FPT – Rerating on stronger gross margin expansion – Update

• Thanks to a strong recovery in 4Q20, FPT’s FY20 net profit rose 12.8% yoy, in line at 104.7% of our forecast.
• FY20 GPM reached record high at 39.6% (4Q20 was 40.0%), up 1.0% pt.
• We forecast FPT’s FY21F revenue and net profit to grow 18.6% and 20.6% yoy, respectively.
• Reiterate our Add call with a higher SOP-based TP of VND87,200.

4Q20 witnessed a remarkable recovery of sectors hit by COVID in 1H20

FPT’s net revenue rose 6.7% yoy to VND8,667bn in 4Q20 while net profit increased sharply by 29.8% yoy to VND983bn. In 4Q20, there was a remarkable recovery in domestic IT services revenue (+12.7% yoy) and online advertising sales (+29.8% yoy) after being hit by COVID-19 in 1H20. Besides, there were great gains in FPT’s affiliates including FPT Retail (FRT) and FPT Secutities (FTS) which also contributed to the robust growth of FPT’s earnings in 4Q20.

FY20 results in line with our expectations, GPM widened

Net revenue rose 7.6% yoy to VND29,830bn in FY20, forming 96.4% of our forecast. FY20 net profit increased by 12.8% yoy to VND3,538bn, in line at 100.7% of our full-year projection. FY20 blended GPM expanded 1.0% pt yoy to reach record high at 39.6% thanks to higher margins of major business lines.

Expect solid earnings growth in FY21F on the back of vaccine availability

For FY21F, we expect the pandemic situation to improve with the availability of vaccines. As a result, we forecast FPT’s FY21F revenue and net profit to grow 18.6% and 20.6% yoy, respectively. We believe FPT’s GPM will further improve (+0.1% pt yoy) thanks to higher contribution of the Dx business line.

Re-rating to a higher TP of VND87,200 and reiterate Add call

We reiterate our Add call with an SOP-based TP of VND87,200. Our valuation is derived from the regional FY21F P/E median corresponding to each segment. We reduce the discount to 10% from 15% on tech and telecom peer’s median P/E due to FPT’s superior GPM and narrower gap in interest rates between Vietnam and other observed countries (e.g. India, Philippines, Thailand).

Re-rating catalysts and downside risks

Potential re-rating catalysts are a successful M&A deal with an overseas tech company and higher-than-expected signed IT services revenue. Downside risks include shortage of high-quality IT personnel to achieve its long-term strategies and fewer tech contracts if covid-19 prolongs and becomes more complicated.

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