VRE – All signs point to better quarters ahead – Update

• VRE’s 2Q22 revenue and net profit rose 23% yoy/99% yoy to VND1,850bn/VND773bn, in line with our forecast.
• New shophouse projects in Quang Tri and Dien Bien with pre-sales value of about VND3,200bn will boost sale of inventory properties in FY23-25F.
• Reiterate ADD rating with higher DCF-based TP of VND38,800.

2Q22 results: Leasing revenue rebounded strongly
VRE’s 2Q22 revenue increased 22.5% yoy driven by 33% yoy growth of leasing revenue as the company has reduced significantly the support package. Property revenue decreased 92% yoy as only two shophouses were handed over. Gross margin widened 15.7% pts yoy to 57.4%. 2Q22 net financial income was VND16bn (vs. a net financial loss of VND32bn in 2Q21) as bond balance has was gradually lowered from c.VND5,500bn at end-FY21 to c.VND3,000bn at end-2Q22. As the results, 2Q22 net profit arrived at VND773bn (+99.2% yoy), taking 1H22 earnings to VND1,150bn (-1.5% yoy), inline at 44.7% of our full-year forecast.
Mobility and services recovery to boost leasing revenue in 2H22 – 2023F
Based on VRE’s figure, footfall to VRE’s malls recovered from 8.5m – 9.3m visitors in 1Q22 to 10.9m – 12.7m in 2Q22, equivalent to 80% of pre-pandemic levels. Retail mobility from Google data also showed a same trend, as Vietnam retail mobility is 6% higher than pre-Covid level in Aug 22. As such, we expect VRE to offer minimal additional tenant support packages since 2H22F to make leasing revenue to increase 63.2% yoy/39.7% yoy in FY22/23F to VND7,671bn/VND10,717bn, per our estimation.
Strong shophouses pre-sales to lift the property segment since 2023F
With the recovery of tourism and service activities, VRE reported 218 shophouses have been booked in 2Q22 with a presales value of about VND1,200bn. In 2H22F, VRE is expected to record bookings of 500 shophouses with a total presales value of about VND3,200bn which will secure for the property revenue growth over FY23-25F. Therefore, we increase revenue from property delivery in 2023F by 35.1% vs previous forecast to the robust presales.
Reiterate ADD rating with higher DCF-based TP of VND38,800
We increase our target price of VRE by 2.8% to VND38,800 on the back of increasing our forecast for FY22/23F net profit by 4.6%/3.2% vs previous forecast. Our DCF valuation is based on assumption of WACC: 11.7% and a risk-free rate of 3%. Re-rating catalysts are 1) faster-than-expected mall openings, 2) faster-than-expected recovery in retail, leading to a strong growth in leasing business. Downside risks: 1) slower-than-expected mall openings, 2) lower-than-expected occupancy ratio and rental rate and 3) growing market competitors such as Aeon, Central Retail’s malls.

Please follow this link for the full report