SZC – A better outlook in the 2H23F – Update

• 1Q23 net profit dropped by 84.4% yoy, fulfilling only 2.3% of our full-year forecast due to land clearance delay.
• We expect NP to grow at 30.3% FY23-24F CAGR thanks to better-than-expected perfomance of industrial property and larger and larger contribution of residential property.
• Reiterate Add with a lower target price of VND41,400 following a 13.7% – 21.4% downgrade on FY23-24F earnings.

1Q23 recap: Delay in land clearance drag earnings to 5-year low

SZC reported a fall in 1Q23 revenue by 77.2% yoy to VND63.2b due to: 1) industrial revenue dropped by 90.3% yoy to VND26.4bn mostly due to slower-than-expected land clearance (only 2-3ha ready-for-lease area to be handover in 1Q23; 2) residential revenue recorded only VND21.7bn from handing over a part of phase 1 (shophouse subdivision) of Sonadezi Huu Phuoc, about 3 units to be delivered, that is much slower-than-expected. Consequently, 1Q23 net profit decreased by 84.4% yoy, just fulfilling 2.3% our full-year forecast.

IP outlook: The third largest IP developer in term of remaining landbank in the South to enjoy rental price uptrend

We see SZC’s industrial property can show the positive performance in 2023-25F thanks to 1) the advantage of large remaining landbank in the context limited new supply will push leasable area of Chau Duc IP take a big leap from 2023, 2) rental price has more room to be boost in next few years when compared BR-VT average rental price. Following that, we revise up FY23/24F industrial revenue by 17.9%/25.4% vs. previous forecast, leading to an 28.8%/19.2% increase in FY23/24F industrial revenue. We believe SZC might accelerate land clearance and handover IP land for memorandum of understanding, around 55-60ha.

Residential property outlook: Re-ignite growth engine

After a half-year delay, Sonadezi Huu Phuoc project was finally handed over phase 1 of shophouse units at the end of FY22. According plan, SZC will hand over the rest of shophouse units of phase 1 in FY23F and phase 2 in FY24F. We expect residential revenue to become another revenue growth engine with contribution of about 22.5%/30.3% on FY23/24F total revenue, respectively. Base on slower-than-expected land clearance, we lower FY23/24F residential revenue by 22.4%/38.5% vs. previous forecast. Overall, we revise down FY23/24F NP by 13.7%/21.4% vs. previous forecast, respectively.

Reiterate Add with lower TP of VND41,400

We revise down our TP by 5.9% vs. previous update to VND41,400 due to raise valuation for Chau Duc IP but lower valuation for Sonadezi Huu Phuoc project to reflect slower-than-expected handover process of shophouse subdivision. Potential upside catalysts: Sooner-than-expected implement time for townhouse subdivision in Sonadezi Huu Phuoc. Downside risks are: 1) higher-than-expected the new price for land compensation, 2) delays in obtaining permits for residential projects.

Please follow this link for the full report