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KBC – Earnings growth to accelerate in FY22-23F – Update

Company Note 06/01/2022    100

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  • More than 2,000ha industrial land likely to be added in FY22-24F should provide strong support for KBC’s long-term earnings growth.
  • Raise FY22-23F NP by 325.1%/136.9% to reflect the contribution of one-off sale gain at Trang Cat urban area project and new IPs.
  • Upgrade to Add from Hold with a higher target price (TP) of VND81,800.

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VND60,500

VND81,800

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          Property

New bulk sales schedule the best strategy for Trang Cat project
KBC plans to transfer 50ha of net saleable area per year at Trang Cat urban area project, instead of combining retail and bulk sales as planned before. We appreciate its new sales schedule as this project is almost eligible for bulk sales handover after completing ground filling, according to KBC’s management. KBC plans for its ground filling in early-FY22F, which has received approval in 4Q21. KBC expects to record its first sales for VND10,000-12,000bn in FY22F.

We expect more than 2,000ha industrial land to be added in FY22-24F
At end-FY21, KBC has received investment approval at three industrial clusters (225ha) in Hung Yen province. KBC’s three new industrial parks (IP) in Hai Duong (1,291ha) also have been added to the province’s master planning, after more than 3 years awaiting. We expect these projects will boost KBC’s FY23-24F earnings growth. In addition, KBC plans to sign a MOU contract for leasing out 115ha at Trang Due 3 IP (of which, 80ha for LG Display Vietnam) valued at c.US$150m, with average leasing price of US$130-140/sqm/lease term in early-2022. The company has started to invest compensation for first 100-200ha at this project in 4Q21 and expects to complete legal procedure in FY22F.

Expect FY22-23F NP to be pumped up by one-off sale gain and new IPs
Given six new industrial projects added in Dec-2021 which could put into operation in FY22-24F and new bulk sales schedule at Trang Cat project, we raise our FY22-23F NP forecast as a base case by 325.1%/136.9% to VND7,323bn (+591.5% yoy)/VND8,558bn (+16.9% yoy). We estimate gross profit margin (GPM) to expand 8.1% pts yoy to 63.8% in FY22F and maintain high at 65.4% in FY23F thanks to high-margin Trang Cat project.

Upgrade to Add from Hold with a higher TP of VND81,800
We upgrade to Add from Hold with a higher TP of VND81,800 as we update 1) DCF-based valuation for six new industrial project in Hung Yen and Hai Duong, and 2) Trang Cat urban area project’s new bulk sales schedule. Potential re-rating risks are dependent on whether KBC can continue to clear legal hurdles to expand its land bank in Hung Yen, Long An, Hai Duong and Bac Giang. Key downside risks 1) worse-than-expected land sales, 2) regulatory delays in new projects, and 3) delays in booking revenue from residential projects

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