11

Emerging Vietnam 2022

Real Estate Sector – End of the
highHigh-leverage
leverage era era
June 2022
June 2022

HSC Research Real Estate Team

 22

Emerging Vietnam 2022

Industrial Parks

Buy the value gap

 33

Emerging Vietnam 2022

Driver 1: Rising FDI flows
FDI commitments and disbursements (USDmn) FDI commitments by sector
Note: FY22F includes 5M22 actual figures

FDI commitment forecast (RHS) Committed M&A (RHS) Other

Commitment adjusted (RHS) New commitment (RHS) Generating & distributing power, water, gas, air conditioners
FDI disbursement (LHS) FDI disbursement forecast (LHS) Wholesales and retail, automobile & motorbike services
50,000 30,000 Real Estate
Manufacturing and processing
45,000 100%
25,000
40,000 90%

80%
35,000
20,000
70%
30,000
Manufacturing and
60%
processing remains
25,000 15,000 the key focus of
50%
FDI flow
20,000 40%
10,000
15,000 30%

10,000 20%
5,000
10%
5,000
0%
0 0 FY17 FY18 FY19 FY20 FY21
FY18A FY19A FY20A FY21A FY22F FY23F FY24F

Source: Ministry of Planning and Investment

 44

Emerging Vietnam 2022

Driver 1: Rising FDI flows
FDI commitments (USDmn) by provinces, accumulated to April 2022 Supply of industrial area by provinces

Remaining established industrial land (ha)

- 20,000 40,000 60,000 80,000 100,000 Remaining supply (ha)
HCMC Acc. leased area (ha)
Binh Duong Occupancy on supply (%-RHS)
Hanoi 12,000 120%
Dong Nai
BR-VT 10,000 100%
Hai Phong
Bac Ninh 8,000 80%
Thanh Hoa
Long An
6,000 60%
Ha Tinh
Thai Nguyen
Hai Duong 4,000 40%
Bac Giang
Tay Ninh 2,000 20%
Quang Ninh
Vinh Phuc - 0%
Hung Yen HCMC Long Binh Dong Bac Hanoi Hai Hai Hung
Others An Duong Nai Ninh Duong Phong Yen

The occupancy rates of industrial land in most key provinces are currently high, at around 80-90%, with most of Vietnam’s FDI flowing into these
provinces. We believe companies who have landbank assets in these key provinces will be well positioned to take advantage of FDI flows.
 55

Emerging Vietnam 2022

Driver 2: Acceleration of infrastructure investment

2021-2025 five-year plan Economic recovery package Notable projects Size Travel through provinces

HCMC, Binh Duong, Dong

Ring road 3 HCMC Region 76.34 km
Nai, Long An
USD5bn

Ring road 4 Hanoi Region 103.1 km Hanoi, Hung Yen, Bac Ninh

Bien Hoa - Vung Tau Highway 53.7 km Dong Nai, Ba Ria - Vung Tau

Chau Doc - Can Tho - Soc An Giang, Can Tho, Hau

188.2 km
Trang Highway Giang, Soc Trang
USD87bn
Long Thanh International 100 mn
Dong Nai
Airport passengers/year

We think that large infrastructure projects scheduled to be developed in the future will be concentrated around the northern and southern key economic zones
which benefit provinces such as Hanoi, Hai Phong, Hai Duong, Hung Yen, Bac Ninh, Ho Chi Minh City, Binh Duong, Dong Nai, Long An, and Ba Ria – Vung
Tau, given their high economic impact, and so note that developers who have landbank assets in these zones will benefit.
 66

Emerging Vietnam 2022

Driver 2: Acceleration of infrastructure investment
Landbank available for leases in the mid-term by key regions of stocks in our coverage
We note that KBC has just acquired more than 1,000 ha of landbank in Long An (in southern key economic zone) which have not been reflected here.

Northern key economic zone Southern key economic zone Others

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
KBC PHR VGC

KBC, PHR, and VGC in our coverage are indeed beneficiaries.

 77

Emerging Vietnam 2022

Driver 3: Improvement of regulatory environment
Summary of improvements seen in Decree 35 (to replace Decree 82) which concerns the management of industrial parks and economic zones:

Promote sustainable ▪ An industrial park that specializes in serving tenants of a specific sector (electronics, high-tech, etc.) => more attractive to FDI companies due to better-suited
development with infrastructure and the supply chain it might create.
specialized industrial
parks ▪ More incentives are expected to promote the development of those “specialized industrial parks”.
▪ KBC is an example of a developer that has a high degree of specialization in industrial park development. Most of their tenants focus on the high-tech industry.

Guidelines to draft the

▪ Detailing the formulation, approval, and adjustment of plans to develop the system of industrial parks and economic zones in provincial planning.
development plan of
the industrial park ▪ This is expected to provide a more crystalized guidance regarding the number, area, and industries that a particular province wants to focus on, thus also
system assisting IP developers to better target the landbank best suited to their mid-term to long-term development strategy.

▪ We understand that a higher degree of decentralization of authorization will be applied, especially regarding approval of an adjusted masterplan; for example,
Decentralize
authorization in provincial authorities can approve a detailed masterplan, changes in the location, size, name of an industrial park, or delegate the authorization to the
approval process industrial park management board to decide on adjustments in the masterplan.
▪ This is expected to benefit all developers.

Simplify requirements
to establish new ▪ An industrial park is considered established when an investment policy with the investor designated, approval of the investor, or investment registration
industrial parks certificate is issued; previously, a whole bunch of other processes was involved.

Guidelines for funding ▪ Guidance on the use of government budgets, ODA, PPP, etc. is given which should offer flexibility to provincial authorities in deploying funds to assist
sources industrial park development.

Develop residential
areas in conjunction ▪ IP developers at a particular area will be the prioritized investors for developing residential projects adjacent to the IPs (meeting certain requirements).
with industrial parks ▪ This will benefit all IP developers.

Note: This is purely HSC research’s interpretation about possible practices and impacts.
 88

Emerging Vietnam 2022

Industrial park stocks are the laggards YTD …

VNINDEX IP index

110
105
100
95
90
85
80
75
70
65
Jan-22 Mar-22 May-22

Note: The IP index is calculated from the closing price of selected developers in the sector including NTC, BCM, IDC, IDV, ITA, KBC, LHG, SZC, SZL, TIP, GVR, PHR. Weighted average by market cap.
Source: HSC Research
 99

Emerging Vietnam 2022

…but fundamentals are solid
Consensus suggests 58% growth in the aggregate net earnings of IP Combined revenue of IP developers in coverage (VNDbn) – 27% CAGR
developers (VNDbn) forecasted for the next three years
KBC VGC PHR Aggregate growth (RHS)
NTC BCM IDC KBC LHG SZC SZL PHR

16,000 70%
12,000 60%
14,000
50%
10,000 12,000
40%
10,000 30%
8,000
8,000 20%
6,000
6,000 10%
0%
4,000 4,000
-10%
2,000 2,000 -20%
- -30%
0 FY19A FY20A FY21A FY22F FY23F FY24F
FY18 FY19 FY20 FY21 FY22F

Source: Fiinpro, HSC Research

 10
10

Emerging Vietnam 2022

Kinh Bac City (KBC)
Buy, TP VND72,200
Projected financial performance of KBC
Revenue (VNDbn) Net profit (VNDbn)
✓ One of the largest IP developers with an excellent leasing record, KBC is
14,000 Revenue growth (RHS) Net profit growth (RHS) 400%
actively expanding their landbank in prime locations such as Long An 350%
(more than 1,000 ha acquired), Ba Ria – Vung Tau, Hung Yen and Hai 12,000
300%
Duong. Including projects in the mid-term, KBC currently has 1,089 ha of 10,000 250%
industrial land to be leased out; these are located in Bac Ninh, Ho Chi Minh 8,000 200%
150%
City, Hai Phong, Bac Giang, and Long An. We believe the positive sector 6,000 100%
outlook will lead to high absorption at the company’s industrial parks as 50%
4,000
well as unlock other large new landbank opportunities for the company in 0%
2,000
the long-term. -50%
- -100%
✓ Expanding into residential real estate development, KBC is currently FY19A FY20A FY21A FY22F FY23F FY24F

developing their very first mega residential project, Trang Cat, with a total
site area of 582 ha in Hai Phong, where we expect bulk sales this year. Discount to RNAV Average

100%
✓ In anticipation of the unlocking of several projects which will considerably 80%
60%
bolster results, we are calling for 91% CAGR in FY21-FY24 earnings, 40%
driven by deliveries at Trang Cat, and the kick-off of several new industrial 20%
0%
parks in Hai Phong, Bac Giang, and Long An. -20%
-40%
-60%
-80%
Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 Oct-20 Feb-21 Jun-21 Oct-21 Feb-22

Source: HSC Research

 11
11

Emerging Vietnam 2022

Viglacera (VGC)
Buy, TP VND66,000
Projected financial performance of VGC
Revenue (VNDbn) Net profit (VNDbn)
✓ One of the largest IP developers in the north, VGC has 1,132 ha of 18,000 Revenue growth (RHS) Net profit growth (RHS) 120%
industrial land available for leases located in Bac Ninh, Hung Yen, Phu 16,000 100%
Tho, Ha Nam, Thai Binh, Quang Ninh, and Thua Thien Hue. The landbank 14,000 80%
in prime locations such as Bac Ninh and Hung Yen is set to benefit the 12,000
60%
most from rising FDI flows while the landbank in the other areas is 10,000
40%
expected to have good absorption due to fast developing infrastructure in 8,000
the north that facilitates production moving to these tier 2 provinces. 6,000
20%

4,000 0%
✓ VGC is also one of the largest producers of building materials in the 2,000 -20%
country. Recently, VGC has scaled up their production capacity with the - -40%
acquisition of the Phu My ultra-white floating glass factory (600 tonnes/day) FY19A FY20A FY21A FY22F FY23F FY24F

and the Eurotile plant (9mn sqm/year) for which they are importing the
Dicount to RNAV Average
highest productivity technology in the world for the production of large
porcelain tiles. 100%
80%
✓ Anticipating excellent potential to bolster earnings growth, we are calling 60%
40%
for 19% CAGR in FY21-FY24 earnings for VGC, driven by solid industrial
20%
park leasing capabilities and burgeoning capacity of building materials. 0%
-20%
-40%
-60%
Mar-19 Aug-19 Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22

Source: HSC Research

 12
12

Emerging Vietnam 2022

Phuoc Hoa Rubber JSC (PHR)
Add, TP VND80,400
Projected financial performance of PHR

Revenue (VNDbn) Net profit (VNDbn)

✓ PHR has an encouraging long-term transition story. PHR owns more than Revenue growth (%-RHS) Net profit growth (%-RHS)
10,000 ha of rubber land in Binh Duong province which they will gradually 3,000 170%

convert into industrial park land in the long-term. With such a large 2,500 120%
landbank in a very premium location (currently the second most attractive
2,000
to FDI flows in the country), we believe that PHR will be a beneficiary from 70%
1,500
improving factors highlighted in our sector outlook, especially since Decree
20%
35 may speed up industrial park development activity. 1,000

500 -30%
✓ For the mid-term, PHR is focusing on the establishment of Tan Lap 1 (total
0 -80%
site of 200 ha) and Tan Binh Expansion (1,056 ha) industrial parks. We are FY19A FY20A FY21 FY22F FY23F FY24F
anticipating these parks to have their first revenue booked in FY24 and
FY25, respectively. Discount to RNAV

Average
✓ Anticipating considerable earnings growth, we are calling for 29% CAGR in 40%
30%
FY21-FY24 earnings, driven by compensation income from transferring 20%
land to VSIP for the development of VSIP3 industrial park (PHR owns 20%) 10%
0%
whose construction has just been kicked off, and from expected revenue -10%
generated from Tan Lap 1 industrial park in FY24. -20%
-30%
-40%
-50%
-60%
Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 Oct-20 Feb-21 Jun-21 Oct-21 Feb-22

Source: HSC Research

 13
13

Emerging Vietnam 2022

Residential Real Estate

Market review
The property market is recovering – but slowly
 14
14

Emerging Vietnam 2022

Market review - HCMC Condominium market in HCMC, New supply (Units)
HCMC continued to be impacted by a strict regulatory environment and
Luxury High end Mid end Affordable
COVID-19.
▪ COVID-19 was severe in HCMC in 2021. New launches dropped by 22% 14,000
14,339 units, down
while sold units declined 7% y/y in FY21. 12,000 22% y/y
10,000
▪ Total sold units was larger than new launches which meant that demand
8,000
was strong, supported by a low interest rate environment.
6,000
▪ High-end units accounted for 59.7% of total new launches, followed by 4,000
Mid-end units with 30.5%. 2,000
-
▪ Average primary price upped by 6.9% y/y in 4Q21 and 7.8% y/y in 1Q22. 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22

Condominium market in HCMC, Primary prices (USD/sqm) Condominium market in HCMC, Units sold

Luxury High end Mid end Affordable Luxury High end Mid end Affordable

8,000
14,000
7,000 14,639 units, down
12,000 7% y/y
6,000
10,000
5,000
4,000 8,000

3,000 6,000

2,000 4,000

1,000 2,000
0 -
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22

Sources: CBRE, HSC compiles Sources: CBRE, HSC compiles

 15
15

Emerging Vietnam 2022

Market review - Hanoi Condominium market in Hanoi, New supply (Units)
Hanoi: Both new launches and transactions saw a decline.
▪ New supply declined 7% y/y in 2021 leaving just 16,758 units. Sold units 14,000
Luxury High end Mid end Affordable

dropped by 9% y/y leaving only 16,958 units. 12,000 16,758 units, down
▪ Demand was strong, supported by a low interest rate environment. 10,000 7% y/y
8,000
▪ Weak supply resulted in average primary prices increasing by 15% y/y to 6,000
USD1,596 in 4Q21 and by 9% y/y in 1Q22. 4,000

▪ Mid-end units accounted for 72.3% of total new launches, followed by 2,000
-
High-end units with 23.2%.
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22

Condominium market in Hanoi, Primary prices (USD/sqm) Condominium market in Hanoi, Units sold

Luxury High end Mid end Affordable

7,000 Luxury High end Mid end Affordable Total sales
6,000
16,000 16,958 units, down
5,000
14,000 9% y/y
4,000 12,000
3,000 10,000
8,000
2,000
6,000
1,000 4,000
0 2,000
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 -
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22
Sources: CBRE, HSC compiles Sources: CBRE, HSC compiles
 16
16

Emerging Vietnam 2022

Market review - HCMC
Landed property market in HCMC (Units) Landed property market in HCMC, Primary prices (USD/sqm)

Supply Sold units Shophouse Townhouse Villa

7,000
1,400
1,200 6,000

1,000 5,000

800 4,000
430 units, down
600 82% y/y 3,000

400 2,000

200 1,000
0 0
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22

Sources: CBRE, HSC compiles Sources: CBRE, HSC compiles

▪ The landed property market was quiet as a result of a strict ▪ The market experienced a rally in land prices in late 2021 and
regulatory environment. early 2022. Villa and townhouse prices increased by over 30%
q/q.
▪ New supply and units sold fell by 80% y/y in 2021.
▪ 1Q22 supply was 280 units, up 115% y/y, driven by Van Phuc
City, Global, and Mizuki Park.
 17
17

Emerging Vietnam 2022

Market review - Hanoi
Landed property market in Hanoi (Units) Landed property market in Hanoi, Primary prices (USD/sqm)

Supply Sold units

3,000 Shophouse Townhouse Villa
8,000
2,500 2,681 units, up
7,000
260% y/y
2,000 6,000
5,000
1,500
4,000
1,000 3,000
2,000
500
1,000
0 0
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22

Sources: CBRE, HSC compiles Sources: CBRE, HSC compiles

Significant recovery from low base in 2020 but still lower than ▪ The market experienced a rally in land prices in late 2021 and
pre-covid levels. early 2022. Average price increased by over 10% q/q and 40%
▪ New supply increased 260% y/y in 2021 with around 2,681 units y/y.
but still 35% lower than the pre-covid level.

▪ Demand was strong, supported by a low interest rate

environment. Absorption rate was 94% in FY21.
 18
18

Emerging Vietnam 2022

Market review - HCMC’s surrounding provinces: Surging supply
Supply of land plots and low-rise products in HCMC and adjacent provinces Supply of land plots and low-rise products by area in FY21

HCM - total supply Adjacent provinces - total supply Others HCMC

1% 6%
18,000
16,000
14,000
12,000 Long An
21%
10,000
8,000 Dong Nai
Binh Duong
6,000 53%
13%
4,000
2,000
0
2016 2017 2018 2019 2020 2021 Vung Tau
6%
Source: DKRA, HSC research Source: DKRA, HSC research

Supply in adjacent provinces was much higher than in HCMC

▪ Because of the stringent regulatory environment in HCMC, several developers shifted their activities to adjacent provinces of HCMC such as Dong Nai, Long An, and Binh
Duong.
▪ Supply of land plots, villas, and town houses in HCMC in adjacent provinces in FY21 surged to around 14,650 units, much higher than the accumulated supply in HCMC
in 2018-2021.
 19
19

Emerging Vietnam 2022

2022-2024 Outlook
Condominium market in Hanoi, forecast (Units lhs, USD rhs) Condominium market in HCMC, forecast (Units lhs, USD rhs)

New launch Sold units Average primary price New launch Sold units Average primary price
40,000 2,500 35,000 3,000
35,000 30,000 2,500
2,000
30,000 25,000
2,000
25,000 1,500 20,000
20,000 1,500
1,000 15,000
15,000
1,000
10,000
10,000
500 500
5,000 5,000

0 0 0 0
2019 2020 2021 2022F 2023F 2024F 2019 2020 2021 2022F 2023F

Sources: CBRE, HSC compiles Sources: CBRE, HSC compiles

Limited credit and stepped-up oversight of the sector to hinder recovery

▪ We forecast that the property market will significantly rebound in FY22-24 from a low base set in FY20-21 which was mainly due to a “strict” approval regime and the
heavy impact of COVID-19.
▪ Going forward, we expect that the legal approval process will be easier and quicker as the government focuses on stimulating the economy and authorities resume normal
operations. Meanwhile, the success of controlling COVID-19 will positively impact both property supply and demand.
▪ Condominium average primary prices are expected to increase by 3-5% in HCMC and 5-7% in Hanoi.
▪ Nonetheless, the recovery might be hindered by the limiting of credit into the property sector as well as stepped-up oversight by the Government.
 20
20

Emerging Vietnam 2022

Residential Real Estate

Credit to the property sector

Heightened oversight of property related credit good for the long-term
Signs of unhealthy development 21
21

Emerging Vietnam 2022

Concerns that speculative risks and unsustainable development are increasingly endemic in the industry

▪ Land prices rallied in many places, many of which lack real demand
▪ Mayhem/uncertainty related to real estate bond issuance activities
▪ Controversial Thu Thiem land auction

Thu Thiem
land auction

Timely intervention to drive the market towards healthy development

▪ Strict monitoring of corporate bond issuance activities

▪ Stepping-up oversight of the property market, including the
supervision of credit to the property sector
▪ Tighten regulations (Circular 16, amendments to ‘Decree 153’)
▪ Restrict the use of debt for land auctions, issuing of bonds for banks
to do M&A, etc... => developers may face more challenges in
acquiring new landbank assets
Real estate corporate bonds 22
22

Emerging Vietnam 2022

Private placement issuance accounted for 95% of total issuance by value.

Private placement Public offering Issue size ▪ The significant share of individual corporate bond
700,000 ownership has raised concerns about the buildup of risks.
600,000 ▪ New legal framework will better protect individual
500,000 investors but may reduce the volume of new private
VNDbn

400,000 placement issuance.

300,000 => Developers that have had a heavy reliance on
200,000 private bond issuance might face significant
100,000 challenges in rolling over their debt or acquiring
0 financing for CAPEX of new projects.
2020 2021 1Q22

Individuals accounted for c.31% of secondary market holdings… … but accounted for just c.10% of primary purchases
Individual Others
9.6% 3.0%
Individual
30.9%
Credit
Commercial Securities
institutions
banks companies
41.5%
44.5% 18.4%
Other
institutions
12.0%

Assurance Investment Securities Other

companies funds companies institutions
5.5% 2.0% 5.2% 27.5%

Source: HSC Research, HNX, VBMA

 23
23

Emerging Vietnam 2022

Real estate has the largest exposure to the bond market
Outstanding corporate bond issuance by sector (VNDbn)
Annual issuance by sector (VNDbn)

Real estate Bank Others Total as a % GDP Real estate Bank Others
800,000
1,500,000 Real estate bonds lead the 18%
market, with an outstanding value 16% 700,000
of VND588tn or 42.8% market
1,200,000 14% 600,000
share in FY21.
12% 500,000
900,000
10%
400,000
8%
600,000 300,000
6%
200,000
300,000 4%
2% 100,000

0 0% 0
2018 2019 2020 2021 1Q22 2017 2018 2019 2020 2021 1Q22

Source: HSC Research, HNX, VBMA Source: HSC Research, HNX, VBMA

The recent tightening in regulations on private issuance of corporate bonds and trading activities by credit institutions has caused a
significant slowdown in market activity.
 24
24

Emerging Vietnam 2022

Challenges ahead for residential real estate developers
Potential impact of limiting credit to the property Corporate bond distribution by maturity and sector (VNDbn)

sector:
Real estate Banks Others
▪ In the short-term:
o Debt rollover capacity of issuers in the 400,000

short-term is negatively impacted. Some 350,000

weak developers might face significant
cashflow risk. 300,000

o Delay of launches either due to lack of 250,000

funding for construction or problems with

200,000
credit line arrangements with banks.
150,000
o Weaker absorption for launches.
100,000
▪ In longer term:
o Lack of funding for land bank acquisitions. 50,000

0
2022 2023 2024 2025 Since 2026

Source: HSC Research, HNX, VBMA

 25
25

Emerging Vietnam 2022

Impact should be more profound for unlisted developers
Outstanding corporate bond issuance by sector: 86% is issued by unlisted companies
▪ The impact of limiting credit to the (VNDbn)
property sector on unlisted developers
is likely to be more profound. Those
ones tend to leverage heavily when 700,000 Listed Joint-stock LLC
developing their projects and, in many
600,000
cases, have weak financial positions.
▪ We think developers in our coverage 500,000

have better positions than most 400,000

developers in the sector. Most have a
healthy balance sheet, the ability to 300,000

diversify funding sources, strong brand

200,000
names that will support absorption, and
good products. We detail our view 100,000

about the potential impact to each

0
company in the section below. Real estate Banks Others

Source: HSC Research, HNX, VBMA

 Most developers in our coverage have strong cashflow 26
26

Emerging Vietnam 2022

Forecast of funding needs by selected developers in the next 12 months

VNDbn VHM NVL KDH NLG DXG 0

-5,000
Cashflow from customer 96,459 53,687 5,443 8,480 7,477
-10,000
Debt come due (6,114) (25,456) (723) (869) (2,522)
-15,000

Net financial expense (3,083) (5,415) (225) 41 (365) -20,000

Cash outflow for CAPEX (87,834) (48,978) (4,587) (7,673) (6,283) -25,000

-30,000
Funding need (572) (26,163) (92) (21) (1,693) VHM NVL KDH NLG DXG

▪ We made some simple calculations assuming that each developer’s financing needs for the next 12 months will include principal
repayment, interest expenses (including the interest expense that is capitalized), and CAPEX. We then tried to estimate how much
money each developer can collect from customer advances. The gap is the funding need for the corporation. The results imply that
NVL will be under additional pressure, as will DXG to a much lesser extent, while VHM, KDH, and NLG will be under less pressure
to raise new cash.
▪ Although we are not able to estimate funding needs for all companies in the industry, we generally believe that companies will face
higher challenges in managing cashflow this year. Our recommendation is to focus on the developers with a solid balance
sheet and strong execution capability that can sustain pre-sales growth.

Source: HSC Research

 Real estate corporate bonds 27
27

Emerging Vietnam 2022

Debt/equity ratio of 5 largest listed real estate developers Financial ratios of developers in our coverage
VHM NVL NLG KDH DXG
VHM DXG NVL NLG KDH
1.6
1.4
1.2 Net gearing 0.1 0.2 1.2 0.0 0.2
1.0
0.8
0.6 Cash coverage ratio on
1.4 0.6 0.7 3.5 1.7
0.4 short-term debt
0.2
0.0 Quick ratio 0.9 1.0 1.0 0.8 2.7
-0.2
-0.4
-0.6 Cash ratio 0.1 0.1 0.3 0.4 0.6
2016 2017 2018 2019 2020 2021 2022F 2023F

Net gearing ratio (x) of listed real estate developers as of end-1Q22

2.0 Net gearing ratio Average net gearing ratio

1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
D11
D2D

HLD

NLG
CEO

DXG

NBB

TEG
NVL

PTL
VHM

AMD

CSC

HAR

HPX

KDH
KHG

PDR

SCR

VRC
API

HQC

LEC

VPI
AAV

DTA

FIR

TIG
NTL

PV2
PVL

VPH
CCL

CRE

DIG

HTN

KOS
DRH

FLC

HDC
HDG

ITC

NDN

NRC

QCG
RCL

SGR
SJS
TDH

TLD
AGG

▪ The average net gearing ratio of the sector is healthy at 0.3x

 28
28

Emerging Vietnam 2022

Presales – slow in short-term but solid for mid-term
1Q22 pre-sales by developers HSC’s new pre-sales forecasts

1Q21 1Q22
VHM NVL DXG NLG KDH

30,000
350,000
25,000
300,000

20,000 250,000
VNDbn

VNDbn
15,000 200,000

150,000
10,000
100,000
5,000
50,000
0 0
VHM KDH NLG DXG NVL 2022 2023 2024

▪ Presales of developers recovered strongly in 1Q22 following the recovery of the economy post COVID-19 but we expect a slow down in
2Q22 following the increased oversight of government over the funding flow into the sector.

▪ We revise down our total forecasted pre-sales (for 5 developers in our coverage) for FY22 by 20% to VND196tn (down 14.4% y/y). But overall,
we still forecast that presales would grow at a CAGR of 26.8% y/y from FY22-24.

Source: HSC Research

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Emerging Vietnam 2022

Earnings – different for each developer
Real estate company revenue and NPATMI forecast

Revenue NPATMI P/E (x) P/B (x)

Ticker Company 21A 22F % growth 23F % growth 24F % growth 21A 22F % growth 23F % growth 24F % growth 21A 22F 23F 24F 21A 22F 23F 24F

DXG Dat Xanh Group JSC 10,083 8,226 (18.4%) 9,686 17.7% 13,378 38.1% 1,157 1,095 (5.36%) 1,005 (8.22%) 1,308 30.1% 10.5 12.4 13.5 10.4 1.53 1.38 1.33 1.33

KDH Khang Dien House 3,738 3,915 4.75% 5,846 49.3% 6,030 3.15% 1,246 1,421 14.1% 1,637 15.1% 2,005 22.5% 19.1 17.8 15.6 12.9 2.46 2.18 2.03 1.86

NLG Nam Long Investment Corp

5,206 7,591 45.8% 9,167 20.8% 13,682 49.3% 1,071 1,290 20.4% 1,931 49.7% 2,513 30.1% 12.7 12.0 8.00 6.16 1.72 1.57 1.36 1.14

NVL Novaland Group 14,903 27,515 84.6% 31,990 16.3% 32,224 0.73% 3,230 5,229 61.9% 5,907 13.0% 6,254 5.88% 36.9 28.6 25.3 23.9 4.22 3.69 3.22 2.84

VHM Vinhomes 85,094 91,902 8.00% 95,407 3.81% 110,713 16.0% 39,017 29,197 (25.2%) 34,054 16.6% 38,120 11.9% 7.27 9.84 8.44 7.54 2.24 1.93 1.65 1.41

Total/average 119,024 139,150 16.9% 152,096 9.30% 176,028 15.7% 45,721 38,233 (16.4% ) 44,533 16.5% 50,200 12.7% 17.3 16.1 14.2 12.2 2.43 2.15 1.92 1.71

Note: Closing prices as of 14 Jun-22

Source: HSC Research

▪ We are revising down our net profit forecasts for five developers in our coverage in FY22 and FY23 by 6.3% and 3.3% respectively. The
government’s effort to step-up oversight and limit credit to the property sector may lead to delayed launches and reduce earnings booked in FY22-
23. Meanwhile, we cut our net profit forecasts in FY24 by 7.4%, mainly due to expected weaker absorption.
▪ Among developers in our coverage, NLG has the most solid earnings.
 30
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Emerging Vietnam 2022

Residential Real Estate

Long-term outlook
We maintain our positive view for the market in the long-term
 Underserved real demand 31
31

Emerging Vietnam 2022

Average In-Emigration Number from 2018-2020 Number of Marriages by Year per Province

2018 2019 2020

2018 2019 2020
1,000
60,000
Thousand people

800 50,000
600 40,000
30,000
400
20,000
200 10,000
0 -
Hà Nội Bình Dương TP Hồ Chí Minh Đồng Nai Hà Nội Bình Dương TP Hồ Chí Minh Đồng Nai
-200

-400
Source: GSO Source: GSO

Huge housing demand due to young population structure Total supply in HCMC and Hanoi

100+ Female Male New launch Sold units

90-94 80,000
80-84
70-74
60,000
60-64
50-54
40-44 40,000
30-34
20-24 20,000
10-14
0-4 0
0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 2017 2018 2019 2020 2021 2022F 2023F 2024F
Source: Worldbank
Source: CBRE
 Houses in Vietnam are still relatively affordable 32
32

Emerging Vietnam 2022

Housing affordability in HCMC and Hanoi

25
Years of Average Annual Income

20

15

10

0
Kuala Lumpur Jakarta Manilla HCM Hanoi Bankok
Source: HSC Reseach

Houses in Vietnam are still relatively more affordable than other cities in the region
▪ Overall, it will cost a middle-class family around 15.4 years of annual income in HCM City and 15.7 years in Hanoi to buy a two-
bedroom apartment. The ratios are lower than that of other cities in the region.
▪ If we take a further step by assuming that a mortgage makes up about 70% of the unit value, as it is normally the case in
Vietnam now, then it takes only 4.5 years of annual income in HCMC and 4.7 years in Hanoi before middle class people can start
to think of buying an apartment.
 33
33

Emerging Vietnam 2022

Valuation and recommendation
We like developers that target real demand with healthy financial ratios, solid balance sheet and ability to diversify funding sources: NLG, KDH, VHM

Current 3 -yr avg.

Mkt cap Taret price RNAV
Ticker Company Rating discount to discount to
(VNDbn) (VND/share) (VND/share)
RNAV RNAV
DXG Dat Xanh Group JSC Buy 14,489 22,500 47,254 52.4% 38.9%
KDH Khang Dien House Buy 26,000 39,000 57,201 31.8% 22.9%
NLG Nam Long Investment Corp Buy 16,428 40,100 69,700 42.5% 24.6%
NVL Novaland Group Hold 149,922 76,600 100,636 23.9% 9.7%
VHM Vinhomes Buy 297,403 66,000 118,067 44.1% 21.2%
Average 38.9% 23.5%
Note: Closing prices as of 14 Jun-22

Note: Closing prices as of 14 Jun-22

Source: HSC Research
 34
34

Emerging Vietnam 2022

Nam Long Group (NLG) FY19 - FY24F Pre-sales by projects, NLG (VNDbn)

Buy, TP VND62,800 15,000 50%

40%
✓ NLG has been highly successful in the affordable housing 10,000
30%
segment, and offers a range of products that includes 20%
5,000
apartments, townhouses, and land plots for sale. 10%
0 0%
✓ Access to more capital due to the cooperation of a handful of 2019 2020 2021F 2022F 2023F 2024F
Japanese investors should lead to an enhanced ability for NLG
Revenue Net profit Gross margin
to do more launches while still maintaining a low gearing ratio as
well as a strong financial position - most of their projects are Source: Company data, HSC estimates
developed under JVs with Japanese investors helping to reduce
Discount to RNAV, NLG
cashflow management risk.
Trading at a 38.5% discount to RNAV compared to an average of 24.6%
✓ NLG is characterized by sound corporate governance as we see over the past 3Y
an effective BOD structure and a transparent and effective 30%
information sharing process. NLG also has good corporate 20%
social responsibility in that they are one of very few large 10%
corporates that develop social housing products. 0%
-10%
✓ The company has an encouraging outlook with a very solid -20%
projects pipeline which is expected to generate a much higher -30%
cashflow and accelerate business results over the next three -40%
years. -50%
-60%
Jun-19 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 Jun-22

Source: Company data, HSC estimates

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Emerging Vietnam 2022

Khang Dien House (KDH)
Buy, TP VND51,400
Forecasted earnings of KDH (VNDbn)
✓ KDH possesses the competitive advantage of a reputable
high-end developer that expanded into the mid-end Net sales Gross profit NPATMI GPM Net margin
segment, and it follows a prudent strategy of development 7,000 60.0%
that helps reduce legal risk in launching projects. 6,000 50.0%
5,000
40.0%
✓ KDH is benefiting from limited supply in HCM City. The 4,000
30.0%
company successfully launched three projects in 2018- 3,000
2019 amid a stringent regulatory environment with very 2,000
20.0%

good take up rates and higher selling prices than expected. 1,000 10.0%

0 0.0%
✓ In the longer-term, we still see KDH as a significant FY18 FY19 FY20 FY21 FY22F FY23F

beneficiary of the development of HCMC’s property market

due to its large remaining landbank within the city (about Discount to RNAV, KDH
Discount to RNAV Average
600 ha), strong execution capability, healthy balance sheet,
and strong brand name. 10.0%
0.0%
-10.0%
-20.0%
-30.0%
-40.0%
-50.0%
-60.0%
Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22
 36
36

Emerging Vietnam 2022

Vinhomes (VHM) Forecasted earnings of VHM (VNDbn)
Buy, TP VND94,400
Revenue Gross profit Net profit Gross margin Net margin
✓ VHM is the leading player in Vietnam’s residential property 120,000,000 60.0%
development scene with dominant market shares in mid to 100,000,000 50.0%
high-end segments.
80,000,000 40.0%

✓ Vinhomes boasts a residential landbank of 15,100 ha which is 60,000,000 30.0%

significantly higher than other developers in the market. The 40,000,000 20.0%
company’s current landbank should provide, under current
20,000,000 10.0%
rates of development, growth for the next 10 years.
- 0.0%
FY18 FY19 FY20 FY21 FY22F FY23F FY24F
✓ VHM has been following the strategy of ‘moving down the
spectrum’ to capture strong demand for the mid-end housing
segment. Discount to RNAV, VHM

Discount to RNAV Average

✓ Vinhomes benefits from the relationship with its parent,
0.0%
Vingroup, allowing for the creation of fully developed
-10.0%
communities within an integrated ecosystem. At present its
-20.0%
product offerings are hard to match by either local or foreign
-30.0%
developers in Vietnam.
-40.0%

-50.0%
✓ Efficient capital structure with strong support from customer Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22
advances helps VHM to maintain a healthy financial position.
 37
37

Emerging Vietnam 2022

Retail Real Estate

Looking across the valley

 38
38

Emerging Vietnam 2022

Recovery in traffic strong after each COVID-19 surge contained
Traffic to retail spaces quickly recovered after COVID-19’s waves dissipated

▪ We have seen traffic

Vietnam
through retail & recreational
20% areas recover strongly post
0% lockdown following the shift
-20% of the country from “zero
-40% COVID-19” to “living with
-60%
COVID-19” since the end of
-80%
3Q21.
-100%
▪ All 80 malls of VRE across
Feb-20

Mar-20

Feb-21

Mar-21
May-20

May-21
Jun-20

Oct-20

Jan-21

Jun-21

Oct-21
Apr-20

Jul-20

Nov-20

Dec-20
Aug-20

Sep-20

Apr-21

Jul-21

Nov-21

Dec-21
Aug-21

Sep-21
the country are now in
operation. According to the
company, footfalls to
Vincom malls in Dec-21
Traffic to Vincom Retail Malls (millions of visitors) increased to 8.1mn, up
258.7% from August 2021.
16
14
12 ▪ Vietnam is considered to
10 have achieved herd
8
6
immunity. We expect strong
4 recovery of retail activities
2 this year.
-
Feb-21

Mar-21

May-21
Jan-21

Jun-21
Apr-21

Oct-21
Jul-21

Nov-21

Dec-21
Aug-21

Sep-21

Source: Google Mobility Index

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39

Emerging Vietnam 2022

Mid-term outlook: Very low penetration implies much room to grow
2020 - Modern trade penetration

Morden trade value % of total retail sales

9,000 11.3% 12.0%
8,000 9.6% 7,739 E-retailing Traditional retailing
10.0%
7,000
6,000 7.3% 8.0%
4,916
USDmn

5,000
6.0%
4,000
2,873
3,000 4.0%
2,000
2.0%
1,000
0 0.0%
2015 2020 2025

Modern Retail
penetration China Thailand Indonesia Malaysia Philippines Singapore South Korea Vietnam

2015 33.3% 45.6% 16.7% 47.0% 72.6% 68.1% 76.7% 7.3%

2020 35.7% 46.0% 20.3% 47.0% 79.7% 74.7% 84.1% 9.6%

Source: Euromonitor
 40
40

Emerging Vietnam 2022

Vietnam remains one of the most attractive retail markets
Vietnam has the highest growth rate in customer spending compared to peers Consumer spending is expected to grow at CAGR of 10.4% in FY20-25F
(VNDbn)
8.0%
2015-2020 CAGR in customer spending

7.0% 300,000

6.0%
250,000
5.0%

4.0% 200,000

3.0%
150,000
2.0%
100,000
1.0%

0.0% 50,000
-1.0%
0
-2.0% FY15 FY16 FY17 FY18 FY19 FY20 FY21F FY22F FY23F FY24F FY25F
Indonesia Malaysia Philippines Singapore Taiwan Thailand Vietnam

Retail property market in Vietnam remains resilient amid COVID-19 and we expect a strong recovery from next year.

▪ Vietnam has the highest growth rate in consumer spending compared to peers in our sample.

▪ Consumer spending in Vietnam is expected to grow at a CAGR of 10.4% in FY21-25F.

Thus, the retail real estate market should benefit from the expansion of local retailers and as more and more international brands enter the market.

Source: Euromonitor
 41
41

Emerging Vietnam 2022

Should we worry about oversupply? Clearly not
Total supply of retail space in some large cities of the region International brands that have entered the market
9.0 2019 2020
8.0
7.0
6.0
mn sqm

5.0
4.0
3.0
2.0
1.0
-
Bangkok Hanoi HCM Manila Jakarta

Retail space per capita of some large cities in the region

0.80
0.70
0.60 ▪ Retail space per capita in HCMC and Hanoi are much lower than in other big
Sqm/person

0.50 cities in the region.

0.40
0.30
▪ Although the retail market was hit hard in 2020 due to COVID-19, new brands still
entered the market and we expect the trend to continue strongly going forward.
0.20
0.10 ▪ Meanwhile, the next three years might see the booming of local retailers in
- modern formats.
Bangkok Hanoi HCM Manila Jakarta

Source: CBRE, Collier, Word bank

 42
42

Emerging Vietnam 2022

Vincom Retail (VRE) FY18-FY23F Financial performance of VRE

Buy, TP VND39,100 Net sales EBITDA NPATMI Leasing NOI

12.0 80.0%

Great prospects remain intact for the long-term 10.0 75.0%

74.9% 74.9%
✓ VRE is Vietnam’s largest and fastest growing retail developer, owner, and 8.0 73.5%
71.3% 70.0%

VNDtn
operator and is the only stock in the VN30 that offers exposure to the retail 70.6%
6.0 69.5%
real estate sector.
65.0%
4.0
✓ A proven track record in developing malls has helped VRE attract a 2.0 60.0%
diversified and high-quality portfolio of customers, consisting of over one
thousand international and local brands. - 55.0%
FY18 FY19 FY20 FY21F FY22F FY23F

✓ VRE’s multi-format model provides flexibility for expansion to provinces

across the country; they are now present in 43 of 63 provinces around the
VRE enjoys 46% market share in terms of retail GFA in HCMC and Hanoi
country.

Portfolio of around 1,000 tenants

~1mn VRE
46%
Other
54% sqm

Source: Company data, CBRE, HSC estimates