PC1 – Inflection point in sight – Update

• We forecast FY22F net profit to drop 37% yoy under strong pressure from duo effect of interest rate rise and exchange rate loss.
• An inflection point looks to be coming in FY23F with robust earnings growth of 163% yoy, boosted by nickel ore, residential and industrial property.
• Recommend Add rating with TP of VND30,800.

9M22 recap: Financial expenses dent the bottom line

PC1’s 9M22 net profit slumped 52% yoy to VND262bn following the duo effects of interest rate rise and exchange rate loss. For FY22F, we see power sector to be the major traction for PC1, regarding favorable La Nina phase and the full-year contribution of wind power, thus, power gross profit will rise 104% yoy to VND1,086bn. We believe the M&E’s GM to improve, offsetting revenue loss in 4Q22F thanks to the commodity price cool down and solid backlog transferred from 1H22, leading to 3% yoy gross profit increase. Overall, we forecast FY22F PC1’s gross profit will reach VND1,719bn (+49% yoy). Notably, we see the pressure from interest expense rise and exchange rate loss to stay for the rest of FY22F following the company high D/E ratios. Therefore, we forecast FY22F net profit (NP) to drop 37% yoy to VND437bn.

We see potential inflection point of earnings in FY23F

For FY23F, we see the recovery of M&E segment, triggering by the official RE mechanism, to be primary contribution for PC1 profit. Besides, we expect a solid sales unit in residential property to be record in FY23F, along with the new PC1’s investments to start recording profit in FY23F, including the Nickel mining and the Yen Phong II-A industrial park. Overall, we see a FY23F revenue and gross profit to rise 48% yoy and 66% yoy, respectively, leading to 163% yoy rise in net profit of VND1,148bn.

For FY24F, we expect revenue and gross profit to continuously increase 14% yoy and 12% yoy, respectively, leading to net profit of VND1,523bn (+33% yoy) thanks to 1) Industrial park segment will contribute VND411bn (+167% yoy) for PC1’s associate’s profit; 2) Major residential sale units expected to record in FY24F.

Investment point before any inflection point

We recommend ADD with sum-of-the-part TP of VND30,800. Our rating is underpinned by solid FY23-24F EPS growth of 42% CAGR, with an attractive FY23F P/E of 8.0x. Re-rating catalysts include the operation of new power plants and the booking of real estate projects and IP projects. Downside risks include 1) The current challenge of the property market hindering the booking process of property projects; 2) higher-than-expected interest rise putting upward pressure on financial expense.

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