FCN – Solid foundation to grow from FY22 – Initiation

• FCN ‘s growing exposure to renewable energy, especially wind power is a strong re-rating catalyst.
• High possibility of capital raising success this year which will ease the concern over high leverage and negative cash flow.
• Initiate coverage with an Add rating and SOTP-based TP of VND18,400.

Construction business likely to bottom out
FCN is among few local contractors that have deep technical expertise in heavy construction and aggressively aiming to become a general contractor. We expect FCN’s construction activities to bounce back in 2022-23F, driven by surging state investment and FDI inflow. FCN has several construction projects in pipeline during 2021-22; most of them are power plants and infrastructure development projects. That set a solid foundation for construction revenue to grow at a 14.4% CAGR over FY21-23F.

Riding on the wave of green energy investment in Vietnam
FCN has captured the arising opportunities from the ongoing country’s heavy investment in wind power. Currently, the company has five large wind power plants in construction pipeline with a total contract value of about VND2,884bn. Additionally, FCN holds 40% and 51% stake in two renewable energy power plants with a total capacity of 80MW. The company aims to build an investment portfolio with 1,000MW of renewable energy (RE).

High possibility of capital injection this year
FCN targets to raise about VND416bn through a private placement following the issuance of 32m shares (~25.5% stake) in this year. We estimate the capital injection will ease the concern over negative cash flow and lower the leverage ratio at the end-2021 from 0.91x to 0.66x post issuance.

Initiate coverage with an Add rating and SOTP-based TP of VND18,400
We expect net profit to grow 25.8% CAGR over FY21-23F, driven by current backlog which secures 80% of our forecast. We do not take into account the possibility of FCN’s divestment from its two RE plants. If successful, the 2 divestment deals will bring about VND80bn to FCN’s net profit over FY21-22F, based on our estimate. Our target price is VND18,400, based on SOTP valuation for construction segment and two RE plants.

Re-rating catalyst is better-than-expected new contract value and higher-than-expected divestment deal value. Downside risks including (1) the new power price policy which is more unfavourable for developers & construction wind powers; and (2) the risk of dilution due to large capital requirements
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