Equity Analysis /

Ha Do Group: Q1 19 – Residential sales drive revenue; raise target price

    Duong Lai
    Duong Lai

    Real Estate, Building Materials

    Rong Viet
    31 May 2019
    Published by

    HDG has more actively pursued growth and leveraging its scale after the state divestment. The company is one of our favorite stocks in the industry thanks to its large asset base and land bank. We revise our target price for HDG to VND46,500/share, 15% higher than the closing price on May 30. The revision factors in the Dakmi 2 plant. In general, we believe HDG is on the right track, increasing its stake in both residential projects and energy plants. We have an Accumulate rating on the stock.

    Q1 19 highlights: 

    • HDG's revenue was driven by the handover of two real estate projects: Hado Centrosa Garden in District 10 (cVND600bn) and Hado Riverside in District 12 (VND34bn).
    • Revenue from hydropower increased 85% yoy thanks to the contribution of the Nhan Hac plant since September 2018. However, growth was flat compared with Q4 18, while gross profit margins reached 78%.
    • The office and hotel segments continue to perform well. Revenue and gross profit were VND78bn and VND39bn, respectively and gross profit margins reached 50%.

    Q2 19 preview: New residential launches and the first solar power operation

    Energy and real estate will still be the main profit drivers next quarter. We estimate revenue and net profit at VND834bn (-8% qoq) and VND93bn (-65% qoq), respectively. The shortfall in total net profit is due to the timing of income recognition in the real estate business. Total revenue will only see a slight decrease thanks to the contribution of the construction segment.

    HDG will have a busy quarter, preparing for the launch of Hado Dragon City and Nongtha Central Park projects in H2 19. In late-2018, the site planning for the Hado Dragon City was adjusted from high-rise to low-rise for the remaining land, resulting in a 528 low-rise unit offering to the market. There is no official launch date yet.

    The company will also be busy with the Commercial Operation Date (COD) of Hong Phong 4 plant in June. Although the profit contribution from the plant is minimal, it creates good sentiment for upcoming renewable projects. 

    Together with real estate, renewable energy is one of HDG’s key pillars in the coming years. The company plans to spend VND3,500-4,000bn on major energy plants during 2019-2020, causing an increase in both its debt balance and interest costs. We believe this is manageable. The company plans to issue both equity warrant bonds as well as straight bonds to fund the development during this period.

    The company is also conducting a feasibility study of other wind and solar power plants, with total designed capacity of 300-400MW. Furthermore, HDG plans to exploit the Nam An Khanh land bank. We believe the real estate monetisation will create a cash inflow to fund the capex for energy projects.