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Vingroup JSC (VIC VN) Summary

Core Content

Vingroup JSC (VIC VN) is a leading real estate developer in Vietnam, recognized for its significant market share and strong relationships with authorities. The company is currently trading at VND65,500, with a target price of VND78,900, representing a 20% upside. Its market capitalization is USD2.5B, and the average daily trading volume is USD1.7M. The stock is considered under-researched and highly liquid, making it an attractive option for foreign investors.

Investment Thesis

• Market Leader: VIC is the market leader in key real estate sectors including retail, hospitality, apartments, and landed villas.
• Barriers to Entry: The company has built significant barriers to entry due to its large market share, strong relationships with authorities, and reputation for timely project delivery.
• Valuation: The company is valued at a 17% discount to its RNAV (Revalued Net Asset Value), which is calculated at VND78,900 per share. This valuation is considered compelling for a market leader with recurring income.

Key Viewpoints

• Largest Land Bank: VIC has a land bank of over 7,000ha, which provides growth potential and diversification.
• Timely Development: The company is known for its fast development pace, especially in retail and residential sectors, outperforming competitors.
• New Projects: The company has been adding about 2,000ha of land to its portfolio annually, with new projects expected to contribute significantly to future revenue.

Key Information

• Major Shareholders:
  • Pham Nhat Vuong: 31.8%
  • Vietnam Investment Group: 13.5%
  • Ecology Development: 9.4%
• Share Price Performance:
  • 1Mth: +3.1%
  • 3Mth: -12.0%
  • 12Mth: -5.0%
• Valuation Approach:
  • RNAV per share: VND78,900
  • Valuation methods: DCF, Sales Comparison, Cost Approach
• Market Share:
  • Retail: 30% in Hanoi and HCMC
  • Hospitality: 18% in Nha Trang and Da Nang
  • Apartments: 13% in Hanoi and HCMC
• Projects Overview:
  • Vinhomes Royal City: Completed, with significant deferred revenue.
  • Vinhomes Times City: Completed, with deferred revenue.
  • Vinhomes Riverside: Completed, with deferred revenue.
  • Vincom Center Dong Khoi: In operation, with a long-term lease agreement.
  • Vinpearl Resort Nha Trang: In operation, with a strong market share in hospitality.
  • Vincom Mega Mall Royal City: Asia's largest underground shopping mall, with high GFA.
  • Vincom Mega Mall Times City: Completed, with high NOI margin.
• Dividend Policy: VIC has not yet established a concrete dividend policy, which is a key risk.
• Customer Concentration: The company has a history of relying heavily on a concentrated group of large key customers, which is another key risk.
• Related Party Transactions: These are a concern, as they may affect transparency and independence.
• Key Man Risk: The company's performance is closely tied to its leadership, particularly Pham Nhat Vuong.

Valuation Table

Key Catalysts

• New Projects: The planned IPO on SGX could fund new developments, increasing the value of its asset base.
• Current Projects: Existing projects are expected to contribute significantly to revenue in FY14 and beyond.
• Recurring Income: The company's recurring income streams, such as from its mega malls, are expected to grow and provide downside protection.

Key Risks

• Customer Concentration: Reliance on a few large customers.
• Dividend Policy: Lack of a clear dividend policy.
• Related Party Transactions: May affect transparency and independence.
• Key Man Risk: High dependence on leadership.

Business Outlook

• FY14:
  • Expected revenue: VND25,783b (USD1.2b)
  • Revenue sources: Property sales (81%) and recurring income (19%)
  • Gross margin: Expected to increase to 39% from 38%
  • Net margin: Expected to be 14.5%
• FY15-16:
  • New projects such as Vincom Village 2, Green City, Vinpearl Quy Nhon, Vincom Hung Yen, and Vincom Hai Phong are expected to contribute to revenue.
  • The planned IPO of 120m shares on SGX is expected to complete in FY15, turning the balance sheet into a net cash position.

Corporate Governance

• Strengths:
  • Informative AGM notices.
  • Communications in English for foreign shareholders.
• Weaknesses:
  • Lack of a dividend policy.
  • Related party transactions.
  • Key man risk.

Conclusion

Vingroup JSC (VIC VN) is a strong real estate developer in Vietnam with a large land bank, leading market share, and a reputation for timely project delivery. Despite some risks, the company's valuation is considered compelling, and its future growth is supported by new projects and a strong balance sheet.