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Novaland Investment Group Corp.

Real estate industry Ticker: NVL Reuters: NVL.HM Bloomberg: NVL VN

Update report
No longer attractive market price if compared to target price
April 2017

Novaland – big real estate developer in Ho Chi Minh City. The company has
Recommendation NEUTRAL confirmed its position as leading developer in Ho Chi Minh market when offering

Target price (VND) 64,577 nearly 30 projects to the market. Novaland’s apartment sales volume accounts
for about 30% of total volume of Ho Chi Minh market, a vibrant, competitive and
Market price (11/4/2017) 70,700
potential market. Outpacing other rivals, Novaland and Vingroup has been
Expected profit -8.6% ranked as 2 biggest real estate developers in Ho Chi Minh market in terms of
project scale and transaction volume.

SHARES INFORMATION List of large-scale projects at key areas. The company has accumulated large
Trading exchange HSX land bank of 500ha for execution of 12 projects, equal to about 5 million m2 of
52-week price range 57,800-75,500 floor area. These projects have been developed with diversified scales towards
Market cap 41,668 Bil VND most developed areas of this city including central area, District 2, District 7 and
Outstanding shares 589,369,234 Nha Be District. These projects will ensure products for selling until 2020.
10-day average volume 503,236
Portfolio of under-execution projects can ensure 2017 and 2018’s revenue.
% foreign owned 11.7%
Foreign room 49%
Sales results in 2015 and 2016 will soon be reflected into its revenue and profit

Dividend per share 2,000 in 2017 and 2018. Thanks to selling nearly 15,000 apartments and town houses,
Dividend yield 2.8% Novaland’s net profit in 2017 and 2018 are projected at VND3,144 billion and
Beta Na VND5,082 billion, respectively. In our opinion, in 2017, its revenue is estimated
at VND17,985 billion with gross profit margin to grow from 23% (2016) to 30.8%
PRICE MOVEMENTS thanks to recognition of high profit margin projects such as Lakeview, The
VND/Share Share Tresor and RiverGate, etc. Accordingly, net profit attributable to shareholders of
80,000 8,000,000 parent company for 2017 is projected at VND2,864 billion, equivalent to diluted
60,000 6,000,000 EPS of VND4,616/share.

40,000 4,000,000 Despite positive growth in operating results, its market price is no longer
20,000 2,000,000 attractive compared to target price. We have evaluated Novaland share price
by using NAV and PE method. By combing 2 valuation methods with proportions
- -
12/28/2016 03/16/2017 of 50% and 50%, we have calculated the target price for Novaland share at
VND64,577/share, lower than current market price by 8.6%.

Assessment
YTD 1M 3M 6M

NVL 19,8% -2,8% 19,2% Na Despite our appreciation of its position and potentials in the industry, we still hold
VN-Index 8,8% 3,0% 7,1% 6,5% neutral viewpoint on Novaland share. The company has built its prestige to be
listed among big real estate developers in Ho Chi Minh market. Given
impressive sales volume in 2015 and 2016, its revenue and profit are expected
Analyst to have robust growth in 2017 and 2018. Besides, the company has also
Nguyen Chi Hong Ngoc accumulated large land bank up to 4.8 million m2 of floor area for its operating
plans during 2017 - 2022.
(84 8) 3914 6888 ext 252
nguyenchihongngoc@baoviet.com.vn
However, after a favorable period during 2014 – 2016, real estate trading will
likely encounter more challenges and competitions since 2017 due to surplus
supply in mid- and high-end segment from new and nearly-completed projects.
Moreover, when Circular 06 goes into effect, real estate bank loans will be put
under stricter control, forcing real estate companies such as Novaland to
mobilize capital via bond and share issuance. These channels, however, require
for higher cost of capital compared to bank loans. Moreover, investors should
also pay attention to dilution pressure on Novaland share due to conversion of
bond and preferred stocks, with maximum dilution rate of 10%, equivalent to
59.6 million shares.

Based on NAV and PE valuation method, we have calculated target price for
Novaland at VND64,577/share, lower than current market price by 8.6%. In
which, valuation result calculated by NAV method has taken into account
projects that have been announced but not recorded in its financial report. In
terms of fundamental analysis, we think Novaland share is unattractive when its
market price has climbed higher than target price. Therefore, after considering
valuation results as well as above analysis information, we rate NEUTRAL on
Novaland share.

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NVL Update report

Updates on 2016’s operating results


The year 2016 witnessed excessive growth of 20% in sales volume but only 10% be recorded

The year 2016 recorded great success of Novaland’s operating activities with 8,000 products to be
sold, up 20% yoy, equal to total contract value of VND20,000 billion. As for operating results, 2016’s
revenue grew slightly by 10% yoy mostly thanks to contributions of projects sold in 2013 and 2014
such as Tropic Garden, Lexington and Sunrise City, etc, not including super sales results in 2015
and 2016.

Operating results during 2013 - 2016


(bil VND) Apartment sales volume (unit)
10,000
8,000
8,000
8,000
6,000 6,686

6,000

4,000
4,000 3,337

2,000 2,000
1,050
140 250
- 0
2013 2014 2015 2016 2011 2012 2013 2014 2015 2016
Revenue Gross profit Net profit

Source: NVL

Real estate gross profit margin still stayed at 23.1%. More notably, financial income reached
VND2,525 billion, increasing by VND2,200 billion yoy, thanks to receiving VND2,054 billion from
transferring stake in Saigon Melinh project and revaluation its investment into 21st Century
International Development JSC, Nha Rong and Mega; VND 146 billion of loan interest and other
deposit interest and income. Its financial expenses also increase by VND703 billion yoy to reach
quite high level of VND1,143 billion. In which, interest expenses rose from VND351 billion to
VND863 billion due to increase and non-capitalization of loans for share purchasing. Accordingly,
gross financial income from operations reached VND1,382 billion, versus VND(105) billion in 2015.
Its selling expenses were steady and accounted for 2% of real estate revenue. Meanwhile, general
and administrative expenses surged strongly by 80% from VND359 billion to VND647 billion, mostly
due to its expansion of trading floor system and personnel development from selling staff to office
staff. Net profit attributable to shareholders of parent company amounted to VND1,661 billion,
equivalent to EPS of VND2,787/share.

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NVL Update report

Revenue plan will gain robust growth of 157% and 38% in


2017 and 2018
Sales results in 2015 and 2016 will soon be reflected into its revenue and profit in 2017 and 2018.
Thanks to selling nearly 15,000 apartments and town houses, revenue growths for 2017 and 2018
are projected at 157% and 38%. Novaland’s net profit in 2017 and 2018 are projected at VND3,144
billion and VND5,082 billion, respectively. In our opinion, in 2017, its revenue is estimated at
VND17,985 billion with gross profit margin to grow from 23% (2016) to 30.8% thanks to recognition
of high profit margin project such as Lakeview, The Tresor and RiverGate, etc. Accordingly, net
profit attributable to shareholders of parent company for 2017 is projected at VND2,864 billion,
equivalent to diluted EPS of VND4,616/share.

Item 2016A 2017F 2018P

Revenue (bil VND) 7,359 17,985 24,129

% growth 144% 34%

NPAT (bil VND) 1,661 2,864 5,082

% growth 72% 77%

EPS 2,787 4,616 7,588

Some assumptions and estimations:

2017’s revenue and gross profit recorded by projects

2% 2% 0.9% 0.8% 0.3%


4% 0.9% 0.2%

1.1% 1.0%
8%
32%
5%
4.6% 15.0%
5%

12% 5.2%
14%
16% 6.6%

Lakeview The Tresor Lakeview The Tresor

RiverGate Others RiverGate Others


Golden Maison The Botanica
Golden Maison The Botanica
Lucky Palace Gardengate
Lucky Palace Gardengate
Lucky Dragon Golf Park
Lucky Dragon Golf Park Orchard Garden

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NVL Update report

Item (million VND) 2016A 2017F Assumption

- Real estate trading revenue: VND17,100 billion, up


157% yoy. Big projects for recognition include
Lakeview, The Tresor, RiverGate, Golden Maison,
Revenue 7,359 17,985 Lucky Palace, GardenGate and Orchard Garden.
These projects have nearly sold 50% of its
apartments.
- Service revenue: up 20%.

Cost of goods sold 5,755 12,620

- Real estate gross profit margin will increase from


Gross profit 1,604 5,365 23.1% to 30.8%
- Service gross margin: 10%

- BVSC has received no information about its plan


for project transfer in 2017. Therefore, its financial
Financial income 2,525 670
income will mostly come from deposit interest, loan
interest and other incomes.

- Total loan balance by 2017 is projected at


Financial expenses 1,143 1,189 VND16,800 billion with uncapitalized interest
expense of VND909 billion.

Selling expenses 163 342 - Accounting for 2% of real estate revenue

General and - General and administrative expenses surged


administrative 647 712 strongly by 80% in 2016 and will be under control in
expenses 2017 with modest growth of 10%.

Assessment about 2018’s operating plan: In our opinion, the company can fulfill its revenue
target of VND24,129 billion if its key projects namely Habour City, Kingston Residence, The Sun
Avenue, Sunrise City View and Sunrise Riverside can be completed for delivery. These projects are
expected to contribute revenue of VND15,100 billion, about 62% of FY target, leaving the remained
revenue for projects delivered in 2017 such as Lakeview, The Tresor and Golden Maison, etc.

2018
Project
Revenue Gross profit

The Sun Avenue 2,153 566

Sunrise City View 1,547 401

Sunrise Riverside 1,900 661

Kingston Residence 1,691 401

Harbor City 8,010 2,909

Other projects 8,861 2,737

Total 24,162 7,675

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NVL Update report

In our opinion, the company has set quite high construction profit for 2018 if compared to revenue.
Gross profit margin for 2018 is projected at 21%, compared to the margin 16% we expect for 2017
or the margin 18% set by Novaland. Meanwhile, real estate gross profit margin for 2018 will likely be
recorded at 31.2%, only increasing slightly compared to the margin 30.8 for 2017. Therefore,
investors should pay attention to the target plan Novaland sets for 2018. Currently, we have not
estimated its 2018’s operating results but still follows trading progress of its key project namely
Harbor City, as well as construction progress of projects for delivery in 2018 such as Sun Avenue
and Sunrise Riverside.

Besides positive operating results, there are some other


highlights for attention.
Huge capital demand required for project execution. As per portfolio of to-be-executed projects,
total land expenses are estimated at VND20,000 billion, accounting for 55% of its current total
assets. However, because its audited financial statements for 2016 did not included details of
inventories, we have no information about the actual disbursement Novaland has made.
Nevertheless, we think the company still has high capital demand for increasing projects’
ownerships. Therefore, it’s highly capable that the company will keep mobilizing capital via share
issuance or using loans (bank loans or issuing corporate bonds). This is one main highlight that
investors should pay attention to.

No Project Ownership Position Area (m2)

1 Project A 99.9% District 1 2,750

2 Project B 99.9% District 10 5,722

3 Project C 99.9% District 2 1,782,900

4 Project D 99.9% District 12 91,121

5 Project E 99.9% District 4 13,814

6 Project F 99.9% District 2 50,000

7 Project G 99.9% District 3 3,214

8 Project H 99.9% District 2 97,055

9 Project I 99.9% District 2 830,308

10 Project K 99.9% District 1 14,022

11 Project L 99.9% Tan Binh District 5,047

Dilution pressure from convertible bonds. According to its financial statement as at 31/12/2016,
the company has 2 convertible bond loans worth (1) 60 million USD, equivalent to 33,457,190
shares which can be converted right after being listed (2) 30 million USD, equivalent to 15,723,352
shares which can be converted since October 2017. Total converted share volume will at most
amount to 49.18 million shares with average price at VND40,000 – 42,000/share. Moreover, its

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NVL Update report

current capital structure has 6.8 million of preferred shares under EVN’s ownership which can be
converted into 20.4 million shares. Accordingly, given total expected share volume, Novaland shares
will be diluted at most by 10%.

Sales operations of Novaland will be challenging in apartment segment but promising in


townhouse and villa projects. As per its plan for 2016 – 2020, the group will develop mid- and high-
end apartment projects at center locations and townhouse villas and resort real estates. Real estate
market will probably endure severe competition in 2017, especially in mid- and high-end segment.
About its to-be-executed projects, these projects will be constructed at District 3, 4, 5 and 11 with total
apartment volume of 4,400 units and at District 2 with nearly 9,000 units. Despite good positions of
these projects, we still think Novaland will encounter more challenges in project trading in 2017.

Market overview for 2017


Market highlight in 2017 will come from low-end projects of big real estate developers.
Vingroup has officially joined mid and low-end segment in 2017 with Vincity brand. Thanks to
Vingroup’s prestige, Vincity project has attracted great attentions from customers, especially in Ho
Chi Minh market with high stabilization demand. The group is planning to execute projects at District
9, Ho Chi Minh (3.5 million m2 of ground floor area) and Dai Mo, Ha Noi (7.5 million m2 of ground
floor area). Besides Vingroup, other developers such as Nam Long, Viglacera, Himlam and Muong
Thanh also have plans for execution of low-end projects in 2017.

Mid- and high-end segment are under pressure from new and to-be-delivered projects.
Primary supply has no decelerating signal when big investors such as Novaland (with plan for selling
8,000 units), Saigon port (over 3,000 unit), Phu My Hung (2,100 units of Midtown Residence) and
Dat Xanh (with plans for offering 7,000 units), Nam Long, HungThinh, etc, keep sending their
projects to the market. Besides primary supply, secondary supply is also quite surplus with
Vinhomes Central Park, Novaland projects at District 4, Tan Binh, Phu Nhuan District and along
Nguyen Huu Tho streets namely Dragon Hill and Park Residence, etc to be delivered in 2017. As
estimated, total secondary apartments for sales in mid- and high-end segment of HCM is expected
at 18,000 unit in 2017, equal to 75% of apartment trading volume of 2016. Therefore, pressure from
secondary supply on real estate market is a notable element in 2017.

50,000

40,000

30,000

20,000

10,000

-
Affordable Mid-End High-End Primary Supply 2017

Traded Unit 2016 Secondary supply 2017 Primary supply 2017

(Source: CBRE, compiled by BVSC)

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NVL Update report

Terraced houses and villas keep receiving market’s attentions. We have paid special attention
to the shift in investors’ cash flows to townhouse segment in 2016. The year 2016 is a successful
year for townhouse and villa segment when these products with beautiful design, full facility and
limited supply attracted great market capital inflows. Some outstanding projects were Lakeview,
Palm Residence, Lavila, Fuji Residence, Venica and Senturia Vuon Lai, etc. In our opinion,
townhouse ownership demand will remain high in 2017. Some projects to be offered in 2017 are the
large scale project of Vingroup in District 9, Merita project of Khang Dien and Tien Phuoc’s project at
Nam Rach Chiec, etc. However, townhouse supply is still insufficient to satisfy demand. Specifically,
Merita project of Khang Dien with 131 townhouses being offered at VND3.6 – 5.6 billion/unit has
sold out at offering date. Accordingly, we think townhouse projects will continue to have a successful
sales year in 2017.

Market price is no longer attractive compared to target price


We have evaluated Novaland share price by using NAV and PE comparison method. By combing 2
valuation methods with proportions of 50% and 50%, we have calculated the target price for
Novaland share at VND64,577/share, lower than current market price by 8.2%.

NAV valuation

Novaland’s projects being included in our valuation are under-execution and to-be-executed ones.
As for to-be-executed projects, due to limited information about total investments, land expenses,
actual disbursed expenses, we have used valuation results of Savills for each project. On prudent
perspective, we have discounted NPVs of to-be-executed projects by 20%. For under execution
projects, we have estimated remained value of each project according to trading progress by
31/12/2016. Average discount rate will be equal to WACC and equal to 10.79%.

VALUATION (Unit: million VND) VALUE

Added value from project valuation (*) 29,276,541

+ Total assets 36,292,495

- Total gross loans 26,349,803

Market value of equity 39,219,233

Outstanding share volume 620,530,000

Share price 63,733

(*) Details in attached appendix.

Valuation by PE comparison method

BVSC have used PE ratios of real estate companies with main operations in Ho Chi Minh market for
calculating the fair PE for Novaland in 2017. The weighted average PE ratio is 14.2x.

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NVL Update report

Charter capital
Company Share price PE2017
(bil VND)

DXG 18,350 2,530 7.7

KDH 23,100 2,340 9.0

PDR 14,000 2,018 11.7

NLG 25,100 1,421 6.5

HDG 30,000 760 9.3

Capital Land 47,000 67,795 14.2

Gamuda Berha 24,500 12,323 17.3

- Weighted average PE ratio 14.2

- PE-based valuation results 65,420

Assessment
Despite our appreciation of its position and potentials in the industry, we still hold neutral viewpoint on
Novaland share. The company has built its prestige and been listed among big real estate developers
in Ho Chi Minh market. Given impressive sales volume in 2015 and 2016, its revenue and profit are
expected to have robust growth in 2017 and 2018. Besides, the company has also accumulated large
land bank up to 4.8 million m2 of floor area for its operating plans during 2017 to 2022.

However, after a favorable period during 2014 – 2016, real estate trading will likely encounter more
challenges and competitions since 2017 due to surplus supply in mid and high-end segment from
new and nearly-completed projects. Moreover, when Circular 06 goes into effect, real estate bank
loans will be put under stricter control, forcing real estate companies such as Novaland to mobilize
capital via bond and share issuance. These channels require for higher cost of capital compared to
bank loans. Moreover, investors should also pay attention to dilution pressure on Novaland share
due to conversion of bond and preferred stocks, with maximum dilution rate of 10%, equivalent to
59.6 million shares.

Based on NAV and PE valuation method, we have calculated target price for Novaland at
VND64,577/share, lower than current market price by 8.6%. In which, valuation result calculated by
NAV method has taken into account projects that have been announced but not recorded in its
financial report. In terms of fundamental analysis, we think Novaland share is unattractive when its
market price has climbed higher than target price. Therefore, after considering valuation results as
well as above analysis information, we rate NEUTRAL on Novaland share.

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NVL Update report

Appendix of projects’ valuation results

No Project Ownership Area (m2) Valuation (million VND)

Under execution
1 River Gate 99.7% 7,069 524,199
2 Saigon Royal 99.9% 6,669 800,717
3 The Tresor 99.9% 6,202 870,960
4 Lakeview 98.9% 301,060 1,876,896
5 The Sun Avenue 99.9% 38,385 995,300
6 Lucky Dragon 100% 9,024 88,849
7 Golf Park 69.9% 25,398 19,666
8 Wilton Tower 99.9% 7,169 248,588
9 Lucky Palace 99.9% 3,876 64,821
10 Sunrise City View 99.9% 15,152 527,069
11 Sunrise Riverside 99.9% 39,305 1,228,472
12 GardenGate 94% 4,887 114,852
13 Golden Maison 74% 15,129 174,822
14 Kingston Residence 99.9% 4,580 228,132
15 Orchard Garden 100% 4,303 (1,845)
16 Orchard Parkview 74.% 9,184 139,024
17 Newton Residence 99.9% 2,807 54,064
18 Botanica Primier 100% 17,237 270,247
19 The Botanica 100% 9,028 123,807
20 Richstar 100.% 29,826 188,285
21 Harbor City 85% 500,475 1,254,367
To-be-executed
1 Palm Marina - GD1 78.4% 1,580,000 890,820
2 Waterbay 98.9% 302,240 2,763,956
3 Project A 99.9% 2,750 334,915
4 Project B 99.9% 5,722 427,073
5 Project C 99.9% 1,782,900 8,121,121
6 Project D 99.9% 91,121 328,172
7 Project E 99.9% 13,814 786,713
8 Project F 99.9% 50,000 1,622,876
9 Project G 99.9% 3,211 418,082
10 Project I 99.9% 830,308 6,271,223
11 Project K 99.9% 14,002 2,153,345
12 Project L 99.9% 5,047 649,600

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NVL Update report

FINANCIAL RATIOS
Profit and loss statement
Unit (VND billion) 2013 2014 2015 2016
Revenues 1,600 2,802 6,673 7,359
Cost of goods sold (1,280) (2,326) (5,334) (5,776)
Gross profit 321 475 1,340 1,583
Financial income 22 60 335 2,523
Financial expenses (218) (188) (440) (1,115)
Net income 7 94 415 1,665

Balance sheet
Unit (VND billion) 2013 2014 2015 2016
Cash and cash equivalents 249 2,779 3,860 3,337
Accounts receivable – short-term 221 621 421 333
Inventories 5,837 8,151 7,159 15,790
Tangible fixed assets 15 34 60 120
Long-term investments 63 21 1,582 375
Total assets 8,828 16,094 26,570 36,527
Short-term loans 4,924 9,906 13,355 15,011
Long-term debt 2,465 2,825 7,121 11,469
Owners’ equity 879 3,362 6,095 10,047
Total resources 8,828 16,094 26,570 36,527

Financial ratios
Items 2013 2014 2015 2016
Growth
Revenue growth (%) Na 75.1% 138.2% 10.3%
Net profit growth (%) Na 1184.8% 343.4% 300.8%
Yield
Gross profit margin (%) 20.0% 17.0% 20.1% 21.5%
Net profit margin (%) 0.5% 3.3% 6.2% 22.6%
ROA (%) 0.1% 0.8% 1.9% 5.3%
ROE (%) 0.8% 4.4% 8.8% 20.6%
Capital structure
Total liabilities to total asset (%) 84% 79% 77% 72%
Total liabilities to owners’ equity (%) 841% 379% 336% 264%
Per shares
EPS (VND/share) 61 407 1,128 2,793
Book value (VND/share) 7,321 14,619 16,550 16,852

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NVL Update report

DISCLAIMER

I, Nguyen Chi Hong Ngoc, hereby declare that this report is written with my honesty and without any personal motivation. All
information contained in this report has been collected from reliable sources and carefully verified. However, I cannot guarantee the
completeness or the accuracy of the information above. All the views and comments in this report are my personal opinion only and do
not intend to advise readers to buy, sell any securities. This report is for the purpose of providing information and investors should use
the report as a source of reference only. I and BaoViet Securities Company will take no responsibility towards investors as well as the
companies referred to in this report for possible losses of investment or false information concerning the companies.

The report is a property of BVSC and under copyright protection. Infringement of copy, change and reprint of the report witho ut
permission of BVSC is illegal. BVSC owns the copyright on the report.

CONTACTS

Research & Investment Advisory Department, BAOVIET Securities Joint Stock Company

Equity Research Macro & Market Research

Luong Luu Phuong Le Binh Nguyen


Deputy Head of Research Deputy Head of Research Deputy Head of Research
luuvanluong@baoviet.com.vn ledangphuong@baoviet.com.vn nguyenxuanbinh@baoviet.com.vn

Ha Nguyen Yen Nguyen Thang Bach


Banking, Insurance Consumer goods Chief economist
nguyenthuha@baoviet.com.vn nguyenthihaiyenB@baoviet.com.vn bachngocthang@baoviet.com.vn

Trang Che Ngoc Nguyen Yen Tran


Fertilizer, Steel, Electricity Real Estate Economist
chethimaitrang@baoviet.com.vn nguyenchihongngoc@baoviet.com.vn tranhaiyen@baoviet.com.vn

Trang Phan Phu Truong Anh Tran


Natural Rubber, Sugar, Oil & Gas Automobiles & Parts, Clothing & Accessories Market strategist
phanthuytrang@baoviet.com.vn truongsyphu@baoviet.com.vn tranducanh@baoviet.com.vn

Dung Nguyen Hang Ha Bach Tran


Information Technology Pharmaceutical Technical Analyst
nguyentiendung@baoviet.com.vn hathithuhang@baoviet.com.vn tranxuanbach@baoviet.com.vn

Hao Thai
Water, Infrastructure
thaianhhao@baoviet.com.vn

13
BaoViet Securities Joint Stock Company

Hanoi Headquarter: Ho Chi Minh Branch:

 No 8 Le Thai To, Hoan Kiem, Hanoi  8 Floor, No 233 Dong Khoi, Dist 1, HCM city

 Tel: (84 4) 3 928 8080  Tel: (84 8) 3 914 6888