KBC – The sun breaking through as dark clouds recede – Update

• KBC posted VND599.2bn in 1Q21 net profit (+1,012.7% yoy), a ten-year high in quarterly earnings.
• We raise FY21-22F EPS by 105%/45% upon two new IPs coming into operation namely NSHL IP in FY21F and Trang Due 3 IP in FY22F.
• Upgrade from Hold to Add with a higher TP of VND57,500.

KBC posted a quarterly ten-year high in 1Q21 net profit
KBC leased out 66.6ha of industrial park (IP) land in 1Q21 (+359.3% yoy), in which Tan Phu Trung IP (21.9ha, +51.2% yoy), Quang Chau IP (32.9ha) and NSHL (10.4ha). Consequently, 1Q21 revenue reached VND2,002bn (+260.2% yoy). This, coupled with 1Q21 gross margin increase (+12.2% pts yoy) led 1Q21 net profit up by more than 10 times yoy to VND599.2bn. 

Trang Due 3 IP (687ha) received key approval after 3.5 years waiting
Trang Due 3 IP (687ha) was permitted to be a part of Dinh Vu – Cat Hai Economic Zone on 25 Mar 21, after 3.5 years waiting this approval. KBC is focusing on completing legal procedures, compensation, land clearance and infrastructure to put this IP into operation in FY22F. If successful, Trang Due 3 IP will increase KBC’s leasable industrial land by 74% yoy (based on our estimates) and would drive land sales revenue over FY22-FY25F.

Raise FY21-22F EPS +105%/45% upon two new IPs coming into operation 
We raise our FY21F revenue forecast by 97.1% to VND6,774bn (+214.9% yoy), to reflect more contribution of NSHL IP in FY21F land sales and its delayed handover in FY20. We project KBC to report a FY21F NP of VND1,868bn (+734.7% yoy), with a recovering GM of 53.6% (+21.6% pts yoy), up 105.3% from our previous forecast, implying core EPS growth of 734.7% yoy. We also raise our FY22F core EPS by 45.3% as we expect the contribution in land sales of Trang Due 3 IP since FY22F. 

Upgrade from Hold to Add with a higher TP of VND57,500
We upgrade to Add from Hold with higher TP of VND57,500 as we update our DCF-based valuation for Trang Cat project and Trang Due 3 IP to reflect their success in tackling bottlenecks at end-FY20 and early-FY21F. Potential upside risks could come from faster IP or residential land sales and whether KBC can clear legal hurdles to start its new IPs. 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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