KBC – Positives likely priced in – Update

• KBC posted the net loss of VND68bn in 3Q21. Consequently, 9M21 NP surged 1,802.7% yoy to VND571.7bn coming in at 47.8% our estimate.
• We lower FY21-22F NP by 36%/16% to reflect its delays in handovers at Phuc Ninh urban area and Nam Son Hap Linh (NSHL) projects.
• Downgrade from Add to Hold with lower target price (TP) of VND56,100.

3Q21 results disappointed again
KBC posted 3Q21 revenue up by 60.6% year-on-year (yoy) to VND324.9bn thanks to leasing out 1.9ha of IP land and 2.3ha of residential land. Blended gross margin narrowed by 6.3% pts yoy to 48.9% due to higher contribution of low-margin residential segment. This, coupled with 3Q21 financial expense increase (+135.0% yoy) led the net loss of VND68.4bn in 3Q21 (vs. a net loss of VND20.8bn in 3Q20). Consequently, 9M21 net profit (NP) rose 1,802.7% yoy to VND571.7bn, from the low base 9M20, coming in at 47.8% of our estimate.
Lower FY21-22F NP by 36%/16% to reflect its delays in legal procedures
We lower our FY21F revenue forecast by 27.5% to VND4,909bn (+128.2% yoy) and FY21F NP by 36.0% to VND1,196bn (+433.7% yoy) to reflect its delays in handovers at Phuc Ninh urban area and NSHL IP projects. We also cut our FY22F revenue forecast by 2.0% to VND6,671bn (+35.9% yoy) and FY22F NP by 16.0% to VND1,723bn (+44.1% yoy) as we postpone Trang Due 3 IP contribution to FY23F. We expect FY23F NP surge 109.7% yoy to VND3,612bn upon the new contribution of Trang Cat urban and Trang Due 3 IP projects.
2022F industrial property outlook: tailwind is still blowing
We believe Vietnam with the ingredients of a young and abundant labour force, together with low operating costs and tax incentives would continue to be an attractive destination for FDI in the longer run, especially in the context of “China plus one” strategy. Added to this are new FTAs namely RCEP and EVFTA, together with other FTAs, would help motivate manufacturing investment companies to come to Vietnam and maintain strong FDI inflows into Vietnam in the coming years, in our view.
Downgrade from Add to Hold with a lower TP of VND56,100
As recent share price rally has already factored the strong outlook, we downgrade our rating from Add to Hold with a lower TP of VND56,100. Potential re-rating risks could come from faster IP or residential land sales and whether KBC can clear legal hurdles to start its new projects. Key downside risks to our call: 1) worse-than-expected IP land sales, 2) regulatory delays in Trang Cat project and Trang Due 3 IP and 3) delays in booking revenue from residential projects.
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