HDG – Slow but Steady Recovery – Update

• We reiterate our ADD rating with upside of 27% and a dividend yield of 2%.
• We lower our TP by 19% due to lower FY26-27 EPS forecasts after updating our assumptions for the COD/CCA resolution mechanism at solar power plants and revising the handover schedule for the Charm Villas 3 project.
• The current P/B of 1.3x is well below its five-year average P/B of 1.8x, which we believe remains attractive given the company’s recovery outlook.

Financial Highlights

• 1Q26 net profit (NP) dropped 67.8% YoY to VND50bn (USD1.9mn), mainly due to a sharp increase in SG&A expenses, which was driven by provision expenses related to the Infra 1 solar plant.
• We forecast NP to grow 9.1%/66.2% YoY in FY26-27, mainly driven by the handover of the Charm Villas 3 project.

Investment Thesis

Residential property recovery remains gradual

Following a weak 2025, we expect the property segment to gradually recover from 2026 onward, supported by the handover of Charm Villas 3. As it likely remains the sole contributor over the next few years, we expect HDG to phase project handovers during 2026-29. We currently expect it to contribute VND205bn/VND418bn (USD7.8mn/USD15.9mn) in NP in 2026-27, equivalent to 24%/30% of HDG’s NP, respectively. Meanwhile, HDG’s longer-term outlook is also gradually improving, with new projects such as 62 Phan Dinh Giot and Minh Long potentially starting development from 2027 and beginning to contribute revenue from 2029.

Provisioning largely completed, power entering a new investment cycle

Following EVN’s latest proposed resolution framework for COD/CCA-related issues, HDG recognized VND193bn (USD7.3mn) of provision for the Infra 1 project in 1Q26, effectively completing provisioning for most legal risks associated with the two affected renewable projects. We expect these issues to be largely resolved within this year. Looking ahead, HDG is expected to re-enter a new capacity expansion cycle, with hydropower projects (La Trong, Son Nham) and the Phuoc Huu wind power project expected to commence operations during 2026–27, collectively contributing ~13% of the company’s total power output.

Hydropower faces headwinds in 2026 amid dominant El Nino conditions

Based on the latest ENSO forecasts, 2026 is expected to be hotter than historical averages with a dominant probability of El Nino conditions. Lower rainfall levels are likely to negatively affect hydropower generation, particularly after a strong 2025. Thus, we forecast hydropower output will fall 17.3% YoY to 1.23 billion kWh in 2026.

Attractive valuation given the long-term growth outlook

From our perspective, most major risks associated with HDG’s power projects have now largely been provisioned, while the company is demonstrating a gradual but relatively solid recovery supported by a healthier balance sheet (net gearing declining significantly from 170% to 68% over the past five years). Accordingly, we believe HDG’s current valuation (P/B of 1.3x) remains attractive given its long-term growth potential across both the energy and property segments.

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