VRE – The crowds are returning – Update

• VRE’s 1Q22 revenue and net profit fell 39% yoy/52% yoy to VND1,369bn/ VND377bn, in line with our forecast.
• We expect a strong recovery in a couple of next quarters to bring VRE’s earnings to surge 95.5%/64.6% yoy over FY22F/23F, respectively.
• Reiterate ADD rating with DCF-based TP of VND37,800.

1Q22 results: Still on track, in our view

1Q22 revenue fell 38.5% yoy but increased 0.2% qoq as: (1) revenue from malls leasing decreased 27.2% yoy but soared 40% qoq as VRE delivered support packages of VND464bn for tenants compared to VND766bn in 4Q21 and minimal support package in 1Q21 as Vietnam continued to enjoy resumed economic activities on the back of a zero Covid environment at that time; and (2) revenue from property delivery dropped 81.4% yoy, 80.7% qoq as VRE only handed over 20 units (vs. 111 units in 1Q21 and 104 units in 4Q21). Thus, 1Q22 net profit was VND377bn, down 51.7% yoy but up exponentially +2.1x qoq, in line with our forecast as we expect no supporting packages in 2H22.

The crowds are returning in great numbers to the shopping malls

In 1Q22, shopping malls were hit hard by the outbreak during late Feb – Mar but the average footfall at VRE’s malls significantly increased 30% qoq, equivalent to 60% of pre-pandemic levels. We observed that the crowds are returning in late Mar, bringing the average footfall at VRE’s malls in Apr to recover and approach pre-pandemic levels. We expect VRE’s average footfall will strongly bounce back during the peak summer season in 2Q22 while VRE will likely terminate the support packages. Besides, we expect the average occupancy rate to inch up 2.9 % pts to 85.5% and rental rates to increase 4% yoy in FY22F.

Earnings growth driven by increasing traffic and mall expansion

In Apr 22, VRE launched VMM Smart City as the new generation “Life-Design mall” with gross floor area (GFA) of 68,000 sqm, equal to 4.1% of Mar 22 GFA. We expect VRE’s total GFA can increase 2.0x times to around 3.3m-3.7mm GFA by 2026F. For FY22/23F, we expect VRE’s top-line will considerably increase 46.2%/35.8% yoy to VND8,614bn/VND11,699bn, on the back of strong growth of 63.2%/39.7% yoy in leasing business. As a result, we expect FY22/23F bottom line of VRE will significantly increase 95.5%/64.6% yoy to VND2,569bn/VND4,2289bn.

Reiterate ADD rating with DCF-based TP of VND37,800

We reiterate ADD rating with DCF-based TP of VND37,800 (WACC: 11.7%, risk-free rate: 3%). Re-rating catalysts are 1) faster-than-expected mall openings or recovery in retail, leading to a strong growth in leasing business or lower than expected supporting package and 2) a transfer of VRE’s mall with a premium value. Downside risks: 1) slower-than-expected mall openings and 2) lower-than-expected occupancy ratio and rental rate.

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