SZC – Pressure from increased compensation cost – Update

• In 1Q22, SZC’s revenue surged 55.6% yoy while net profit (NP) reduced by 5.3% yoy, fulfilling 12.8% of our full-year forecast.
• We expect FY22F revenue/NP to grow 58.2%/16.3% yoy, respectively.
• Reiterate Add with lower target price (TP) of VND81,100.

Contrasting picture between top line and bottom line in 1Q22
SZC posted 1Q22 revenue of VND277.3bn (+55.6% yoy) thanks to the strong increase of IP rental revenue (+56.3% yoy) on the back of high demand for IP rental in Southern Vietnam. However, 1Q22 GM decreased by 23.3% pts yoy due to an increase of 100% yoy in land prices for compensation in Chau Duc IP project, which caused a surge of 146.7% yoy in 1Q22 COGS. Consequently, 1Q22 net profit decreased by 5.3% yoy to VND75.3bn, fulfilling only 12.8% of our full-year forecast.

Standing firm against headwinds
From Mar 2022, BR-VT province has stopped approving the land compensation plan to wait for new adjusted land price. We forecast FY22F industrial’s GM will be hit hardly by the increase of cost for land compensation. However, we think SZC will stand firm against headwinds and grow strongly in two core businesses: we expect FY22F IP/residential revenue will increase by 0.7%/100% yoy. Overall, we forecast FY22F NP increase 16.4% yoy to VND377bn.

FY22-24F earning forecast revision
We lower FY22/FY23F revenue by 15.5%/13.6% vs previous forecast as we concern about the IP land clearance may slower-than-expected. Due to higher compensation cost, we lower FY22/23F blended GM by 11.6% pts/7.3% pts vs previous forecast. As a result, we revised FY22F/FY23F NP down by 35.9%/26 vs previous projection.

Reiterate ADD with lower TP of VND81,000
We reiterate Add with lower SOTP-based TP of VND81,100. Despite of facing headwind, we are confident about SZC result as 1) Chau Duc IP has advantage position in BR-VT IPs; 2) rental price hike in BR-VT IPs; 3) phase 2 of Sonadezi Huu Phuoc launched in 1H22 will enjoy prices hike and high take-up rate. Upside catalysts: 1) better-than-expected IP and residential land sales, 2) faster land clearance, which will speed up project implementation. Downside risks are: 1) higher-than-expected the new price for land compensation, 2) delays in obtaining permits for residential projects.

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