NOVALAND GROUP - HOLD

(NVL: HSX - Real Estate)

MINI NOTE July 17
Wednesday, January 14hth 2008
2018

NVL adjusts plan to increase the share count by 40%. Forward outlook calls for moderate
growth. Reiterate Hold.

Novaland (NVL Hold) has changed its plans to raise Stock Data as of January 17th 2018
debt and equity over the next few months. And now
Price (VND) 77,900
seeks approval for the revised plan.
Current listed shares 622,828,788

Novaland seeks shareholders’ approval through written Outstanding shares 642,828,788

documents to change the new issuance plan which was 52 Week high 78,000
approved by the shareholders in last AGM. Accordingly, 52 week low 57,800
NVL will change the timeline and number of new shares/ Price change (3 months) 23.5%
CBs being issued as follows;
Price change (6 months) 14.6%

1. Issue 216,297,895 bonus shares in 2018 at a ratio Price change (12 months) 32.5%
of 10:3.67 (shareholder with 1,000 shares will get Free float (share) 186,848,636
367 bonus shares) instead of Q4, 2017. Trading value (VNDmil)
293,590
(average last five trading days)
2. Issuing maximum 100 million preferred shares in Market Cap (VNDmil) 50,076,363
FY2018, instead of the plan to issue 23 million pre- Market Cap (US$mil) 2,207.0
ferred shares in the 2H of FY2017 as previously. Total room (no. of share) 308,532,806
The company estimates that they can raise VND
Current room (no. of share) 270,559,796
5,000 billion after this issuance. Which would lift
chartered capital to VND 7,297 billion (+15.9%). Foreign owned ratio (%) 6.1%
Foreign ownership limit (%) 49.0%
3. Issuing US$ 250 million worth of convertible bonds
or VND 5,675 billion in FY2018, instead of US$ 100
million in the 2H of FY2017 as previously planned. Quick conclusion. Reiterate Hold. We have a fair
value price of VND 61,079 using the combination
Furthermore, NVL will issue 9.81 million ESOP shares valuation methodology of both RNAV and P/E which
to employees in the second phase (or 1.51% of total values the company at FY2017 forward diluted P/E
OS). These shares will not be locked up. Recently, NVL of 20.8 xs. HSC keeps FY2017 NPATMI forecasts
issued 20 million ESOP shares in a first tranche to NVL calling for 32% y/y growth while for FY2018, HSC
and its subsidiaries’ employees, amounting to 3.176% forecasts NPATMI will grow 17% y/y. The slowing
of total outstanding shares. earnings growth reflects in part that fact that just
one project was launched in 2017 and we saw lower
In total then; NVL plans through various corporate ac- unit sales and contract values. This in turn reflected
tions to increase the share count by 40% to 869 million the tougher regulatory climate which hit Novaland
common shares. This will raise a total of VND 10,675 harder than most. However they seem to be moving
billion in both debt and equity. And raise chartered capi- past that. The various proposed corporate actions
tal by 57% to VND 975.7 billion. The proposed ESOP will lead to significant dilution however with part
would leave a total of 26.8 million unlocked shares in of this effect falling into FY2018. We don’t see too
employee hands. We note that the last 30 day average many catalysts for the time being in the stock and
daily trading volume came to 4.56 million shares. And would be fairly cautious for now.
this comes to 17% of that.

Head office Hanoi office Fiachra Aodh MacCana Nguyen Thi Yen
Level 5 & 6, AB Tower Level 2, Cornerstone building Managing Director - Head of Real Estate Sector Research
76 Le Lai, Dist. 1, HCMC 16 Phan Chu Trinh St., Hoan Kiem District Head of Research yen.nt@hsc.com.vn
T: (+84 28) 3823 3299 T: (+84 24) 3933 4693 fiachra.maccana@hsc.com.vn
F: (+84 28) 3823 3301 F: (+84 24) 3933 4822

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Please refer to the disclosures of potential conflict of interest and the disclaimer at the end of this report
 MINI NOTE July 17
Wednesday, January 14hth 2008
2018

NVL - Quarterly sales and profits Novaland has changed its plans to raise debt and eq-
uity over the next few months
8.000

7.000
Net sales Gross Profit
6.000
VNDbillions

5.000 Profit before tax NPATMI

4.000

3.000

2.000

1.000

0
Q3/2016

Q4/2016

Q1/2017

Q2/2017

Q3/2017
FY2013

FY2014

FY2015

Source: company financial statement

HSC guidance call for FY2017 NPATMI of 32% y/y • We estimate NVL sold 6,742 units (-16.8% y/y) in
growth - For FY2017, we forecast net sales of VND FY2017 with total estimated contracted sales of
11,569 billion (+57% y/y) and NPATMI of VND 2,201 bil- VND 20.4 trillion (+2% y/y).
lion (+32% y/y) given our following assumptions:
• We expect GPM will improve to 29.2% from 21.5%
• We assume the company will complete construction given a better product mix with a greater emphasis
and hand over to buyers a list of projects including on landed townhouses which normally carry higher
some key projects such as; margins (around 30-35%).

- Lucky Palace - 543 units with a total value of • The company will record a net financial income of
VND 1,063 billion. VND 219 billion (-84.5% y/y) due to lower financial
- Gardengate Residence - 420 units with a total gains from revaluation of investments in subsidiar-
value of VND 990 billion. ies plus higher interest expenses.
- Orchard Garden - 428 units with a total value of
VND 698 billion. • SG&A expenses will increase slightly to VND 813
- Rivergate - 362 units with a total value of VND billion (+0.8% y/y) on higher sales and the allocation
1,354 billion. of goodwill from acquiring subsidiaries.
- The Tresor - 405 units with a total value of VND
1,660 billion. As a result, we forecast an FY2017 NPATMI of VND
- Kingston - 150 units with a total value of VND 2,201 billion (+32% y/y), giving us a forward fully diluted
671 billion. EPS of VND 2,942 and at the current price, this stock is
- Lakeview City 620 units with a total value of trading at a forward fully diluted P/E of 26.5 xs.
VND 4,964 billion.
For FY2018, HSC forecasts NPATMI will grow 17%
Meanwhile, the company will delay the booking of 2 y/y - We forecast net sales of VND 18,849 billion (+63%
projects including; y/y) and an NPATMI of VND 2,570 billion (+17% y/y).
Then we have the following assumptions:
- The Botanica – 611 units with a total value of
VND 1,266 billion. • The company will continue to record revenue from
- Golden Mansion – 727 units with a total value of this year completed projects such as;
VND 2,351 billion.
- Rivergate – 993 units with a total value of VND
As the company need to complete some legal proce- 1,635 billion.
dures for booking even they have already handed over
apartments to the buyers in Q4, FY2017. - The Tresor – 311 units with a total value of VND
906 billion.
2

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 MINI NOTE
- Kingston Residence – 246 units with a total val-
ue of VND 984 billion.
- Lakeview City – 220 units with a total value of
VND 1,757 billion.
And then continue to finish construction and hand over
to the buyers a list of 8 projects including Golden Man-
sion, Sun Avenue, Sunrise Cityview, Wilton, Orchard
Parkview, Botanica Premier, Newton Residence and
Sunrise Riverside.
• Meanwhile, we forecast NVL will sell 7,182 units
(+7% y/y) in FY2018 with total pre-contract sales of
VND 23.5 trillion (+15% y/y).
• GPM will drop to 25.4% from 29.2%, giving us gross
profit of VND4,788 billion (+41% y/y).
• A net financial loss of (VND 365 billion) as we as-
sume lower of financial gains from revaluation of
investments in subsidiaries.
• We also estimate SG&A expenses will increased to
VND 889 billion (+9.3% y/y).
Therefore, we forecast FY2018 NPATMI of VND 2,570
billion (+17% y/y), giving us a forward fully diluted EPS
of VND 3,224 (+9.5% y/y) and at the current price, this
stock is trading at a forward fully diluted P/E of 24.2 xs.
Plan to launch 4 new projects in FY2018 versus just
1 in FY2017 – In FY2017, the company only launched
one project namely Victoria Village (phase 1) with 509
apartments and 20 landed houses given some ongo-
ing legal issues related to some of their projects. Hence
Novaland has become more careful in launching new
project as they now complete all of the legal procedure
before launching a project. Another factor has been the
excess inventory in the mid to high end of the HCMC
residential market since the 2H of FY2016 which has led
to several leading developers including Vingroup scal-
ing back new launches in the city this year.
Next year, the company plans to launch;
• The second phase of the Victoria Village project
(this project has a total of 1,209 units)
• Water Bay – for a total of 4,613 units.
• Project F – for a total of 2,165 units.
• Harbor City – for a total of 3,995 units.
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July 17
Wednesday, January 14hth 2008
2018
NVL builds for the midmarket in HCMC - NVL is the
quintessential mid to high market segment residential
developer in HCMC in areas just outside the CBD. In
contrast to Vingroup, a Novaland project is fairly cen-
trally located and thus they tend not to add-on many
ancillary facilities. This makes location a key consider-
ation as they need to tap into locally provided facilities.
Hence the types of locations chosen by the two tend to
be quite different. Over the past five years NVL has sold
a total of around 25,000 units making them the second
largest developer in the city after Vingroup. In the last
12 months, a total of 5 projects were investigated by
the authorities for various shortfalls although NVL has
confirmed that they have already paid all resulting finan-
cial obligations to the state. Furthermore, they sold their
stake in Sunrise Bay Da Nang, which was one of these
projects. And thus they appear ready to return to the
normal launch pattern for new projects in FY2018. HSC
forecast that over the next 2 years (FY2018-2019);
• Revenues will grow at a CAGR of 51.8%.
• Unit sold will grow at a CAGR of 10.3%.
• Pre contract sales will growth at a CAGR of 18.5%.
• Fully diluted EPS will grow at a CAGR of 27.9%
Investment thesis – Reiterate Hold. We have a fair
value price of VND 61,079 using the combination valu-
ation methodology of both RNAV and P/E which values
the company at FY2017 forward diluted P/E of 20.8 xs.
Hence at the current price, this stock is trading at a pre-
mium of 22% to our fair value. Only moderate earnings
growth expected this year given delays in launching new
projects last year as a result of ongoing regulatory and
legal issue. Although, the company expects to return to
normal pace of project launches this year. We forecast
FY2018 NPATMI growth of 17% y/y, leading to a forward
P/E of 24.2 xs. NVL rather lost its way last year partly
as rapid expansion in previous years led to an oversup-
ply of mid-high end product in the HCMC market. And
then of course some of their projects came under inves-
tigation for procedural shortfalls. However this inventory
backlog has cleared while the firm is working through its
regulatory issues. Even so we are lacking a compelling
reason to buy the stock for the time being.
Page 3
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July 14h 2008
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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 HANOI OFFICE

Level 5 & 6, AB Tower Level 2, Cornerstone Building
76 Le Lai, District 1, HCMC 16 Phan Chu Trinh, Hoan Kiem District
T : (+84 28) 3 823 3299 T : (+84 24) 3 933 4693
F : (+84 28) 3 823 3301 F : (+84 24) 3 933 4822

E: info@hsc.com.vn W: www.hsc.com.vn

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