KBC outlook: Leverage from landbank expansion

KBC’s 6M21 earnings reached VND1,572 billion (340% YoY) on revenue of VND2,752 billion (278% YoY)

KBC’s 6M21 earnings reached VND1,572 billion (340% YoY) on revenue of VND2,752 billion (278% YoY). The strong performance was attributable to the increase in the total area of leased industrial land (365% YoY to 80.7 ha). In terms of revenue structure, industrial park leasing still accounted for the main proportion with 75.7%, warehouse leasing 9.6%, urban area sales 8.6%, and other service fees 6.1%. Revenue from the industrial real estate segment has contributed an average of 72.7% to KBC's total revenue for the last five years.

1H21 gross profit margin was 57.1% (8% YoY) thanks to the sharp increase in industrial park rental prices. To be more specific, the rental prices climbed from USD90/m2 to USD108/m2 in Quang Chau and from USD110/m2 to USD135/m2 in Tan Phu Trung. The price increase in the two industrial parks, whose land was almost totally cleared, is the main reason for KBC’s high gross profit margin.

KB Securities estimated KBC's 2021 profit and revenue to reach VND1,308 billion (309%) and VND4,626 billion (115%) respectively. Strong forecast performance was based on a large area of land to be opened for lease and sale, including 137 ha of industrial land (45.7 ha in Quang Chau, 1.4 ha in Trang Due, 30 ha in Tan Phu Trung, and 60 ha in Nam Son Hap Linh) and 5.4 ha of the urban area (3 ha in Phuc Ninh and 2.4 ha in Trang Due). 

This stock company’s forecast is lower than KBC’s plan (VND2,000 billion in earnings on revenue of VND6,600 billion) mainly due to the lower forecast for Nam Son Hap Linh Industrial Park. Its reasons include: (1) the COVID pandemic slows down the progress of KBC's projects, especially Long An and Tan Phu Trung in the Southern region; and (2) 90% of KBC's customer base is from foreign enterprises, so even if the industrial parks come back into operation, the difficulty in accessing to these customers may lead to lower profit. 

KBC's 2022 earnings and revenue may reach VND5,089 billion (10%) and VND1,509 billion (15%). KB Securities’ projections are based on some factors.

First, the area of industrial land for lease is 122 ha, of which Tan Phu Trung is 40 ha and Nam Son Hap Linh is 80 ha. It expected Nam Son Hap Linh to have a high rental rate as KBC signed a MoU for 100 ha in this industrial park. 

Second, the Long An project may receive advances from customers from 2022, but its implementation is delayed as Long An Province is now in the pandemic epicenter (KBC has mobilized VND1,500 billion capital from bonds at the end of June). 

Third, the land for Trang Due project has not been cleared yet (its inventory value rose VND9.7 billion in 2Q21), so it is difficult to open the project for sale before one year of construction completion. 

Fourth, 9 ha of the urban area land should be sold, in which there is 6 ha in Phuc Ninh and 32 ha in Trang Due. KB Securities believed that Phuc Ninh phase 2 would not immediately be opened for sale in 2022 when phase 1 is still underway to hand over 7.9 ha of land that already received advances. However, KBC usually takes deposits a few years in advance, so it is expected that Phuc Ninh Urban Area can attract investors from 2022.

By using the RNAV method, KB Securities recommended buying KBC shares with a target price of VND50,000 per share, 20.5% higher than the closing price of VND 41,500 per share on September 27, 2021.