Better outlook for VRE

VRE’s 2Q22 revenue increased by 22.5% yoy, driven by 33% yoy growth in leasing revenue as the company has significantly reduced the support package.

Leasing revenue rebounded strongly

VRE’s 2Q22 revenue increased by 22.5% yoy, driven by 33% yoy growth in leasing revenue as the company has significantly reduced the support package. Property revenue decreased 92% yoy as only two shophouses were handed over. Gross margin increased 15.7% year on year to 57.4%. As a result, 2Q22 net financial income was VND16bn (vs. a net financial loss of VND32bn in 2Q21) as the bond balance has been gradually lowered from c.VND5,500bn at end-FY21 to c.VND3,000bn at end-2Q22.

As a result, 2Q22 net profit arrived at VND773bn (99.2% yoy), taking 1H22 earnings to VND1,150bn (-1.5% yoy), inline with 44.7% of our full-year forecast.

Mobility and service recovery

Based on VRE’s figures, footfall to VRE’s malls recovered from 8.5m–9.3m visitors in 1Q22 to 10.9m–12.7m in 2Q22, equivalent to 80% of pre-pandemic levels. Retail mobility from Google data also showed the same trend, as Vietnam's retail mobility is 6% higher than the pre-Covid level in August 2022.

As such, Mr. Phan Nhu Bach expects VRE to offer minimal additional tenant support packages since 2H22F to make leasing revenue increase 63.2% yoy/39.7% yoy in FY22/23F to VND7,671bn/VND10,717bn.

Strong shophouse pre-sales

With the recovery of tourism and service activities, VRE reported 218 shophouses have been booked in 2Q22 with a presale value of about VND1,200bn. In 2H22F, VRE is expected to record bookings of 500 shophouses with a total presale value of about VND3,200bn, which will secure the property revenue growth over FY23–25F. Therefore, Mr. Phan Nhu Bach forecasted VRE’s revenue from property delivery in 2023F by 35.1% compared to the previous forecast due to the robust presales.

Recommendation

Mr. Phan Nhu Bach increased the target price of VRE by 2.8% to VND38,800 on the back of increasing VNDirect’s forecast for FY22/23F net profit by 4.6% compared to the previous forecast. "Our DCF valuation is based on the assumption of WACC: 11.7% and a risk-free rate of 3%. Re-rating catalysts include 1) faster-than-expected mall openings and 2) a faster-than-expected retail recovery, resulting in strong leasing growth. Downside risks include 1) slower-than-expected mall openings, 2) lower-than-expected occupancy ratio and rental rate; and 3) growing market competitors such as Aeon, Central Retail’s malls", said Mr. Phan Nhu Bach.