Earnings Report /
Vietnam

Kinhbac City Development: Leases remain stable

  • KBC’s core business remains positive

  • Bottom line at an all-time high due to high demand for leasing

  • Our current target price is VND14,200; Accumulate

Duong Lai
Duong Lai

Real Estate, Building Materials

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Rong Viet
8 April 2020
Published byRong Viet

Our view on KBC’s core business remains positive, but not so strong on leasing demand (albeit stable currently). Our current target price is VND14,200 per share under our RNAV calculation. We have an Accumulate rating for now. Our fair value suggests a 17% upside potential and a forward FY 20 P/E of 8.1x, based on the closing price on 7 April 2020. 

FY 19: Bottom line at an all-time high due to high demand for leasing

  • Net sales and NPATMI was VND3,209bn (+28% yoy) and VND918bn (+23% yoy), fulfilling 82% and 103% of the year’s target, respectively. The company fulfilled 86% and 99% of our forecasts.
  • Land leases reached 107 ha (-3% yoy). However, leasing sales jumped to a new peak at VND2,288bn, (+13% yoy). Rental rates continued to soar by 10-15% yoy thanks to high demand for leasing.
  • The Phuc Ninh’s handover was postponed, due to prolonged legal issues. During Q4 19, KBC completed the delivery of 4ha of commercial land in the Trang Due’s urban area instead, bringing VND540bn in revenue. 

FY 20: Expect cashflow from urban area sales and the kick-off in Nam Son Hap Linh

  • Total land area in Phuc Ninh and Trang Due being sold but not recorded as revenue is 17ha, equivalent to revenue of VND2,100bn. We assume KBC will hand over 6ha of land in Trang Due in 2020, and not record any profit from Phuc Ninh due to legal problems. Accordingly, revenue and gross profit for the residential segment will be VND600bn and VND300bn, respectively.
  • We expect the company to lease out 87 ha (-19% yoy). Quang Chau is expected to contribute 41% of total land leased. Our forecast includes the first contribution from Nam Son Hap Linh, which is 32ha. We maintain a conservative view, because of: 1) Coronavirus, 2) leasing demand affected by weaker global demand.
  • Projected revenue and NPATMI will be VND2,650bn (-17% yoy) and VND850bn (-7% yoy), respectively. 

Valuation and recommendation 

Our view on KBC’s core business remains positive, but not so strong on leasing demand (albeit stable currently). KBC has an ample land bank, coupled with premium locations in the north of the country. The two industrial parks, Quang Chau and Tan Phu Trung, with the remaining 230 hectares of commercial land will ensure stable cash inflow in the short and medium term. The driving force for growth will come from the prospect of 300ha of land bank in Nam Son Hap Linh (Bac Ninh) probably exploited from 2020 onwards. There is a global mobile manufacturing company signing an MOU land lease contract of 60ha with KBC. 

Regarding the legal procedures of the Nam Son Hap Linh, KBC expects to have the paper done in 2020 and could welcome its very first tenants in H2 20. Assuming that the coronavirus is under control by June 2020, we believe that leasing activities may begin again in H2 20. 

Our current target price is VND14,200 per share under our RNAV calculation. We have an Accumulate rating for now. Our fair value suggests a 17% upside potential and a forward FY 20 P/E of 8.1x, based on the closing price on 7 April 2020.