Equity Analysis /
Vietnam

FPT Corporation: Q2 19 results: High growth, reiterate Buy

    Son Tran
    Son Tran

    Market Strat, Retail, Consumer 

    Rong Viet
    13 September 2019
    Published by

    All business segments recorded healthy growth yoy. Revenue and EBT growth of the technology segment reached 28% and 44%, respectively, while it was 17% and 13%, respectively for telecommunications.

    Strong growth in software outsourcing with revenues increasing by 25%, with an 86% growth in the US segment thanks to Intellinet consolidation. Telecommunications is also growing steadily due to increasing broadband internet and Pay TV subscribers.

    Education and investment segments increased its EBT by 47%, accounting for 13% of total EBT.

    2019 forecast:

    • The technology segment continues to sign more synergistic contracts with Intellinet in the US, with an estimated contract value for this year at US$4-5mn. The company is also looking for M&A targets in other new markets.
    • continued growth in Pay TV subscribers.
    • Strong financial conditions allow FPT to maintain a cash dividend of VND2,000/share, equivalent to a 40% payout ratio while increasing reinvestment to maintain high growth.

    Valuation and recommendation

    FPT is trading at a trailing PE of 12.5x. We believe this is a low valuation considering the ability to maintain a CAGR of c20% over the next five years. The main growth driver will come from software outsourcing. The contribution from the education sector will also drive earnings.

    FPT's profit growth always fluctuated widely due to the impact of the retail & trading and information systems segments. The company has recently divested from retail & trading, while the proportion of information system has become insignificant. Therefore, with the increase in the contribution from software outsourcing and education, we believe that FPT's growth story will be more sustainable.

    On the other hand, foreign ownership limit has always been a factor hindering the stock price. FPT could possibly be included in the VN-Diamond Index, or the future approval of “non-voting depository receipt” (NVDR) can help solve this issue. We maintain our Buy recommendation for FPT, with a target price of VND68,000 per share over the next 12 months, equivalent to a forward PE of 13x.