NOVALAND GROUP downgrade from OUTPERFORM to HOLD (NVL: HSX - Real Estate)

Transcription

1 NOVALAND GROUP downgrade from OUTPERFORM to HOLD (NVL: HSX - Real Estate) Price chart Stock Data as of April 14 th 2017 Price (VND) 70,000 Current listed shares 589,369,234 Outstanding shares 589,369, Week high 75, Week low 57,800 Price change (3 months) 18.6% Free float (share) 438,574,551 Trading value (VNDmil) (average last five trading days) 93,832 Market Cap (VNDmil) 41,255,846 Market Cap (US$mil) 1,823.1 Total room (no. of share) 292,137,624 Current room (no. of share) 228,590,254 Foreign owned ratio (%) 10.8% Foreign ownership limit (%) 49.6% Earnings model Unit: VNDmillion FY2014 FY2015 FY2016 FY2017F FY2018F Net sales 2,801,811 6,673,435 7,359,181 17,948,848 26,610,413 y/y% 75.1% 138.2% 10.3% 143.9% 48.3% Gross profit 475,371 1,339,863 1,583,080 5,301,369 7,690,333 y/y% 48.3% 181.9% 18.2% 234.9% 45.1% EBITDA 258, ,904 1,002,325 4,308,347 6,572,881 y/y% 17.1% 220.8% 20.8% 329.8% 52.6% NPAT 96, ,760 1,659,349 2,912,927 4,860,332 y/y% % 359.3% 275.6% 75.5% 66.9% NPATMI 93, ,423 1,665,078 2,831,608 4,645,741 y/y% % 343.4% 300.8% 70.1% 64.1% EPS (VND) 656 1,168 3,059 3,707 5,827 y/y% 736.2% 78.0% 161.9% 21.2% 57.2% P/E EV/EBITDA P/B Source: NVL (F): HSC forecast The company set a net sales target of VND17,528 billion (+138% y/y) and NPAT target of VND3,144 billion (+89% y/y) for FY2017. HSC meanwhile is a little more cautious looking at an NPATMI of 70% y/y. NVL seems fairly well positioned in the mid end of the residential market in HCMC where demand still appears solid. Then the company also plans to issue a total of million shares in FY2017 increasing the share count by 50.7%. Fully diluted forward valuation is 18.9xs which is no longer that cheap. Main Ratios FY2017F FY2018F Liquidity - Current ratio Quick ratio Profitability - Gross margin 29.5% 28.9% - Net margin 16.2% 18.2% - ROE 23.3% 28.3% - ROA 6.4% 8.2% Operating Efficiency - Receivable turnover Inventory turnover Asset turnover We have a fair value price of VND64,832 hence at the current price, this stock is trading at a premium of 7% to our fair value. Possible VN30 inclusion a near term catalyst however. While longer term prospects are excellent given an ample land bank. Downgrade to Hold on valuation and dilution grounds. Head of Real Estate Sector Research Nguyen Thi Yen yen.nt@hsc.com.vn 1

2 NVL FY2017 targets call for 89% increase in NPAT. Planned new capital issuance also VNM million FY2016 actual 2017 FYHSC forecast % y/y FY2017 NVL target % y/y Net sales 7,359,181 17,948, % 17,528, % NPATMI 1,659,349 2,912,927 76% 3,144,000 89% Net margin (%) 22.5% 16.2% 17.9% Source: NVL, HSC forecast Novaland (NVL; downgrade from Outperform to Hold) recently released their annual report and agenda for their upcoming AGM which will be held on April 27th, Quick conclusion Downgrade to Hold. On valuation and dilution grounds. We have a fair value price of VND64,832 using a combination of RNAV and forward P/E valuation. NVLs FY2017 targets suggest 89% growth in NPAT. HSC meanwhile is a little more cautious looking at an NPATMI of 70% y/y. NVL seems fairly well positioned in the mid end of the residential market in HCMC where demand still appears solid. Then the company also plans to issue a total of million shares in FY2017 increasing the share count by 50.7%. Fully diluted forward valuation is 18.9xs which is no longer that cheap. Possible VN30 inclusion a near term catalyst however. While longer term prospects are excellent given an ample land bank. On reading the AGM documents we have the following takeaways; NVL plans to increase OS by a total of 50.7% through various issuances - Novaland plan to issue some million shares including million shares to convert the convertible loans of Credit Suisse, 23 million preferred shares, million ESOP and then million bonus shares. And this increase their chartered capital from VND5,962 billion to VND8,988 billion (+50.7%) The details are as follows: Novaland will issue 33,459,554 shares through private placement to Credit Suisse to convert their loan of US$60 million (equivalent to VND1,367 billion) at the price of VND40,867 per share. These shares will be issued in Q2, 2017 and then locked up for 1 year. Plan to issue maximum 23 million preferred shares at the issuance price of no less than VND50,000 per share. The grace period is 3 years and after that these preferred shares will be converted to common shares at the conversion price of at least VND50,000 per share. These shares will receive preferred dividend of a maximum 10% of the issuance price (equivalent to VND5,000 per share). These preferred shares will be issued in Q2, 2017 and then also locked up for 1 year. The total value of the capital raising exercise should be around VND1,150 billion. Issuing maximum 29,809,962 ESOP shares (or 5% of OS) to employees at the price no less than VND10,000 per share. The BOD will decide all the details about issuance price, issuance time, lock-up time and the list of employees after getting shareholders approval in the AGM. Issuing maximum 216,297,895 bonus shares in Q4, 2017 (shareholder own 1,000 shares will get 367 bonus shares). Net sales & profit VNDbillion 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Net sales NPATMI FY2913 FY2014 FY2015 FY2016 Source company financial statements 2 Page 2

3 Unit sales and contracted sales Sold units breakdown by product in 2016 VND billion 25,000 20,000 15,000 10,000 Contracted sales Unit sales 3,601 7,112 8,053 (*) 21,147 9,000 8,000 7,000 6,000 5,000 4,000 3,000 Unit Officetel 22.1% Low-rise 9.2% Commercial 1.7% Apartment 67.0% 5,000 1,050 11,299 2,000 5,783 1, , Source: NVL Source: NVL Furthermore, the company will also ask shareholders approval for the plan to issue US$100 million (equivalent to VND2,275 billion) worth of convertible bonds with a coupon rate of 8% per annum and a conversion price of at least VND50,000 per share. The company will issue these CBs in Q2, Company s FY2017 target calling for 89% growth in NPAT The company set a net sales target of VND17,528 billion (+138% y/y) and NPAT target of VND3,144 billion (+89% y/y) given their assumption that they will hand over and record earnings from 12 projects such as Rivergate Residence, The Tresor in CBD, Lakeview City Lucky Dragon & Golf Park in the East, Lucky Palace and Harbor City in the South, Gardengate, Golden Mansion, Orchard Garden and The Botanica in the West. Dividend policy for 2017 The Company plans to pay a dividend rate of 20% per par value, in cash or in stock. Still enjoying good pre-sales in FY2016 Novaland sold total of 8,053 units (+13.2% y/y) in 2016 including 7,967 apartments and 86 commercial lots, accounting for a 23% market shares of the residential market in HCMC. Highlights were as follows; Total contracted sales increased by 87.2% y/y to around VND21,000 billion, including VND18,000 billion in residential and VND3,000 billion in commercial properties. In FY2016, NVL launched 4 projects and enjoyed strong pre-sale in these projects; - They sold 68% of total of 767 units in the Saigon Royal project, - Sold 57% of a total of 988 units in the Lakeview City project, - Sold 39% of a total of 247 units in the Newton Residence project, - Sold 67% of a total of 1,109 units in the Botanica Premier project. Aggressively expanding their land bank through M&A activity as of the end of FY2016, NVL owned a total land bank of 835 ha; Covering 6 completed projects, 24 under construction projects and then 18 project in various stages in the pipeline with a total GFA of 10 million sqm which will keep the company busy over the next 5-10 years. In FY2016, the company disbursed VND22,113 billion to acquire a total land bank of 570 ha, mostly in the East and the South of HCMC. In FY2017, the company plans to continue expanding their land bank in HCMC and other provinces such as Da Lat, Vung Tau and Da Nang. 3 Page 3

4 th 2008 July 14 14h Friday, April 2017 Lucky Palace Rivergate HSC forecasts 70% y/y growth in the bottom line For FY2017, we forecast net sales of VND17,949 billion (+144% y/y) and an NPATMI of VND2,832 billion (+70% y/y). Then we have the following assumptions: We assume the company will complete construction and hand over to the buyers a list of projects including Lucky Palace (VND744 billion), Gardengate Residence (VND990 billion), Orchard Garden (VND698 billion), The Botanica (VND1,266 billion), Rivergate (VND1,494 billion), The Tresor (VND2,105 billion), Golden Mansion (VND377 billion), Lakeview City (VND5,082 billion) and Harbor City (VND2,111 billion). We estimate the company will sell 6,960 units (-13.6% y/y) with a total contracted sales value of VND20,685 billion (-1.5% y/y). We expect GPM will improve to 29.5% from 21.5% given a better product mix with a greater emphasis on landed townhouses which normally carry higher margins (around 30-35%). The company will record a net financial loss (VND582 billion) vs. a net financial income VND1,408 billion in FY2016 due to the drop out financial gains from revaluation of investments subsidiaries plus a gain on investment disposal. of of of in HSC expected to see slowdown in unit sales this year as the mid to high end needs time to absorb existing supply - Novaland has successfully dominated the mid to high-end apartment segment in HCMC along with VIC that is. Given their reputation of delivering apartments on time, in good location and at a competitive selling price. While the high end is expected to slow down this year, prospects for the mid-end are still solid. And of course 2017 bookings will come from previous sales. The selling price of a typical NVL project ranges from US$1,500 to US$2,500 per sqm. Therefore they truly straddle the mid and high end segments (the mid end ranges from US$1,000-$2,000 while the high end starts from US$2,000). Therefore HSC is more cautious on contract sales and unit sales from the current and new projects coming this year. Of course VIC s temporary withdrawal from the high end segment to focus instead on affordable projects should be quite helpful to NVLs sales prospects this year. Even so, our forecast reflects a rather cautious stance for now. Sell-through ratio (new launched projects) 80% 70% 68% 67% 57% 60% 50% SG&A expenses will increased to VND1,081 billion (+34% y/y) on higher sales and the allocation of goodwill from acquiring subsidiaries. 40% As a result, we forecast an FY2017 NPATMI of VND2,832 billion (+70% y/y), giving us a forward fully diluted EPS of VND3,707 and at the current price, this stock is trading at a forward fully diluted P/E of 18.9xs. 10% 39% 30% 20% 0% Saigon Royal Lakeview City Newton Residence The Botanica Premier Source : NVL 4 Page 4

5 Clear focus on residential housing segments - Novaland Group (NVL) is a privately owned real estate company based in HCMC and focused on the mid to highend residential housing segment. Their products; mostly apartment units aimed at the middle classes carry a selling price ranging from US$1,500 to US$2,500 per square meter. Typically an NVL project has 500-3,000 units which is an optimal size giving a faster payback timeline and a lower capital requirement. Recently, they timely moved into townhouse & villa products once seeing an oversupply of high-end apartment. NVL is also one of the few property developers to possess an enormous land bank in prime locations in HCMC which will sustain for at least 5 years without the need to acquire new land. HSC thinks NVL will be added to the VN30 at the new review One very important near term catalyst for the stock is its likely inclusion into the VN30 index at the next review to be held in July. We understand that this is something that NVL has considered in terms of making sure that they were eligible to meet the necessary criteria. Investment thesis Downgrade from Outperform to Hold. We have a fair value price of VND64,832 using the combination valuation methodology of both RNAV and P/E which values the company at FY2017 forward diluted P/E of 17.5xs. Hence at the current price, this stock is trading at a premium of 7% to our fair value. Previous strong contract sales will ensure the company will enjoy strong earnings growth this year. Although we also concern about their high debt burden and the dilution risk as they need to raise more capital to fund current active projects as well as to expand their land bank. Furthermore, we expect the slowdown in the high-end segment will impact the company s pre-sales this year. Even so, their brand name; large land bank and execution track record makes them a strong long term choice for investors. While the likely inclusion into the VN30 means the stock price is fairly likely to move even higher over the next few months. The market cap of NVL is well within the Top 30 as of now (ranked at 11th in HSX). NVL was listed on HSX on December 28th 2016, so until July, the stock will have had a full 6 months of trading. Assuming the stock trades at the current price and current OS, the average 6 month daily market cap of NVL will also meet the size criteria for the VN30. Free float of NVL is around 74% (higher than the 5% minimum). Average 3 month daily trading value of NVL was also high, ranked 4th on the HSX. 5 Page 5

6 Project Location Use Stake Area GFA Unit % sold as of Dec 31, 2016 (%) (sqm) (sqm) Unit % Completed projects Sunrise City South Nguyen Huu Tho, D.7 Mix used 69.9% 51, , , % Completed, handed over from Q3, FY2012 Sunrise City Central Nguyen Huu Tho, D.7 Mix used 69.9% 147, Completed, handed over from Q1, FY2015 Sunrise City North Nguyen Huu Tho, D.8 Mix used 69.9% 87,822 1,180 Completed, handed over in FY2016 Prince Residence Nguyen Van Troi, Phu Nhuan Mix used 99.8% 4,644 39, % Completed, handed over from Q4, FY2015 Tropic Garden Thao Dien, D.2 Apartment 100.0% 23, , % Completed, handed over from Q4, FY2014 Lexington Residence An Phu, D.2 Mix used 99.9% 21, ,641 1,493 1, % Completed, handed over from Q4, FY2015 Icon 56 Ben Van Don, D.4 Apartment 100.0% 2,994 29, % Completed, handed over from Q4, FY2015 Galaxy 9 Nguyen Khoai, D.4 Apartment 100.0% 6,228 51, % Completed, handed over from Q4, FY2015 Under development projects Status Lucky Dragon Do Xuan Hop, D.9 Apartment & townhouse Golf Park Long Thanh My, D.9 Townhouse & villa 100.0% 9,024 30, % "Low-rise area: completed and handed over High-rise area: plan to hand over from Q1, FY2017" 69.9% 25,398 27, % Under development, plan to hand over from Q1, FY2017 Lucky Palace Phan Van Khoe, D.6 Apartment 100.0% 3,876 50, % Under development, plan to hand over from Q2, FY2017 Orchard Garden Hong Ha, Phu Nhuan Mix used 100.0% 4,303 29, % Under development, plan to hand over from Q1, FY2017 Garden Gate Residence Hoang Minh Giam, Phu Nhuan Apartment 94.0% 4,887 48, % Under development, plan to hand over from Q3, FY2017 Rivergate Residence Ben Van Don, D.4 Mix used 99.7% 7,069 77, % Under development, plan to hand over from Q3, FY2017 The Tresor Ben Van Don, D.4 Apartment 99.9% 6,202 64, % Under development, plan to hand over from Q4, FY2017 Kingston Residence Nguyen Van Troi, Phu Nhuan Mix used 99.9% 4,580 40, % Under development, plan to hand over from Q1, FY2018 The Sun Avenue Mai Chi Tho, D.2 Mix used 99.9% 38, ,363 2,880 1, % Under development, plan to hand over from Q1, FY2018 Sunrise Cityview Nguyen Huu Tho, D.7 Mix used 99.9% 15, ,898 1, % Under development, plan to hand over from Q2, FY2018 Wilton Tower Dien Bien Phu, Binh Thanh Apartment 99.9% 7,169 49, % Under development, plan to hand over from Q1, FY2018 Orchard Parkview Hong Ha, Phu Nhuan Mix used 74.0% 9,184 64, % Under development, plan to hand over from Q3, FY2018 The Botanica Pho Quang, Tan Binh Mix used 100.0% 9,028 54, % Under development, plan to hand over from Q3, FY2017 Golden Mansion Pho Quang, Phu Nhuan Mix used 74.0% 15,129 86, % Under development, plan to hand over from Q4, FY2017 Newton Residence Truong Quoc Dung, Phu Nhuan Mix used 99.9% 2,807 24, % Under development, plan to hand over from Q1, FY2019 Sunrise Riverside Nguyen Huu Tho, Nha Be Mix used 99.9% 39, ,420 3,117 1, % Under development, plan to hand over from Q2, FY2018 Lakeview City District 2 Villa, townhouse 99.0% 301, , % Under development, plan to hand over from Q1, FY2017 Richstar Tan Phu Mix used 100.0% 29, ,138 1,953 1, % Under development, plan to hand over from Q4, FY2018 Botanica Premier Tan Binh Mix used 64.7% 17,237 94,443 1, % Under development, plan to hand over from Q4, FY2018 SG Royal District 4 Mix used 100.0% 6,669 72, % Under development, plan to hand over from Q1, FY2019 Harbor City District 8 Villa, townhouse 27.9% 500, ,312 3,240 Not launched yet, plan to hand over from Q4, FY2017 Water Bay District 2 Apartment 99.0% 302, ,779 4,612 Not launched yet, plan to hand over from Q1, FY2019 Palm Marina District 9 Villa, townhouse 77.4% 1,580, ,000 1,125 Not launched yet, plan to hand over from Q4, FY2018 Serai Nova Phu Sa resort Can Tho Resort 100.0% 194,342 58, Not launched yet, plan to hand over from Q3, FY2017 Page 6 6

7 Map of project locations 7 Page 7

8 FINANCIAL RATIO Unit: VNDmillion INCOME STATEMENT FY2015 FY2016 FY2017F FY2018F Net sales 6,673,435 7,359,181 17,948,848 26,610,413 Cost of goods sold 5,333,572 5,776,101 12,647,479 18,920,080 Gross profit 1,339,863 1,583,080 5,301,369 7,690,333 Net financial income (105,864) 1,407,813 (582,460) (368,021) SGA expenses 598, ,086 1,081,689 1,251,325 Operating profit 636,253 2,184,305 3,637,768 6,071,590 EBITDA 829,904 1,002,325 4,308,347 6,572,881 Pretax profit 608,113 2,189,704 3,641,159 6,075,415 Net profit after tax 441,760 1,659,349 2,912,927 4,860,332 NPATMI 415,423 1,665,078 2,831,608 4,645,741 EPS (VND) 1,168 3,059 3,707 5,827 BALANCE SHEET FY2015 FY2016 FY2017F FY2018F Current Assets 18,133,290 30,288,729 44,642,731 52,227,807 Cash & cash equivalents 3,859,710 3,336,969 7,177,582 9,299,594 Short term investments 818, , , ,178 Receivables 6,058,946 9,635,748 9,022,380 9,173,063 Inventories 7,158,828 15,789,642 26,918,835 31,987,741 Other current assets 236, , , ,231 Long-term Assets 8,437,119 6,238,346 7,441,092 9,047,391 Long-term receivables 3,309, , , ,019 Fixed assets 87, , , ,337 Investment Properties 1,082,786 1,945,013 3,039,912 4,766,496 Long term assets in progress 1,069, , , ,199 Long-term investments 1,581, , , ,309 Other long-term assets 1,306,148 2,572,552 2,350,792 2,129,031 Total Assets 26,570,409 36,527,076 52,083,823 61,275,198 Liabilities 20,475,199 26,480,186 37,842,275 42,728,061 Current Liabilities 13,354,624 15,011,224 29,604,499 35,720,670 Long-term liabilities 7,120,575 11,468,962 8,237,776 7,007,391 Owners' Equity 6,095,209 10,046,890 14,241,549 18,547,138 Shared capital 3,682,958 5,961,992 6,824,688 6,824,688 Retained earnings & other funds 2,412,252 4,084,898 7,416,861 11,722,450 Total Resources 26,570,409 36,527,076 52,083,823 61,275,198 RATIO ANALYSIS FY2015 FY2016 FY2017F FY2018F Valuation EPS (VND) 1,168 3,059 3,707 5,827 EBITDA (VNDm) 829,904 1,002,325 4,308,347 6,572,881 BVPS (VND) 13,891 15,244 19,344 25,339 DPS (VND) P/E (x) EV/EBITDA (x) P/B (x) Dividend yield (%) Profitability Gross margin 20.0% 21.5% 29.5% 28.9% EBITDA margin 12.4% 13.6% 24.0% 24.7% Pretax margin 9.1% 29.8% 20.3% 22.8% Net margin 6.6% 22.5% 16.2% 18.2% SG&A/sales (%) 9.0% 11.0% 6.0% 4.7% ROE (%) 8.8% 20.6% 23.3% 28.3% ROA (%) 1.9% 5.3% 6.4% 8.2% Liquidity Current ratio Quick ratio Leverage Debt/Equity Total debt ratio EBIT interest coverage ratio Efficiency Days sales outstanding Days in inventories Days payables outstanding Cash Conversion Cycle (days) CASH FLOW STATEMENT FY2015 FY2016 FY2017F FY2018F Net cash flow from operating activities Net cash flow from investment activities Net cash flow from financing activities (2,309,406) 204,558 7,288,931 4,009,481 (2,950,296) (6,603,708) (1,292,367) (1,691,528) 6,339,997 5,875,661 (2,155,952) (195,942) Net cash flow of the year 1,080,296 (523,490) 3,840,613 2,122,012 Cash&cash equivalents at the beginning of year Effect of foreign exchange differences Cash&cash equivalents at the end of year 2,779,415 3,859,710 3,336,969 7,177, ,859,710 3,336,969 7,177,582 9,299,594 8 Page 8

9 Global Disclaimer July 14h 2008 Copyright 2017 Ho Chi Minh Securities Corporation (HSC). All rights reserved. This report has been prepared and issued by HSC or one of its affiliates for distribution in Vietnam and overseas. Opinions, estimates and projection expressed in this report represent the current views of the author at the date of publication only. They do not necessarily reflect the opinions of HSC and are subject to change without notice. HSC has no obligation to update, amend or in any way modify this report or otherwise notify a reader thereof in the event that any of the subject matter or opinion, projection or estimate contained within it changes or becomes inaccurate. The information herein was obtained from various sources and we do not guarantee its accuracy or completeness. Prices and availability of financial instruments are also subject to change without notice. This published research may be considered by HSC when buying or selling proprietary positions or positions held by funds under its management. HSC may trade for its own account as a result of short term trading suggestions from analysts and may also engage in securities transactions in a manner inconsistent with this report and opinions expressed there in. Neither the information nor any opinion expressed in this report constitutes an offer, nor an invitation to make an offer, to buy or to sell any securities or any option, futures or other derivative instruments in any jurisdiction. Nor should it be construed as an advertisement for any financial instruments. Officers of HSC may have a financial interest in securities mentioned in this report or in related instruments. This research report is prepared for general circulation for general information only. It does not have regard to the specific investment objectives, financial situation or particular needs of any person who may receive or read this report. Investor should note that the prices of securities fluctuate and may rise and fall. Past performance, if any, is no guide to the future. The financial instruments discussed in this report may not be suitable for all investors. Investors must make their own financial decisions based on their independent financial advisors as they believe necessary and based on their particular financial situation and investment objectives. As this report is HSC s property and not public information, this report and any part of this report may not be copied, reproduced, published or redistributed by any person for any purpose without the express permission of HSC in writing. Please cite sources when quoting. Any Party shall be liable to HSC for any cost, loss or damage incurred by HSC or HSC clients as a result of any other breach under this Disclaimer in accordance with law. Explanation of Equity Research Ratings BUY: Expected to outperform the market by more than 10% per annum OUTPERFORM: Expected to outperform the market by 10% per annum HOLD: Expected to perform in line with the market UNDERPERFORM: Expected to underperform the market by 10% per annum SELL: Expected to underperform the market by more than 10% per annum HEAD OFFICE Level 5 & 6, AB Tower 76 Le Lai, District 1, HCMC T : (+84 8) F : (+84 8) HANOI OFFICE Level 2, Cornerstone building 16 Phan Chu Trinh, Hoan Kiem District T : (+84 4) F : (+84 4) E: info@hsc.com.vn W: 9 Page 9