KDH – Re-rating on solid new supply – Update

• KDH’s 1Q21 net profit grew 32.8% year-on-year (yoy) to VND205bn, in line at 16.3% of our full-year estimate.
• We expect FY21-22F presales to bounce back with three new launches namely Clarita (5.7ha), Armena (4.3ha) and an apartment project (1.8ha).
• Upgrade from Hold to Add with higher revalued net asset value (RNAV)-based target price (TP) of VND45,500.

Positive earnings growth on track in 1Q21
KDH’s 1Q21 revenue increased 19.3% yoy to VND836bn, mainly from the delivery of Safira (219 units of condo) and Verosa Park (16 units of villa). The decline in commission fee and marketing fee lowered the SG&A expenses ratio by 5.4% pts yoy to 8.5%. Consequently, net profit grew 32.8% yoy to VND205bn in 1Q21, fulfilling 16.3% of our full-year estimate.

Presales bounce back in FY21-22F
KDH plans to launch three new projects in FY21-22F, namely Clarita (5.7ha), Armena (4.3ha) in Thu Duc City and an apartment project (1.8ha) in Binh Tan District, which has a potential GDV of VND12,342bn, based on our estimate. We believe these projects could take advantages of residential prices hike in Thu Duc City and achieve high take-up rate thanks to their sought-after location as well as the shrinkage on new supply in HCMC.

We maintain KDH’s positive earnings prospects in FY21F
We maintain our forecast for FY21F KDH’s net profit of VND1,261bn (+9.4% yoy), 5.1% higher than KDH’s guidance, mostly driven by Lovera Vista, Safira and Verosa Park. As of 17 May 21, the very first Lovera Vista condo units have been handed over on schedule, which bolsters FY21F net profit growth at 9.4% yoy as Lovera Vista likely contributes c.60% (VND2,838bn) of FY21F revenue, according to our projection.

Upgrade from Hold to Add with a higher TP of VND45,500
We revise our TP for KDH up to VND45,500 from VND31,900 as we 1) update our discounted cash flow (DCF)-based valuation for 158 An Duong Vuong project (1.8ha) to factor in its release in FY21F, 2) remove the discount RNAV of Clarita and Armena as the projects are likely launched in FY21F and 3) reduce the discount RNAV of Tan Tao project (329ha) from 75% to 40% given its on-track legal procedure. We upgrade ratings for KDH from Hold to Add. Upside risk in the long term depends on whether KDH can clear legal hurdles to start its Tan Tao project. Downside risks are 1) delays in obtaining permits for new launches and 2) continuous upward trend in construction material prices.

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