PHR – Dawn comes after the darkness – Initiation

• PHR owns more than 22,500ha rubber plantations in Vietnam and Cambodia. 5,600ha out of that will be converted to industrial parks (IP).
• We expect a 48.5% net profit CAGR over FY21-25F, driven by a rise in rubber business and the contribution from IP revenue and compensation.
• Initiate coverage with an Add rating and SOTP-based TP of VND71,500.

Among largest local natural rubber producer
PHR is the third-largest natural rubber producer with plantations of 14,500ha in Vietnam and c.8,000ha in Cambodia. PHR aims to convert more than 5,600ha rubber land fund into industrial park in Binh Duong to capture the growing demand for Vietnam industrial park, triggered by the manufacturing inflow to Vietnam on the “China plus one” strategy.
IPs segment could bring PHR’s earnings surprises since FY22F
We expect PHR could receive the VND898bn payment of compensation and resettlement support for 691ha of VSIP 3 IP in FY22F, leading to a 161.1% yoy surge in FY22F net profit. Besides, out of 5,600ha converting into IP, we see four potential IPs, equivalent to 2,600ha, could put into operation in the next three years. We forecast IP revenue of VND521bn (+702.2% yoy) in FY23F and VND1,109bn (+112.6% yoy)/VND1,799bn (+62.2% yoy) in FY24-25F.
Brighter natural rubber business outlook thanks to young plantation
As at end-20, PHR has 6,530ha of tapping area in Binh Duong province and 5,969ha of immature area. Most of immature area plantations will be ready for tapping during FY22-25F. Together with all 7,664ha of tapping area at Kampong Thon rubber plantation and natural rubber price spikes on the global increasing demand and tight supply, we forecast PHR’s rubber revenue to reach a CAGR of 10.0% with a consumption CAGR of 8.7% over FY21-25F.
Initiate with Add and SOTP-based TP of VND71,500
Our Add recommendation was underpinned by (1) 161% yoy surge in FY22F net profit; (2) attractive FY22F P/E valuation of 7.8x and (3) favourable cash dividend policy. Upside catalysts could come from whether PHR can clear legal hurdles to start its new IPs and receive the payment of land compensation sooner-than-expected. Downside risks are: 1) prolong 4th COVID-19 outbreak which could restrict sales and investment activities, 2) regulatory delays in IPs project, leading to delays in operation and receiving payment of land compensation, 3) risk of falling rubber prices due to oversupply, global inventories, which has thin profit margins.
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