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KBC – Additional costs dented 4Q20 earnings – Earnings Flash

Company Note 04/02/2021    180

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  • 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.

Market price

Target price

Dividend yield

Recommendation

Sector

VND 39,250

VND 29,600

1.27%

N/A

PROPERTY

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  • KBC revised its outdated development cost for 90ha land area at Quang Chau IP in 4Q20, which dragged blended GM to 15% in 4Q20 from 85% in 4Q19.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  • FY20 gross margin plunged to 30.6% (-26.9% pts yoy) as KBC revised its outdated development cost for Quang Chau IP in 4Q20.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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