NLG – Stay optimistic beyond the 1Q22 blip – Update

• 1Q22 net profit (NP) plunged by 99.8% yoy to VND0.6bn due to lack of one-off income, making up only 0.05% of our full-year forecast.
• We project FY22F earnings up 19.4% yoy to VND1,259bn driven by one-off gains and strong property handovers.
• Upgrade from Hold to Add with target price (TP) of VND56,000.

1Q22 witnessed a contrast between top-line and bottom-line growth

NLG reported 1Q22 revenue up by 149.1% yoy to VND587.4bn, thanks to handovers at Flora Akari (99 units valued VND248bn) and Valora Southgate (64 units valued VND251bn). Of which, Southgate project has been consolidated into NLG’s revenue since 3Q21. Meanwhile, 1Q22 net profit (NP) plunged by 99.8% yoy to VND0.6bn due to lack of one-off income, making up only 0.05% of our full-year forecast.

We see increasing headwinds weighing on property sector outlook

We see increasing headwinds weighing on sector outlook, including: 1) rising interest rate to effect on housing purchasing decisions, 2) material prices hike that could drive up housing prices and 3) tightening bank loans into property sector and stricter supervision in corporate bond issuance. However, we believe NLG that has larger available-for-sale products and healthier balance sheets will still enjoy sustainable earnings growths over FY22-24F.

We estimate CAGR of 45.7% for earnings over FY22-24F

We revise down FY22F NP forecast to 25.7% to VND1,259bn due to lower-than-expected one-off income from a 50% stake transfer at Paragon Dai Phuoc project. However, we stay positive on FY22F presales prospect to surge 91.3% yoy to VND16,910bn, driven by six projects launches. We forecast a 48.9% of revenue compounded annual growth rate (CAGR) and 45.7% of net profit CAGR in FY22-24F, mostly driven by strong property handovers.

Upgrade from Hold to Add with a TP of VND56,000

NLG stock has dropped c.30% from its peak in early 2022; trigger an opportunity to accumulate a property developer with healthy balance sheet and strong earnings growth prospects. Re-rating catalysts are 1) higher-than-expected selling prices and 2) sooner-than-expected capital raising at Waterpoint phase 2 (190ha). Key downside risks 1) delays in handovers and obtaining permits for new launches, 2) higher mortgage rates as these may dent NLG’s mid-range condo presales, and 3) continuous upward trend in construction material prices.

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