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Summary of Nam Long Group (NLG VN) Analysis

Core Content

Nam Long Group (NLG VN) is a real estate developer with over 20 years of experience, known for its focus on affordable housing. The company has a strong brand identity in the affordable housing segment and is well-positioned to benefit from a recovery in the real estate market. The current share price is VND23,000, with a target price of VND29,440, indicating a c.22% discount to its Revised Net Asset Value (RNAV).

Key Financial Indicators

• ROE (3-year annualised): 9.4%
• Net Cash (2Q13): -1,578 VND billion
• NTA/shr (2Q13): 15,440 VND
• Interest Cover (3-year average): 3.7x

1H13 Results

• Revenue: VND104.6 billion, down 9% YoY, but in line with expectations.
• Gross Margin: Increased slightly to 32% from 29% in 1H12, driven by high margins in Can Tho 23.
• SG&A Expenses: Rose 47% YoY due to promotion costs for new product launches.
• Interest Expenses: Declined 53% YoY as interest rates fell.
• Earnings Growth: Expected to rise sharply in FY13, with a circa 5-fold increase in net profit attributable to Nam Long.

Business Outlook

• Short-term Outlook: Stable, with sales of apartments in Ehome 3, townhouses in Vinh Phu-Binh Duong, and land plots in Can Tho 23 exceeding 1H13 targets.
• Medium-term Outlook: Positive, with the government's USD1.4 billion support package for affordable housing expected to trigger a market recovery from 2014 onwards.
• Landbank Strategy: Nam Long focuses on the south of Vietnam, balancing its landbank between Ho Chi Minh City (HCMC) and nearby provinces, which allows it to leverage both the mature HCMC market and growth opportunities in urbanising regions.

Project Updates

• Ehome 3: Phase 1A (331 units) sold 325, with 95% of revenue expected to be recognized in 2013. Phase 1B (160 units) has 60 units sold as of Aug 2013.
• Vinh Phu-Binh Duong: Sold 151 townhouses in 1H13, 24% ahead of target. Land plots sales also exceeded expectations.
• Can Tho 23: 21 land plots sold in 1H13, 4% ahead of target. 95% of cash receipts are expected within six months. A large commercial plot remains unsold.
• Long An 36: 12 plots sold by Aug 2013, with about 70 plots remaining available.

RNAV Estimate

• RNAV/share: VND29,440, based on the market value of the company's real estate projects, adjusted for taxes.
• Total RNAV: VND2,812 billion, significantly higher than the book value of VND1,239 billion.
• Net total gain on revaluation: VND1,572 billion.

Company Overview

• Affordable Housing Pioneer: Launched Ehome 1 in 2008, establishing a strong brand in the affordable segment.
• Efficient Business Model: Nam Long's systematic production process and ownership of Nam Khang (55%) help control costs while maintaining quality.
• Ehome Brand Recognition: Strongly associated with the Ehome brand, which has been consistently used across projects.
• Track Record: Over 20 years in the industry, with a long-standing presence in HCMC and a number of successful residential projects, including villas and townhouses.

Competitive Position

• Brand Image: The Ehome brand is well-recognized compared to competitors like BCI and TDH, which use different brand images for different projects.
• Foreign Ownership: Foreign investors hold 37% of shares, with notable strategic partners including Goldman Sachs, Ireka, and Mekong Capital.

Real Estate Market Overview

• Affordable Housing Recovery: Prices are expected to bottom out in 2013, with a focus on low- to average-income buyers.
• Urbanisation Trends: Vietnam's urbanisation rate is projected to grow at 2.8% annually, driving long-term demand for affordable housing.
• Government Support: The USD1.4 billion housing stimulus package is a mid-term catalyst, expected to benefit developers like Nam Long.

Conclusion

Nam Long Group is recommended as a long-term BUY due to its strong fundamentals, established brand, and strategic position in the affordable housing market. The stock is currently undervalued relative to its RNAV, and the company is well-prepared to capitalise on the anticipated market recovery and urbanisation trends.