HDG – Investing for the future – Initiation

• We believe Ha Do Joint Stock Company (HDG) is placing intensive investment in the electricity sector, taking advantage of government incentives.
• The energy segment will ensure long-term growth for HPG, after HaDo Centrosa project’s completion and handover in 2020-21F.
• Initiate coverage with an ADD rating and TP of VND29,600.

Shifting from a property developer to an energy player

From a real estate developer, HDG’s has been gradually shifting to power business. The company started with small hydropower plants since 2009 to ensure stable cash flow. In recent years, HDG has expanded its portfolio to wind power and solar power projects in order to take opportunity from the government’s preferential policies for this sector.

Higher contribution from power sector going forward

We expect that HDG’s power capacity could post a CAGR of 29.3% in FY20-22F thanks to (1) two new hydropower plants (Song Tranh 4 – 48MW; Dak Mi 2 -147MW) that will come on stream in 4Q20F and 1Q21F, respectively, and (2) the operation of Infra 1 solar power plant (50MWp) and 7A wind power plant (50MW), slated to start in 3Q20 and 2Q21F, respectively. We estimate that the power segment revenue will grow at a FY20-22F CAGR of 44.5%, widening its contribution to 45.9% of HDG’s top line in FY22F, from 14.0% in FY19.

HaDo Centrosa residential project to fuel FY20-21F results

The last four high-rise blocks of the HaDo Centrosa mega project will be handed over to buyers in FY20-21F. Currently nearly all of the 1,010 units have been sold out and the final works are being completed. HaDo Centrosa is expected to generate VND3,983bn in revenue and VND1,124bn in NP, making up 41.9%/48.1% of HDG’s top line and bottom line, respectively, in FY20-21F.

Initiate coverage with ADD and TP of VND29,600

We initiate coverage on HDG with an ADD rating. Our TP of VND29,600 is based on SOTP valuation method. We believe that HDG’s strategy of focusing on power investment now is reasonable, as it ensures stable cash flow while taking advantage of the government’s incentives. Key downside risks to our call include (1) the high volatility of Vietnam’s rainy and dry seasons, affecting hydropower and solar power output; and (2) the risk of a policy change related to subsidised tariffs, tax rates or land rights that may affect project profitability.

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