STANDING AMONG THE TOP LARGEST PROPERTY DEVELOPER IN

VNDIRECT Research

www.vndirect.com.vn 1

HA DO JSC (HDG) ─ INITIATION

Market Price Target Price Dividend Yield Rating Sector

VND23,200 VND29,600 4.3% ADD REAL ESTATE

Investing for the future

We believe Ha Do Joint Stock Company (HDG) is placing intensive

investment in the electricity sector, taking advantage of government

incentives.

The energy segment will ensure long-term growth for HPG, after HaDo

Centrosa project’s completion and handover in 2020-21F.

Initiate coverage with an ADD rating and TP of VND29,600.

Shifting from a property developer to an energy player

From a real estate developer, HDG’s has been gradually shifting to power business. The company started with small hydropower plants since 2009 to ensure stable cash flow. In recent years, HDG has expanded its portfolio to wind power and solar power projects in order to take opportunity from the government's preferential policies for this sector.

Higher contribution from power sector going forward

We expect that HDG’s power capacity could post a CAGR of 29.3% in FY20-22F thanks to (1) two new hydropower plants (Song Tranh 4 - 48MW; Dak Mi 2 -147MW) that will come on stream in 4Q20F and 1Q21F, respectively, and (2) the operation of Infra 1 solar power plant (50MWp) and 7A wind power plant (50MW), slated to start in 3Q20 and 2Q21F, respectively. We estimate that the power segment revenue will grow at a FY20-22F CAGR of 44.5%, widening its contribution to 45.9% of HDG’s top line in FY22F, from 14.0% in FY19.

HaDo Centrosa residential project to fuel FY20-21F results

The last four high-rise blocks of the HaDo Centrosa mega project will be handed over to buyers in FY20-21F. Currently nearly all of the 1,010 units have been sold out and the final works are being completed. HaDo Centrosa is expected to generate VND3,983bn in revenue and VND1,124bn in NP, making up 41.9%/48.1% of HDG’s top line and bottom line, respectively, in FY20-21F.

Initiate coverage with ADD and TP of VND29,600

We initiate coverage on HDG with an ADD rating. Our TP of VND29,600 is based on SOTP valuation method. We believe that HDG’s strategy of focusing on power investment now is reasonable, as it ensures stable cash flow while taking advantage of the government’s incentives. Key downside risks to our call include (1) the high volatility of Vietnam’s rainy and dry seasons, affecting hydropower and solar power output; and (2) the risk of a policy change related to subsidised tariffs, tax rates or land rights that may affect project profitability.

02 November 2020

Outlook – Short term: Positive Outlook – Long term: Neutral

Valuation: Positive

Consensus*: Add:3 Hold:2 Reduce:0

Target price / Consensus: +19.6%

Key changes in the report N/A

Price performance

Source: VNDIRECT RESEARCH

Key statistics

52w high (VND) 26,744

52w low (VND) 12,462

3m Avg daily volume (shares) 1,802,268

3m Avg daily value (VNDbn) 39,115

Market cap (VNDbn) 3,617

Outstanding shares (m) 154

Free float (%) 55

TTM P/E (x) 3.84

Current P/B (x) 1.48

Ownership

Nguyen Trong Thong 35.1%

Nguyen Van To 8.9%

Others 56.0%


Analyst(s):

Tran Ba Trung

[email protected]

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Financial summary (VND) 12-18A 12-19A 12-20E 12-21E

Net revenue (bn) 3,221 4,343 5,035 4,478

Revenue growth 40.2% 34.8% 15.9% (11.1%)

Gross margin 38.6% 42.1% 41.9% 48.1%

EBITDA margin 34.8% 40.4% 45.8% 57.0%

Net profit (bn) 633 932 1,034 897

Net profit growth 255.1% 47.1% 11.0% (13.2%)

Recurring profit growth 188.4% 41.8% 13.7% (16.1%)

Basic EPS 4,318 6,039 6,701 5,814

Adjusted EPS 4,255 5,849 6,496 5,650

BVPS 12,502 15,695 23,495 28,233

ROAE 40.8% 43.8% 34.2% 22.5%

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STANDING AMONG THE TOP LARGEST PROPERTY DEVELOPER IN

HANOI

Established in 1992 as a construction firm under the Defence Ministry’s military technical institute, HDG was privatised in 2004 and listed on HOSE in 2010. The company built its solid brand name in the property market with several residential projects, including: 183 Hoang Van Thai project (in 2009), Nguyen Van Cong project (in 2010), CC1 (in 2014); and its landmark project HaDo Centrosa (in 2016).

Figure 1: HDG's revenue posted a CAGR of 45.4% in 2015-19 Figure 2: Real estate is the biggest contributor to FY19 revenue

Source: VNDIRECT RESEARCH, COMPANY REPORTS Source: VNDIRECT RESEARCH, COMPANY REPORTS

A SHIFT TOWARDS RENEWABLE ENERGY

Managing a list of renewable power plants across the country with total capacity of 444MW

Since 2019, HDG has been gradually shifting its business focus towards renewable energy to seize the opportunities emerging from Vietnam’s power sector. In our view, HDG’s new strategy was well supported by these following reasons:

Based on the Vietnam Energy Institute’s estimates, Vietnam’s electricity demand is expected to grow at 8.5% in 2021-25F on the back of robust economic growth. However, power shortage will linger until 2026F as supply is growing at a much slower pace than demand;

Vietnam’s electricity tariffs are ~50% lower than the average in Asia-Pacific countries; which allows more room for tariff hike;

The government is liberalising the power sector; helping to improve earnings of most power plants, especially hydropower plants, which have low production costs;

The government prioritises renewable energy development with many incentives, such as preferential corporate income tax, preferential credit loans, land use tax exemption, land rental exemption, and purchase price more attractive than prices of fossil fuel energy sources. Furthermore, the focus on developing the energy segment will create a stable annual income

Title:

Source:

Please fill in the values above to have them entered in your report

63.5%

14.0%

7.6%

14.9%

Residential property Power

Hospitality office leasing Construction

VNDIRECT Research


stream and a solid foundation for HDG to avoid future risks of the real estate market downturn.

The company initially invested in small hydropower plants (designed capacity of 30MW) and then expanded its portfolio into wind power and solar power projects in order to seize opportunity from the government's preferential policies for this sector. As at Sep 2020, HDG is managing three hydropower plants with total designed capacity of 119MW and two solar power plants with designed capacity of 98MWp. In addition, another three power plants projects are under construction with total designed capacity of 245MW. Thus, HDG aimed to increase its total designed capacity to 444MW by 2021F. Based on our estimates, HDG will stand among the top five largest listed companies in terms of renewable designed capacity by 2021F.

Additionally, the company is seeking investment opportunities to raise its power generation capacity to 1,000MW in the longer run. HDG is also conducting feasibility studies for another eight solar power and wind power plant projects with total designed capacity of about 500MW.

Figure 3: HDG’s power plant portfolio (as at Sep 2020)

Source: VNDIRECT RESEARCH, COMPANY REPORTS

Figure 4: Designed capacity of HDG’s power generation (MW) Figure 5: HDG will stand among the top five largest listed companies in term of renewable designed capacity by 2021F


Project Type Location Ownership

Commencing

year

Operation

starting year

Designed

capacity

Total investment

(VND bn)

Operating

Za Hung Hydropower Quang Nam 52% NA 2009 30 MW 503

Nam Pong Hydropower Nghe An 52% NA 2014 30 MW 796

Nhan Hac Hydropower Nghe An 52% Jun-15 Sep-18 59 MW 1,299

Hong Phong 4 Solar power Binh Thuan 83% Mar-19 Jun-19 40 MW 932

Infra 1 Solar power Ninh Thuan 80% Mar-20 Sep-20 40 MW 1,066

Under construction

Song Tranh 4 Hydropower Quang Nam 60% Jun-18 Nov-20 48 MW 1,285

Dak Mi 2 Hydropower Quang Nam 98% 4Q18 Mar-21 147 MW 3,750

7A Wind power Ninh Thuan 100% May-20 Aug-21 50 MW 1,210

Total 444 MW 10,841

VNDIRECT Research


HDG has proved to be a power developers with fast-tracking construction at reasonable costs

Based on our estimates, HDG’s investment cost is about VND31bn-VND33bn per MW for a hydropower plant (already adjusted for FY19 inflation). Although the cost is equivalent to other recently-built same-size hydropower plants, the construction of HDG’s power plants is less time-consuming than its peers.

Figure 6: Construction time of HDG’s hydropower plants vs others (year)

Figure 7: Investment cost & designed capacity of HDG’s hydropower plants vs. others

(*) The total investment has been adjusted for FY19 inflation


HDG’s first solar power plant is running at high utilization rate of 108.5%

HDG’s first solar power plant, Hong Phong 4, inaugurated since Jun 2019 and has been selling electricity under a Power Purchase Agreement at 9.35 UScts/kWh FIT in 20 years. According to our research, Hong Phong 4 achieved about 1,896 operating hours per year which is well above the peer average of 1,500-1,650 hours/year.

In our view, Hong Phong 4’s high operation efficiency derives from its advanced technology and prime location. Hong Phong 4 is located near the transmission line, providing the plant an edge in grid connection and lowering the overload risks, better than other neighbouring plants in Binh Thuan province.

Figure 8: The operating hours of Hong Phong 4 solar power plant are above those of peers (hours/year)

(*) Based on published data of 87 solar power projects operational before 30 Jun, 2019

Source: VNDIRECT RESEARCH, COMPANY REPORTS, EVN

VNDIRECT Research


After the first eight months of operation, Hong Phong 4 plant’s performance was stable with impressive utilization rate of 108.5%, producing 8.2m kWh/month, equivalent to 13.7% of HDG’s total electricity output in FY19. We estimates that the plant posted about VND17.0bn in revenue per month in 2020F.

Figure 9: Hong Phong 4 solar power plant Figure 10: Impressive performance of Hong Phong 4 solar power plant


RESIDENTAL PROPERTY: NO PROMISING PROJECT IN PIPELINE

AFTER HADO CENTROSA

A reputed property developer with track record in mid-range segment

HDG is a successful residential property developer, focusing in small and medium-sized housing projects (condos, villas, townhouses) to target mid-class home buyers. HDG's property projects were well absorbed even during the market downturn in 2009-12, thanks to: (1) located at prime locations with high population density; ie: in Cau Giay and Thanh Xuan districts of Hanoi, in Go Vap District and District 10 in Ho Chi Minh City (HCMC); (2) tapping the real housing demand, and (3) good management of construction quality and on-time house delivery.

According to HDG, its property projects were often sold out within a year after launching, allowing the company to maintain stable operating cashflow and to curtail funding from banks’ borrowing.

Figure 11: HDG’s landmark residential property projects


Project Location

Land area

(sqm)

Product types and

number of units Project status

Z751B Go Vap, HCMC 2,771 30 villas Handover in 2008

Hoang Sam Cau Giay, HN 1,000 64 apartments Handover in 2009

Z751 Go Vap, HCMC 4,211 203 apartments Handover in 2009

N04B2 Cau Giay, HN 5,262 341 apartments Handover in 2009

183 Hoang Van Thai Thanh Xuan, HN 21,136 504 apartments, 66 villas Handover in 2010-2012

Hado Garden Villas District 10, HCMC 7,174 19 villas Sold 12 units, leased the remaining 7 units

CC1 Cau Giay, HN 2,206 135 apartments Handed over

Nguyen Van Cong Go Vap, HCMC 4,600 431 apartments Handover in 2014

Hado Park View Cau Giay, HN 5,262 341 apartments Handover in 2014

Thoi An urban area District 12, HCMC 20,748 124 villas, townhouse Finished rough construction and handover to customers

Binh An Riverside District 8, HCMC 23,237 759 apartments Handed over

Thanh My Loi urban area District 2, HCMC 26,000 112 villas Finished rough construction and handover to customers

VNDIRECT Research


The delivery of HaDo Centrosa to support 2020F earnings

Locating in the centre of District 10, HCMC, the HaDo Centrosa is the company's first large-scale project, consisting of 115 townhouses and eight blocks of condos with 2,187 apartments. The project was sold out within 1H18 and brought in a presale value of VND10,700bn at the end of Jun 2018.

The low-rise houses and the four condo buildings were delivered during 2017-19 while another four buildings are scheduled for delivery in 2020-21. We estimate that HDG will book about VND3,983bn, equivalent to 80-85% of total revenue from these buildings in 2020F, the rest will be booked in 1H21F.

Figure 12: HaDo Centrosa project to support FY20F earnings Figure 13: Estimated presale value of HaDo Centrosa’s 4 Iris buildings


We see no sizeable projects in near-term pipeline

Currently, HDG has a pipeline portfolio of seven projects with nearly 250.000 sqm of net floor area (NFA). These projects were expected to be developed during 2020-23F. However we see no sizeable projects to be delivered in the next two years.

Among these projects, Charm Villas is the largest one and were launched since 2008 with 528 villas and townhouses. About 152 units of Charm Villas have been successfully sold but the projects were delayed due to prolonged legal procedures since 2009 amid a sharp downturn in real estate demand at that time. After revising the project’s master plan, HDG aims to launch the remaining 376 units for presale in 2H20F. According to our market research, average selling price (ASP) is about VND7bn-9bn per unit, which is expected to generate about VND3,300bn in presale value during FY20-22F. Nonetheless, the size of Charm Villas is relatively small versus the HaDo Centrosa (~VND10,700bn in presale value).

Though HDG owns large land bank, we see clear and ready-to-built land site is limited. The two noticeable projects, Noong Tha and Alilla Bao Dai, are still settling issues related to legal violation and no detailed master plans are disclosed. Thus, in our valuation model, we use book value (BV) for these projects.

Block Units

Selling price

(VNDm/m2)

Est. sales

(VNDbn)

Iris 1 144 47.3 603

Iris 2 224 50.8 1,060

Iris 3 283 43.0 1,027

Iris 4 359 44.1 1,292

Total 1,010 45.7 3,983

VNDIRECT Research


Figure 14: Project development pipeline


Figure 15: Revenue from property will decrease from 2021F due to the lack of large project handover (VNDbn)

Figure 16: HDG’s real estate land bank (sqm)


Figure 17: Hado Charm Villas project

● Location: Hoai Duc district, Hanoi

● Situation: clean land, stable traffic, internal roads, parks, playground, lake, club house, construction of 20 villas, a school. Now working on inter-regional beltway (state budget); Completed legal procedures for sale.

● Product: 528 villas and townhouse, 152 units sold.

● NFA: 106,139 sqm

● Launch for presale: 3Q-4Q20F

● Expected revenue: VND3,300bn

● Price reference from nearby projects:

- Nam An Khanh, Splendora: VND60m/sqm

- Geleximco An Khanh: VND45-50m/sqm

- Vinhomes Thang Long: VND70-80m/sqm


2019 2020 2021 2022 2023 2024 2025

Hado Centrosa District 10, HCMC Apartment/Townhouses 89% 68,500 202,166 4,000

Nongtha Central Park Vientiane, Laos Villas 100% 745,000 N/A 2,400

Charm Villas An Khanh, HN Villas/Shophouse 100% 300,250 63,162 3,300

Green Lane District 8, HCMC Apartment 99% 23,237 71,500 2,150

Allia Bao Dai Nha Trang, KH Villas/Hotel 65% 89,200 4,125 1,000

Dich Vong Complex 1 Cau Giay, HN Apartment/Office 100% 9,865 75,000 1,500

Kha Van Can Thu Duc, HCMC Apartment/Townhouses 100% 27,125 N/A 2,700

CC3 Cau Giay, HN Aparment/Office 100% 4,506 N/A 500

Total 1,267,683 415,953 17,550

Execution timeframe*Gross development

value (GDV) as of

Apr 2020 (VNDbn) (**)

(*) Each project execution timeframe (from first launch to completion) is in grey highlight. Otherwise, no detailed project timeframe has been annouced by the company.

(**) Source: HDG estimated

Project Location Product

HDG

Ownership

Land site

(m2)

NFA

(sq m)

VNDIRECT Research


HOSPITALITY & OFFICE LEASING: TO MAINTAIN MODERATE GROWTH IN THE NEXT 5 YEARS

At end-1H20, HDG was managing 41,000sqm of commercial floors, office leasing and a hotel (namely Ibis Hotel) which was inaugurated since early 2016. Thanks to its proximity to Tan Son Nhat International Airport, the hotel ran at an occupancy rate of over 90% in FY18-19. The hotel posted VND125.7bn in FY19 revenue, accounting for c.40% of HDG's hospitality and office leasing segment revenue.

HDG’s hospitality business was hit hard by the pandemic. Its occupancy rate decreased to 38% in 9M20 from 82% in 9M19. In particular, the occupancy rate in Apr-May 2020 stood below 10%. Therefore, we expect HDG’s hotel occupancy rate to improve slightly by 4Q20F, reaching 50% in 2020F and 60% in 2021F.

The office space for lease will double in the next five years, depending on progresses of HDG's real estate projects.

Figure 18: HDG's hospitality and office leasing portfolio


FY20-22F OUTLOOK: POWER IS THE KEY DRIVER FOR EARNINGS GROWTH

Revenue and gross profit of power segment to accelerate since FY21F onwards

We forecast revenue from power segment to grow at a 44.5% CAGR during FY20-22F, on the back of 29.3% CAGR in power generation capacity.

We expect Song Tranh 4 hydropower plant to come online in 4Q20F, while Infra 1 and Hong Phong 4 solar power plants to run at utilisation rates of 25% and

Projects Location Area (m2) Notes

40,722

NO10 Dich Vong Cau Giay, Hanoi 1,624

CC1 Dich Vong Cau Giay, Hanoi 1,146

K800 Office Cau Giay, Hanoi 2,047

183 Hoang Van Thai Thanh Xuan, Hanoi 1,738

Hoang Sam Apartment Cau Giay, Hanoi 543

Z751A Apartment Go Vap, HCMC 1,033

Nguyen Van Cong Apartment Go Vap, HCMC 800

Parking zone 183 Hoang Van Thai Thanh Xuan, HN 700

CC3 Cau Giay, Hanoi 4,044 21 floors, 3 basements

Airport Bulding Tan Binh, HCMC 10,247

South Building Tan Binh, HCMC 6,715

Leasing zone of Centrosa D10, HCMC 9,049

Ta Quang Buu Hai Ba Trung, Hanoi 1,036 7-floor office

33,467

Leasing zone of D8 Greenlane D8, HCMC 2,705

Leasing zone of Kha Van Can Thu Duc, HCMC 3,500

Leasing zone of Education Equipment 1 Thanh Xuan, Hanoi 2,700

Leasing zone of Dich Vong Cau Giay, Hanoi 9,305

Land in Hung Yen Hung Yen 6,636 Newly acquired

Land in Hai Phong Cat Bi, Hai Phong 8,621 Newly acquired

IBIS Hotel Tan Binh, HCMC 274 rooms

Bao Dai Imperial Hotel Nha Trang, Khanh Hoa Hotel 5*, Expected operation in 2022F

In operation

Expected deployment

Office for lease

Hospitality

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95% this year. Power segment revenue is forecasted to surge 27.4% yoy in FY20F.

For FY21F, we project power segment revenue to double, based on the following assumptions:

Dak Mi 2 hydropower plant and 7A wind power plant will go online in 1Q21F and 2Q21F, respectively, generating about VND600bn in FY21F revenue.

Infra 1 solar power plant will run at a high utilisation rate of 80%, as this project adopts the same technology and even has better energy conversion efficiency than Hong Phong 4.

We are generally positive on two hydropower plants Za Hung and Nam Pong as the risk of water shortage will ease in 2021F under the impact of La Nina. Their ulitisation rates are expected to improve to 80% and 60% in 2021F, higher than the respective 65% and 48% seen in FY19.

Gross margin of the power segment will gradually edge down to 62.4% in 2022F from 71.7% in FY19; due to 1) higher contribution of solar and wind power plants with lower margin (49.7% compared to 68.4% of hydropower in 2022F), and 2) high depreciation expenses of new plants.

Figure 19: Estimated operating efficiency at HDG's power plants Figure 20: Revenue, gross profit of the power segment to surge in FY20-21F (VNDbn)


2019 2020F 2021F

Hydropower

Za Hung 122.7 2009 65.4% 70.0% 80.0%

Nam Pong 123.3 2014 48.0% 50.0% 60.0%

Nhan Hac 206.0 3Q18 87.4% 85.0% 85.0%

Song Tranh 4 178.2 4Q20 10.0% 70.0%

Dak Mi 2 560.3 1Q21 50.0%

Solar power

Hong Phong 4 91.0 2Q19 55.8% 95.0% 95.0%

Infra 1 92.0 3Q20 25.0% 80.0%

Wind power

7A 170.0 1Q21 50.0%

Project Design output

(kWh/year)

Year starting

operation

Utilization rate

VNDIRECT Research


9M20 earnings growth was driven by HaDo Centrosa project

Figure 21: 9M20 financial results recap

VNDIRECT RESEARCH, COMPANY REPORTS

We expect HDG ‘s FY20F earnings to reach record high thanks to the last-

mile delivery of HaDo Centrosa

We forecast HDG’s revenue and net profit will grow 15.9% and 11.0% yoy, respectively, in FY20F on the back of: 1) power segment’s revenue to surge 27.4% yoy; 2) residential property revenue to grow 23.6% yoy with the booking of revenue and profit from HaDo Centrosa project; 3) hospitality and office leasing revenue to drop 41.8% yoy, hit heavily by Covid-19.

For 2021F, we project the residential property segment’s revenue will drop 45.1% yoy due to a lack of major projects, and contributions will come mainly from booking the rest of HaDo Centrosa and about 37.5% of Charm Villas. On the bright side, putting Dak Mi 2 hydropower plant and 7A wind power plant into operation will help lift the power segment’s revenue by 120.8% yoy in 2021F, widening the segment's revenue contribution to 38.1% in 2021F from 14.0% in 2019.

VNDbn 3Q20 3Q19 % yoy 9M20 9M19 % yoy Comments

Revenue 839.5 1,245.2 -32.6% 3,829.9 3,117.9 22.8%

Residential property 474.3 832.6 -43.0% 2,606.0 2,061.8 26.4%

Residential property continued to be the main driver,

thanks to handover of four Iris blocks from the HaDo

Centrosa project in 9M20.

Power 170.0 113.8 49.3% 511.0 424.4 20.4%

Power revenue increased in 9M20 mainly due to the

contribution of the Hong Phong 4 solar power plant

(came online in Jun 2019). Meanwhile, Infra 1 solar power

plant generated VND13bn in revenue after the first month

of operation (Sep 2020).

Hospitality office leasing 86.4 80.1 7.9% 204.0 231.6 -11.9%

The pandemic impact on Hospitality and office leasing is

felt from 2Q20, when the occupancy rate at Ibis Hotel

decreased to 38% in 9M20 from 92% in 9M19.

Construction 189.8 212.3 -10.6% 511.0 400.3 27.7%

Gross profit 355.3 489.5 -27.4% 1,558.5 1,365.9 14.1%

SG&A expense 57.8 77.8 -25.7% 146.3 199.8 -26.8%

EBIT 297.5 411.7 -27.7% 1,412.2 1,166.1 21.1%

Interest expense 58.7 81.7 -28.2% 239.4 178.2 34.4%

Pre-tax profit 248.1 348.9 -28.9% 1,211.6 992.8 22.0%

After tax profit 187.4 273.6 -31.5% 962.4 795.9 20.9%

Net profit 128.4 235.4 -45.4% 764.4 644.9 18.5%

Gross profit margin 42.3% 39.3% 3.0% pts 40.7% 43.8% -3.1% pts

SG&A as revenue 6.9% 6.2% 0.6% pts 3.8% 6.4% -2.6% pts

EBIT margin 35.4% 33.1% 2.4% pts 36.9% 37.4% -0.5% pts

Net profit margin 22.3% 22.0% 0.4% pts 20.0% 20.7% -0.7% pts

VNDIRECT Research


Figure 22: Forecasts of HDG's FY20-21F business results


The power segment will contribute a higher proportion to the total revenue, rising to 38-46% in 2021-22F from only 11-14% in 2017-19, according to our forecast.

Figure 23: Increasing contribution from power segment to HDG’s total revenue (VNDbn)


VNDbn 2019A 2020F yoy % 2021F yoy %

Revenue 4,342.5 5,034.7 15.9% 4,477.5 -11.1%

Residential property 2,759.0 3,410.8 23.6% 1,872.4 -45.1%

Power 606.5 772.8 27.4% 1,706.0 120.8%

Hospitality office leasing 330.8 192.4 -41.8% 230.8 19.9%

Construction 646.7 658.7 1.9% 668.3 1.5%

Gross profit 1,827.6 2,108.7 15.4% 2,154.8 2.2%

Residential property 1,197.5 1,467.5 22.6% 849.0 -42.1%

Power 434.9 511.2 17.5% 1,146.4 124.3%

Hospitality office leasing 158.0 86.4 -45.3% 115.1 33.3%

Construction 10.1 43.7 330.9% 44.3 1.5%

SG&A expense 281.9 220.0 -21.9% 254.3 15.6%

EBIT 1,537.8 1,879.6 22.2% 1,892.4 0.7%

Interest expense 228.0 321.9 41.2% 662.4 105.8%

Pre-tax profit 1,389.8 1,577.1 13.5% 1,248.2 -20.9%

After tax profit 1,117.0 1,269.6 13.7% 1,065.6 -16.1%

Net profit 931.7 1,033.8 11.0% 897.0 -13.2%

Gross profit margin 42.1% 41.9% -0.2% pts 48.1% 6.2% pts

Residential property 43.4% 43.0% -0.4% pts 45.3% 2.3% pts

Power 71.7% 66.1% -5.6% pts 67.2% 1.1% pts

Hospitality office leasing 47.8% 44.9% -2.9% pts 49.9% 5.0% pts

Construction 1.6% 6.6% 5.1% pts 6.6% 0.0% pts

SG&A as revenue 6.5% 4.4% -2.1% pts 5.7% 1.3% pts

EBIT margin 35.4% 37.3% 1.9% pts 42.3% 4.9% pts

Net profit margin 21.5% 20.5% -0.9% pts 20.0% -1.2% pts

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Capital expenditure to spike in 2020 then decelerate

2020 is a milestone in HDG’s business strategy with the view of shifting to renewable energy. The company aims to develop four power plants with total capex of c.VND4,392bn. HDG will disburse capital to complete the Song Tranh 4 hydropower plant and about 90%-95% workload of Dak Mi 2 hydropower plant by year-end. Meanwhile, the company will be under pressure of completing new renewable projects (including Infra 1 solar plant and 7A wind plant) before the deadline to enjoy preferential electricity selling prices.

According to the company, capital demand will decelerate since FY21F as HDG only focus in completing the last-mile construction of Dak Mi 2 hydropower plant and 7A wind power plant.

We estimate that HDG’s D/E ratio in 2020F and 2021F will be 1.7x and 1.4x, respectively. Thus, the concern over high leverage will gradually ease since 2021F, in our view.

Figure 24: Capex projection for the energy sector (VNDbn) Figure 25: D/E ratio to ease since FY21F, based on our estimates


Operating cashflow to turn positive since FY22F

According to our estimates, HDG's cash flow would remain weak until FY21F, mostly stemming from the sale progress of Charm Villas project. After that, when all power plants come online since 2021F, operating cash flow will turn positive since FY22F.

VNDIRECT Research


Figure 26: HDG's cash flow from segments will remain weak until 2022F (VNDbn)


RISKS

Weather risk

The performance of hydropower plants highly depends on weather conditions, regarding which earnings could be abnormally low in El Nino years and high in La Nina years.

Policy risk

Risk of a change in policy relating to subsidized tariffs, tax rates or land rights that may affect the profitability of a renewable project. Solar and wind power has higher investment capex and lower mobilisation rate compared to thermal power; therefore, a change in subsidized policies could significantly impact HDG’s existing plants.

VALUATION

Initiate with ADD and target price of VND29,600

We employ SOTP valuation method based on separate value assessments of each business segment to get the company’s total equity value and arrive at a target price of VND29,600.

We value the real estate segment by NAV method, based on the ability to deploy and sell, at projects that are currently recognised (including HaDo Centrosa and Charm Villas), while the other projects are set at their book value.

For the hospitality and office leasing segment, we use the DCF method for operational projects, in addition to the prospect of improving occupancy rate at the Ibis Hotel when the pandemic is over.

For the power segment, we also use DCF method, based on the efficiency of operational power plants and the progress of putting new plants into operation according to the company.

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For the construction segment, we use P/E method with the target P/E of 5.0x, the average of the construction peer.

Figure 27: SOTP Valuation

Source: VNDIRECT RESEARCH ESTIMATES

We believe that the direction of HDG's transition to the power sector to take advantage of policy incentives and the bright prospects of output demand is reasonable. The power segment will bring a stable cash flow for the company, helping sustain the real estate segment to take advantage of opportunities when the industry cycle turns more positive.

According to our estimates, HDG's operating cashflow will remain weak until 2022F, depending on the sales progress at Charm Villas project. After that, strong positive cash flow from the power segment will arrive from 2023F, based on current pipeline.

Re-rating catalyst includes: 1) higher-than-expected performance at power plants, and 2) earlier-than-expected implementation of new real estate projects. Downside risks includes: 1) bad weather affecting the performance of power plants, and 2) inefficient sales at Charm Villas project.

Methods Metric

Exit target

multiples Weight value

VND bn VND per share

SOTP:

Real estate, NPV 2,910

Power, DCF 10yrs 8,921

Hospitality office leasing, DCF 10yrs 950

Construction, P/E 69 5.0x

Investment in affiliates, book value 39

(+) cash & ST Investment 720

(-) debt 7,948

(-) minority interest, book value 1,095

Equity value 4,567

No of share (mn) 154

Implied share price 29,600

Rounded share price 29,600

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Figure 28: Peer comparison (Data as at 30 Oct 2020)

Source: VNDIRECT RESEARCH ESTIMATES, BLOOMBERG

Company Ticker Price TP Mkt cap

3-

years

EPS

EV /

EBITDA

(x) D/E (x)

LC$ LC$ VNDbn TTM 20F CAGR Current 20F TTM TTM 20F Current

Real estate

Dat Xanh Group JSC DXG VN 11,500 N/A 5,960 N/A 13.3 19.1 0.9 N/A 6.1 -1.3 N/A 47.7

Khang Dien House Trading and Inv. JSC KDH VN 25,000 29,100 13,970 12.1 11.8 18.7 1.8 1.7 11.6 15.7 14.7 10.2

Nam Long Investment Corp NLG VN 27,200 36,100 7,487 10.4 5.4 32.3 1.4 1.1 10.6 14.6 22.3 14.0

Phat Dat Real Estate Development Corp PDR VN 41,000 N/A 15,180 13.7 N/A 54.7 3.5 N/A 9.2 28.2 N/A 49.7

Sai Gon Thuong Tin Real Estate JSC SCR VN 5,890 N/A 2,158 10.2 N/A 18.7 0.5 N/A 18.3 4.7 N/A 47.7

Development Investment Construction JSC DIG VN 19,150 N/A 5,873 14.2 N/A 108.6 1.5 N/A 11.8 11.3 N/A 31.9

Van Phu - Invest Investment JSC VPI VN 33,300 N/A 6,660 12.1 N/A 170.4 2.6 N/A 14.7 24.0 N/A 158.4

Hai Phat Investment JSC HPX VN 26,650 N/A 7,049 17.3 N/A 17.7 2.4 N/A 22.0 14.5 N/A 67.2

Average 8,042 12.8 10.2 55.0 1.8 1.4 13.0 14.0 18.5 53.3

Power

Gia Lai Electricity JSC GEG VN 14,000 N/A 3,796 17.0 15.1 14.8 1.5 1.1 11.6 9.4 8.6 151.1

Refrigeration Electrical Engineering Corp REE VN 41,900 N/A 12,991 8.8 8.3 15.8 1.2 N/A 14.6 14.8 N/A 50.7

Vinh Son - Song Hinh Hydropower JSC VSH VN 19,300 N/A 3,980 90.0 N/A -10.2 1.3 N/A 38.2 1.4 N/A 170.6

Central Hydropower JSC CHP VN 19,450 N/A 2,857 13.2 N/A 38.6 1.7 N/A 7.7 13.3 N/A 91.3

Southern Hydropower JSC SHP VN 24,050 N/A 2,254 27.8 N/A 35.0 2.1 N/A 5.5 7.3 N/A 62.2

Thac Ba HydroPower JSC TBC VN 24,500 N/A 1,556 10.9 N/A 12.1 1.6 N/A 10.4 14.6 N/A 36.4

Mien Trung Power Inv. and Dev. JSC SEB VN 36,500 N/A 1,168 13.2 N/A 24.2 3.0 N/A 9.0 22.6 N/A 55.5

Se San 4A Hydropower JSC S4A VN 27,850 N/A 1,175 16.4 N/A 25.8 2.5 N/A 8.9 15.2 N/A 105.3

Average 3,722 24.6 11.7 19.5 1.9 1.1 13.2 12.3 8.6 90.4

Construction

Coteccons Construction JSC CTD VN 56,400 N/A 4,303 6.7 6.9 -21.4 0.5 N/A N/A 7.9 N/A 0.0

Hoa Binh Construction Group JSC HBC VN 10,050 N/A 2,320 9.3 60.2 -4.6 0.6 0.6 7.8 7.1 1.3 125.3

CII Bridges & Roads JSC LGC VN 63,000 N/A 12,150 42.5 N/A 16.6 4.2 N/A 24.8 9.9 N/A 146.9

Licogi 16 JSC LCG VN 9,690 N/A 1,117 5.6 N/A 27.4 0.7 N/A 4.5 12.9 N/A 60.8

Average 4,972 16.0 33.5 4.5 1.5 0.6 12.4 9.5 1.3 83.2

Blended

Dat Phuong JSC DPG VN 25,400 N/A 1,105 4.5 N/A 16.8 1.2 N/A 6.5 31.8 N/A 199.3

Power Construction JSC No.1 PC1 VN 21,700 17,200 3,457 10.0 5.0 5.5 0.9 0.8 7.1 9.9 10.8 82.5

Average 2,281 7.2 5.0 11.1 1.1 0.8 6.8 20.8 10.8 140.9

Ha Do JSC HDG VN 23,200 29,600 3,617 3.8 4.6 96.4 1.5 1.3 5.6 48.0 34.2 177.7

P/E (x) P/BV (x) ROE

VNDIRECT Research


APPENDIX:

Figure 29: HDG’s organisation structure (as at Sep 2020)

Source: HDG

Figure 30: HDG’s overview

Source: HDG

Figure 31: HDG’s key milestones

Source: HDG

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KEY POWER PLANTS IN PIPELINE

Figure 32: Song Tranh 4 hydropower plant

● Location: Hiep Duc district, Quang Nam province

● Capex 2019: VND676bn

● Progress report: started embankment, foundation pit, migration and clearance of reservoir vegetation; Construction accelerates in the last six months

● Total investment: VND1,485bn

● Capacity: 48MW

● Commercial operation date: 4Q20F

● Output: 180m kWh p.a.


Figure 33: Dak Mi 2 hydropower plant

● Location: Phuoc Son district, Quang Nam province

● Capex 2019: VND698bn

● Progress report: Bridges, road work, dam and foundation pits are completed; Digging 5.5/7km of water tunnel; designed the 3rd turbine (increasing capacity to 48MW), finished negotiation for the 3rd turbine.


● Capacity: 147MW




Figure 34: Infra 1 solar power plant

● Location: Ninh Phuoc district, Ninh Thuan province

● Progress report: Finished installing power panel and went online on 4 Sep 2020.


● Capacity: 50MWp


● Feed in tariff: 9.35 UScts/kWh – 20 years


Figure 35: 7A wind power plant

● Location: Ninh Phuoc district, Ninh Thuan province

● Progress report: Sites are being cleared; Completing design; Selecting contractors to build roads, turbine foundations, substations and transmission lines.


● Capacity: 50MW



● Feed in tariff: 8.5 UScts/kWh – 20 years


VNDIRECT Research


POWER SHORTAGE COULD STILL LINGER OVER THE NEXT DECADE

Demand for electricity could further grow at a high rate

Electricity consumption has grown rapidly in tandem with the industrialisation and integration of Vietnam into the global economy. Over the past 10 years, electricity consumption has more than doubled to 209.4 TWh in 2019, from 74.8 TWh in 2009, based on General Statistics Office (GSO) data. This translates into a CAGR of 10.8%, almost twice the country’s GDP growth.

We fully expect the power sector to experience a rapid growth over the coming decade, in terms of consumption, capacity and generation. The country needs to rapidly build up and deploy generation capacity in order to meet the power needs of an expanding manufacturing sector and robust economic growth.

Figure 36: Rapid rise of electricity consumption in Vietnam (2009-25F)

Figure 37: Vietnam’s electricity shortage projections to 2025F (m kWh)

Source: VNDIRECT RESEARCH, GSO, VIETNAM ENERGY

INSTITUTE ESTIMATES Source: VNDIRECT RESEARCH, EVN

Supply is growing much slower than demand

EVN has projected the country’s electricity consumption to grow at 9.5%-10.8% in 2019-25F. To meet the demand, Vietnam needs 60,000MW in generation capacity by 2020F and 96,500MW by 2025F, according to the country’s revised power development plan (Revised PDP VII). By end-2018, total installed capacity reached c.48,600MW (Source: Ministry of Industry and Trade). According to the revised PDP VII, the combined capacity of the planned power sources reaches 10,800MW during the 2019-20F period, and 36,500MW in the 2021-25F period, of which 29,200MW of coal-fired power plants are expected to be operational in the next seven years.

We think the government will likely miss the target for power capacity infrastructure by 2020F due to delays in plant construction, especially the coal-fired plants (Song Hau I, Thai Binh II, Long Phu I plants with a total capacity of 3,600MW). Based on the current project pipeline, we estimate power supply to grow at a much slower pace than demand, at a CAGR of 3.4% vs. 9.0% in 2019-21F. Lagging new capacity installation while demand stays strong could lead to power shortage, implying higher sales volume for current power producers with spare capacity and higher electricity selling prices in the competitive market, in our view.

The development of renewable energy (RE) is imperative in the long run, given the rapid growth of Vietnam’s electricity demand, as well as rising

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environmental concerns and growing reliance on imported thermal power feedstock.

The government’s upcoming power development plan (PDP VIII) treats RE as an important component of the total power mix, with RE expected to account for approximately 26% of the total installed capacity added between 2016 and 2030, and contributing 21% to the total installed capacity by end-2030. This is on the back of (1) Vietnam’s hydropower potential has almost been fully exploited, and (2) the reliance on gas and coal power leaves a negative impact on the environment, and it makes the country increasingly dependent on imported feedstock, which is neither good for macroeconomic stability nor national energy security.

Vietnam needs to push RE for environmental reasons. The government has made a commitment to increasing environmental protection through the reduction of carbon emissions. The commitment will not be achieved if the country keeps adding more fossil fuel power plants to the capacity mix. As hydropower, which used to account for most of the installed capacity, is now nearly tapped out, and public opinion on nuclear power remains negative after the Fukushima accident in Japan, RE has emerged as the only viable long-term alternative.

Figure 38: Planned structure of national capacity mix (MW) Figure 39: Planned future installed RE capacity in 2020-30F (MW)

Source: PDP 7 Source: PDP 7

Vietnam’s tropical climate and long coastline are favourable for developing both wind and solar power

Vietnam has up to 24GW of potential in wind power, as the country has more than 3,260km of coastline. The wind in the East Sea is fairly strong and changes seasonally, as compared to neighborhood areas. According to the World Bank, Vietnam has the largest potential for wind power, compared to other Southeast Asian countries such as Thailand, Laos and Cambodia. However, wind energy is highly dependent on climate.

Vietnam also has abundant potential for solar capacity addition thanks to its location near the equator. The average direct normal irradiation (DNI) is estimated at 4-5kWh/sqm per day. Vietnam enjoys 1,600-2,700 hours/year of sunlight, with the highest potential being in the southern and central regions where the average number of sunny days is around 2,400 hours/year. The solar radiation level in Vietnam is on par with other developing solar power markets in the region such as China, Thailand, and the Philippines.

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Figure 40: Solar radiation data

Source: EVN

Technology advances have significantly reduced the development cost for RE, making for better unit economics

Equipment accounts for 70%-80% of the total investment cost for wind energy projects. Therefore, reducing the cost of equipment is a necessary step to make RE projects more economically viable.

In Vietnam, the investment cost per kW for onshore wind power fell to US$2.0-2.5m/MW in 2018-19 from US$3.5-4.0m/MW before 2010. The cost is expected to fall further to US$1.5m/MW between 2023F and 2025F.

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Valuation


-100%

-43%

14%

71%

129%

186%

243%

300%

0.9

2.9

4.9

6.9

8.9

10.9

12.9

14.9

01-17A 07-17A 01-18A 07-18A 01-19A 07-19A 01-20E 07-20E

Rolling P/E (x) (lhs) EPS growth (rhs)

11%

18%

25%

32%

39%

46%

0.5

1.0

1.5

2.0

2.5

3.0

01-17A 07-17A 01-18A 07-18A 01-19A 07-19A 01-20E 07-20E

Rolling P/B (x) (lhs) ROAE (rhs)

Income statement

(VNDbn) 12-19A 12-20E 12-21E

Net revenue 4,343 5,035 4,478

Cost of sales (2,515) (2,926) (2,323)

Gen & admin expenses (229) (113) (150)

Selling expenses (52) (107) (104)

Operating profit 1,546 1,889 1,900

Operating EBITDA 1,681 2,297 2,543

Depreciation and amortisation (135) (408) (642)

Operating EBIT 1,546 1,889 1,900

Interest income 87 21 19

Financial expense (259) (350) (688)

Net other income 16 18 16

Income from associates & JVs 0 0 0

Pre-tax profit 1,390 1,577 1,248

Tax expense (273) (308) (183)

Minority interest (185) (236) (169)

Net profit 932 1,034 897

Adj. net profit to ordinary 932 1,034 897

Ordinary dividends (207) (154) (154)

Retained earnings 725 880 743

Cash flow statement

(VNDbn) 12-19A 12-20E 12-21E

Pretax profit 1,390 1,577 1,248

Depreciation & amortisation 205 414 648

Tax paid (279) (108) (119)

Other adjustments (58) 1,427 (181)

Change in working capital (499) 322 (568)

Cash flow from operations 758 3,632 1,029

Capex (2,179) (5,554) (1,051)

Proceeds from assets sales 0 18 16

Others 5 0 0

Other non-current assets changes (459) 0 0

Cash flow from investing activities (2,633) (5,536) (1,035)

New share issuance 6 0 0

Shares buyback 0 0 0

Net borrowings 2,088 2,128 76

Other financing cash flow

Dividends paid (207) (154) (154)

Cash flow from financing activities 1,888 1,973 (79)

Cash and equivalents at beginning of period 388 401 470

Total cash generated 13 69 (84)

Cash and equivalents at the end of period 401 470 386

Balance sheet

(VNDbn) 12-19A 12-20E 12-21E

Cash and equivalents 401 470 386

Short term investments 249 249 249

Accounts receivables 1,716 1,793 1,840

Inventories 3,498 1,652 1,091

Other current assets 199 169 150

Total current assets 6,064 4,334 3,717

Fixed assets 7,599 11,447 11,911

Total investments 39 39 39

Other long-term assets 164 190 169

Total assets 13,866 16,011 15,836

Short-term debt 1,183 889 998

Accounts payable 710 802 596

Other current liabilities 3,982 2,416 1,503

Total current liabilities 5,876 4,106 3,097

Total long-term debt 4,637 7,059 7,026

Other liabilities 73 126 93

Share capital 1,187 1,543 1,543

Retained earnings reserve 1,096 1,975 2,718

Shareholders' equity 2,421 3,625 4,356

Minority interest 859 1,095 1,263

Total liabilities & equity 13,866 16,011 15,836

Key ratios

12-19A 12-20E 12-21E

Dupont

Net profit margin 21.5% 20.5% 20.0%

Asset turnover 0.35 0.34 0.28

ROAA 7.5% 6.9% 5.6%

Avg assets/avg equity 5.86 4.94 3.99

ROAE 43.8% 34.2% 22.5%

Efficiency

Days account receivable 144.2 130.4 150.0

Days inventory 507.7 206.7 171.5

Days creditor 103.1 100.3 93.7

Fixed asset turnover 0.77 0.53 0.38

ROIC 10.2% 8.2% 6.6%

Liquidity

Current ratio 1.0 1.1 1.2

Quick ratio 0.4 0.7 0.8

Cash ratio 0.1 0.2 0.2

Cash cycle 548.8 236.8 227.8

Growth rate (yoy)

Revenue growth 34.8% 15.9% (11.1%)

Operating profit growth 58.1% 22.2% 0.6%

Net profit growth 47.1% 11.0% (13.2%)

EPS growth 39.9% 11.0% (13.2%)

a

Small & Midcap Research


DISCLAIMER

This report has been written and distributed by Research Department, VNDIRECT Securities Corporation. The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. Unless otherwise stated, this report is based upon sources that VNDIRECT considers to be reliable. These sources may include but are not limited to data from the stock exchange or market where the subject security is listed, or, where appropriate, any other market. Information on the company(ies) are based on published statements, information disclosure and announcements of the company(ies), and information resulting from our research. VNDIRECT has no responsibility for the accuracy, adequacy or completeness of such information.

All estimates, projections, forecasts and expression of opinions contained in this report reflect the personal views and opinions of the analyst(s) responsible for the production of this report. These opinions may not represent the views and position of VNDIRECT and may change without notice.

This report has been prepared for information purposes only. The information and opinions in this report should not be considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments. VNDIRECT takes no responsibility for any consequences arising from using the content of this report in any form.

This report and all of its content belongs to VNDIRECT. No part of this report may be copied or reproduced in any form or redistributed in whole or in part, for any purpose without the prior written consent of VNDIRECT.

RECOMMENDATION FRAMEWORK

Stock Ratings Definition:

Add The stock’s total return is expected to reach 15% or higher over the next 12 months.

Hold The stock’s total return is expected to be between negative 10% and positive 15% over the next 12

months.

Reduce The stock’s total return is expected to fall below negative 10% over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and

the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12

months.

Sector Ratings Definition:

Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive

absolute recommendation.

Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute

recommendation.

Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative

absolute recommendation.

Hien Tran Khanh – Deputy Head of Research

Email: [email protected]

Tuan Nguyen Thanh – Associate Manager


Tran Ba Trung – Analyst


VNDIRECT Securities Corporation

1 Nguyen Thuong Hien Str – Hai Ba Trung Dist – Ha Noi

Tel: +84 2439724568


Website: https://vndirect.com.vn

mailto:[email protected]




https://vndirect.com.vn/

STANDING AMONG THE TOP LARGEST PROPERTY DEVELOPER IN

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