VRE – Strong recovery after pandemic – Update

• VRE’s FY21 revenue and net profit fell 29% yoy/45% yoy to VND5,891bn/VND1,314bn, significantly lower than our expectation.
• With footfall recovery of shopping malls since Nov-21, we expect VRE’s FY22/23F NP likely to surge 95.4%/64.6% yoy, respectively.
• Reiterate ADD rating with DCF-based TP of VND37,800.

4Q21 result: Gradual recovery from 3Q21
4Q21 revenue fell 58% yoy (+74% qoq) because: (1) leasing revenue decreased 46% yoy, but increased 22% qoq to VND891bn and (2) revenue from property delivery decreased by 72% yoy to VND436bn (20x times qoq) as VRE only handed over 104 units compared to 226 units in 4Q20 (5 units in 3Q21). Thus, in 4Q21, VRE recorded VND122bn in NP (-87% yoy, +5.1x qoq). For FY21, VRE’s revenue and NP fell 29% yoy/45% yoy to VND5,891bn/VND1,314bn, equivalent to only 77%/60% of our forecasts.
The crowds are back to the malls
According to data of VRE and Google, the footfall to Vincom malls recovered to about 80% vs. pre-Covid level in Dec 21 and is expected to reach pre-Covid level in Jan 22, before Tet season. It affirmed the quick recovery of Vietnam retail with high vaccine rate. VRE will still launch supporting package for Covid-19-affected tenants in FY22F to assist tenants to recover with an estimated support package value the same as that in 2020, totalling about VND865bn.
Changes in forecasts
We lower FY22/23F revenue by 17.9/5.5% vs previous forecasts as (1) mall leasing business might recover slower-than-our-expectation and VRE targeted to support clients with a package of about VND865bn in 2022; and (2) we also lower the sale of inventory properties in FY22/23F by 48.7%/51.1% as VRE tends to switch its focus to leasing properties. As a result, we lower FY22/23F NP by 30.1%/4.1% versus previous forecasts to VND2,569bn/VND4,2289bn (+95.5%/+64.6 yoy).
Reiterate ADD rating with DCF-based TP of VND37,800
We reiterate ADD rating with DCF-based TP of VND37,800 (+3.3% vs previous forecast) on the back of 1) rolling our DCF valuation to 2022, 2) strong recovery in Vietnam’s retail industry after pandemic helps us to raise rents price by 1.0 pts % more per year from FY26F and beyond to 3) offset net profit reduction in FY22-23F by 30.1%/4.1% (WACC: 11.7%, risk-free rate: 3%). Re-rating catalysts are 1) faster-than-expected mall openings or recovery in retail, leading to a strong growth in leasing business and 2) a transfer of VRE’s mall with a premium value.
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