% yoy to VND176.4bn.

KBC’s FY20 net profit hit 7-year low

• KBC leased out 60ha of IP land in FY20 (-44% yoy) as COVID-19 restricted sales activities with foreign enterprises that occupied 90% of KBC’s IP customers, specifically Quang Chau IP (22ha, -68% yoy) and Tan Phu Trung IP (36ha, +30% yoy). Consequently, FY20 revenue reached VND2,154.3bn (-32.9% yoy).
• FY20 gross margin plunged to 30.6% (-26.9% pts yoy) as KBC revised its outdated development cost for Quang Chau IP in 4Q20.
• Consequently, FY20 net profit plunged 77.5% yoy to only VND206.4bn, making up only 34.3% our full-year forecast.

Unlocked projects to boost earnings growth from FY21F onwards

• KBC paid the land use fee payment of VND3,500bn at Trang Cat Urban Area project in 4Q20. KBC’s management plans to launch bulk sales from FY22F.
• KBC granted an investment certificate for Phuc Ninh Residential Area at end-4Q20 which enable KBC to handover the phase 2 remaining area from FY21F.
• The whole Nam Son Hap Linh (NSHL) IP of 300ha has received zoning adjustment approval. KBC has almost completed legal documents for this project.
• Infrastructure for construction in Trang Due residential area – phase 2 has been completed in FY20. We expect this project to be launched in FY21F.

Potential catalysts and downside risks

• We maintain our RNAV-based target price of VND29,600.
• Potential upside catalyst: KBC can clear legal hurdles to start its Trang Cat project and receive approval for Trang Due 3 IP. Key downside risks include: 1) worse-than-expected IP land sales; and 2) delays in booking revenue from residential projects.

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