KDH – Potential growth largely priced in – Update

• KDH’s 9M20 net profit surged by 50.8% yoy to VND770bn, driven by a huge delivery from the Safira project.
• We expect FY21F presales to remain strong in FY20-21F, thanks to the launch of two potential projects in eastern HCMC (Armena and Clarita).
• We downgrade from Add to Hold as the positives appear to be priced in.

Strong 9M20 net profit growth, thanks to huge delivery

KDH’s 3Q20 net revenue surged 187.8% yoy, bringing 9M20 net revenue to VND3,292bn (+76.8% yoy), forming 93.4% of our FY20F forecast, driven by the delivery of 96 units from Verosa and 821 units from Safira. KDH’s 9M20 blended gross profit margin (GPM) narrowed 9.9% pts yoy to 39.4% due to low-margin Safira condo properties. 9M20 net profit increased by 50.8% yoy to VND770bn, coming in at 65.1% of our forecast and 69.9% of the company’s FY20F target.

We project strong presales in FY20-21F

As of 30 Sept 20, KDH’s three key projects recorded high take-up rates (Safira 100%, equivalent to 1,593 units sold; Verosa Park 90%, equivalent to 265 units sold; Lovera Park, 86% equivalent to 1,129 units sold), thanks to bulk sales in FY19. We expect the rest of Lovera Vista and Verosa Park units to be sold in 4Q20F, bringing FY20F presales to VND3,737bn (-21% yoy). We expect FY21F presales to remain strong on the launch of two potential projects in eastern HCMC (Armena and Clarita) in 4Q20-FY21F.

Solid FY20-21F earnings backed by strong presales in FY19-21F

We project FY20F revenue to rise 23.9% yoy to VND3,526bn, driven by more than 800 units delivered from Safira in 2H20F. We expect KDH to report net profit of VND1,183bn in FY20F (+29.2% yoy), implying core EPS growth of 24.6% yoy. We believe KDH’s earnings will retain its strength in FY21F, thanks to the delivery of c.VND2,451bn from Lovera Vista in 3Q21F.

Downgrade from Add to Hold with unchanged TP of VND29,100

KDH’s stock price has rallied 18.1% since Oct 19 and is now trading close to our target price. Given the limited upside of 3.9%, we downgrade our rating from Add to Hold. Our RNAV-based target price is unchanged at VND29,100. Upside risks in the short term could come from higher-than-expected ASPs for the Armena project in District 9 and the Clarita project in District 2; our mid- to long-term investment thesis includes a sooner-than-expected launch of the Tan Tao project. Potential downside risks to our call include: 1) a new wave of Covid-19 infections, which may restrict sales and marketing activities; and 2) delays in obtaining building permits, which could delay new launches.

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