Equity Analysis /
Vietnam

Vincom Retail: Pivotal year for the development of Vincom Megamalls

    Duong Lai
    Duong Lai

    Real Estate, Building Materials

    Rong Viet
    15 May 2019
    Published by

    1Q 2019 – Impressive growth as portfolio expanded

    1Q 2019’s revenue and NPAT-MI came in at VND 2,284 billion (+41% YoY) and VND 612 billion (+13% YoY), respectively. Gross profit margin decreased to 43% from 50% due to higher contribution of the sale of inventory properties. VRE’s sale of inventory properties only achieved a margin level of 23%, compared to 35% in 1Q 2018, because Bac Ninh and Da Nang project achieved a gross profit margin of around 20-25%.

    Regarding the leasing business, no new shopping malls were opened in Q1. Compared to 4Q 2018’ leasing revenue, 1Q 2019’s figure increased by 11%, mainly driven by the contribution of Vincom Metropolis that launched in Dec 2018 and four other Vincom Plazas.

    Total retail GFA reached nearly 1.5 million sqm (+23% YoY). Overall occupancy rate also improved to 91.4% (+160bps QoQ).

    FY2019 – Pivotal year for the development of Vincom Megamalls

    Vincom Retail targets to open 13 new malls in 2019, adding 153,000 sqm of GFA, of which Vincom Center Tran Duy Hung launching in late-April is the key project. In addition, three new Vincom Megamalls as components of Vinhomes’ mega residential complexes are under construction, and expected to be put into operation in 2020-2021.

    We estimate revenue and net profit in 2Q 2019 will be VND 2,136 billion and VND 685 billion respectively. Vincom Center Tran Duy Hung will contribute to total leasing revenue. FY2019 revenue and net profit are estimated at VND 9,276 billion (+1.7% YoY) and 2,927 billion (+21.7% YoY) respectively.

    Valuation and recommendation

    Rong Viet Securities remains positive on VRE’s core business given its (1) dominance in Vietnam’s retail leasing industry and (2) ample room for growth in coming years. Vincom Retail is on the right track and increasingly welcoming retailers who can bring fresh elements to their properties while at the same time reshuffling tenants to enhance mall positioning and optimize rental yield. Vincom Retail stands out among its rivals thanks to: 1) its 60% market share in retail leasing, leading to great opportunities to co-operate with prominent retailers and 2) scalability as part of the Vinhomes’ residential complexes and Vingroup’s ability to acquire new land bank in tier-2 and 3 provinces and cities.

    The company is trading at 2019 forward P/E and P/B of 29.1x and 2.7x respectively. Using a capitalization rate and multiple valuation method, we come up with a fair value of VND 39,600 per share, equivalent to an expected return of 8% compared to the closing price on May 15th 2019. Therefore, we recommend to ACCUMULATE the stock.