VRE – An expected rebound after social distancing – Update

• Vincom Retail’s 1H21 revenue and net profit rose 12.7%yoy/39.9% yoy to VND3,737bn/VND1,168bn, significantly lower than our expectation.
• VRE’s results will be impacted by prolonged social distancing in 2H21F, before growing strongly since 2022F.
• VRE’s malls build-out to resume in 4Q21F with Vincom Megamall Smart city and 2 Vincom Plazas at Bac Lieu and My Tho.
• Reiterate Add with a lower TP of VND36,600.

2Q21 results slightly impacted by a re-emergence of Covid-19

2Q21 net revenue slumped 7.3% yoy due to a 67.6% yoy decrease in property inventory sales and a 4.8% yoy increase in leasing revenue thanks to VRE’s total gross floor area (GFA) rose 3.5% yoy in 2Q21, while leasing price stay the same level as 2Q21’s when VRE launched a VND350bn package to tenants due to 4th outbreak of Covid-19. Financial expense decrease 23.8% yoy, helping 2Q21 net profit increased 12.9% yoy to VND388bn. For 1H21, VRE’s revenue and net profit rose 12.7% yoy/39.9% yoy to VND3,737bn/VND1,168bn, below our forecast when completed 32.4%/33.0% our full year projection.

Tough 2H21 due to prolonged social distancing

As expected by the local government, the time to relax social distancing in Hanoi is 21 Sep-21 and in HCMC is 01 Oct-21, thus VRE could propose an additional large support package in 2H21F. As a result, we revise down VRE’s FY21F revenue/net profit forecast by 33.4%/38.4% to 1) reflect the additional support package and 2) revise down properties delivery revenue projection.

Awaiting a new normal

With the vaccine widely available, Vietnam economy will gradually reopen since 2022 in a condition of living with pandemic, leading us to anticipate that no social distancing will be implemented in the future. However, 4th Covid-19 wave also post short term challenges for tenants, thus, VRE will maintain a stable rent in FY22/23F. We adjust FY22F/23F revenue down 24.5%/25.3% reflecting 1) stable rent in FY22F/23F and 2) less contribution from property segment as VRE will focus more on leasing business. As a result, VRE’s net profit in FY22F/23F decreased by 18.8%/21.5% compared to previous report.

Reiterate Add with DCF-based TP of VND36,600

We lower our TP by 3.7% following an earnings downgrade over FY21-23. However we still like VRE thanks to its well-position to ride on the boom of middle and affluent class in Vietnam. Potential upside catalyst: faster-than-expected mall openings. Downside risks include another wave of the Covid-19 outbreak.

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