KBC – Keep forging ahead – Update

• KBC posted VND1,893bn in 2Q22 net profit (45x yoy) on one-off gain from revaluation, make 1H22 earnings to fulfill 66.1% our FY22F forecast.
• We expect FY22F earnings to grow 359% yoy without the contribution of Trang Cat urban area, coming our worst-case scenario in previous update.
• Reiterate Add with a lower TP of VND51,600/share.

2Q22 recap: core business squeeze, one-off gain save the bottom line

KBC’s 2Q22 revenue plunged by 47.3% yoy to VND395.3bn on land sales contraction (-43% yoy to only 8ha). Core gross profit dropped 56% yoy, however, 2Q22 earnings grew 45x yoy to VND1,893bn thanks to a one-off gain from investment revaluation of VND1,975bn. For 1H22, KBC handed over only 16.9ha industrial land (-79.1% yoy) and 3.9ha residential area (+75.2% yoy), leading to a drop of 60.5% yoy in revenue VND1,087bn. 1H22 gross margin squeezed 13.3% pts yoy to 43.9% due to lower contribution of high-margin IP land sales. 1H22 NP rose by 270.9% yoy to VND2,374bn.

We expect no revenue contribution from Trang Cat in FY22F

KBC shared that the negotiations for bulk sales at Trang Cat urban area (UA) project are still ongoing. We cautiously delay the revenue contribution of this project to FY23F, given that 1) the land transfer procedures could take at least 3-6 months and 2) investors could slow land acquisitions in view of uncertainties in the global economy and rising inflation, especially Vietnam developers amid tightening funding on property sector. We revise down FY22-23F NP by 50.9%/37.7% to VND3,593bn (+359.3% yoy)/VND5,333bn (+48.4% you).

Industrial property outlook: still running on a full head of steam

We believe industrial property still running on a full head of steam in 2H22-FY23F, fueled by 1) FDI inflow likely stronger in 2H22F while manufacturing expansion trend remains intact; 2) e-commerce boom, increased inventory requirements and supply chain diversification boosting the demand for IP land and 3) infrastructure development, empowered by accelerating public investment will buoy industrial property market. Besides, we see government’s strong intention to drive industrial land supply which could support developers to speed up completing legal procedures for their new IPs, in our view.

Reiterate Add with a lower TP of VND51,600

Reiterate Add with a lower TP of VND51,600/share due to slower-than-expected legal procedures of some new IPs and bulk sales schedule at Trang Cat project. Upside risks: KBC can clear legal hurdles for its new projects. Key downside risks 1) worse-than-expected land sales, 2) regulatory delays in new projects, and 3) delays in booking revenue from residential projects.

Please follow this link for the full report