What stocks to watch in the industrial property sector?

Some IP stocks could continue its uptrend in the coming months.

>> Four trends to shape the industrial property market

Kinh Bac City (KBC)

KBC is well-positioned to capture the growing demand for IP because (1) it has a sizable ready-to-lease industrial land bank, with more than 2,000ha of industrial land likely to be added in FY22-24F; and (2) it has several tech giants in its tenant portfolio, including Samsung Electronics Vietnam in Que Vo IP, LG Electronics in Trang Due IPs, Foxconn in Quang Chau IP, and the upcoming OPPO in NSHL IP.

In addition, KBC's residential property business' profit booking period could be since FY22F. KBC is currently completing legal procedures at the Trang Cat urban area project (581ha), which has a potential GDV of VND55,829bn (based on our estimate) and plans to sell 50ha in bulk in 2022F.KBC also plans to handover 6ha in the Phuc Ninh urban area in 4Q21-FY22F, contributing VND1,300bn-1,400bn in revenue. "We believe these projects should provide strong support for KBC’s long-term earnings growth. In our view, these projects should provide strong support for KBC’s long-term earnings growth. We expect KBC's net profit to reach VND7,323bn (591.5% yoy) / VND8,558bn (16.9% yoy) in FY22-23F", VNDirect said.

Potential upside risks for KBC could come from faster IP or residential land sales or from whether KBC can clear legal hurdles to start its new IPs. The following are the key downside risks: (1) lower-than-expected IP land sales; (2) regulatory delays in the Trang Cat project and Trang Due 3 IP; and (3) delays in booking revenue from residential projects.

Phuoc Hoa Rubber JSC (PHR)

PHR intends to convert more than 5,600ha of rubber land fund into IP in Binh Duong in order to capitalize on the growing demand for Vietnamese IP.About 2,600ha of four IPs might be put into operation in the next three years. PHR could receive the VND898bn payment of compensation and resettlement support for 691ha of VSIP 3 IP in FY22F, leading to a 161.1% yoy surge in FY22F net profit. According to VNDirect, PHR will deliver a net profit CAGR of 48.1% from FY23 to FY25F, driven by 1) an IP revenue CAGR of 85.7% and an associate income CAGR of 43.8%, fueled by the contribution of four new IPs, and 2) a revenue CAGR of 9.6% in natural rubber revenue on strong demand from the US and Chinese automotive markets.

Upside catalysts for PHR could come from whether PHR can clear legal hurdles to start its new IPs and receive the payment of land compensation sooner-than-expected. Downside risks include (1) a prolonged 4th COVID-19 outbreak, which could limit    sales and investment activities; (2) regulatory delays in IPs projects, which could lead to delays in operation and receiving land compensation; and (3) the risk of falling rubber prices due to oversupply and global inventories, which have thin profit margins.

>> Benefits of sale-leasebacks in Vietnam industrial marketing

Sonadezi Chau Duc JSC (SZC)

For IP business, SZC is well-positioned to capture the growing demand for industrial property in the South thanks to three things: (1) a sizeable land bank (c.600ha) and competitive rental prices among listed peers in Vietnam; (2) attracting a diversified manufacturer profile in a favorable location near ports, airports and other IPs in Ba Ria-Vung Tau (BRVT); and 3) Dong Nai People's Committee has issued the deadline for businesses at Bien Hoa 1 IP (developed by Sonadezi Corporation) to move out of production by end-2022. VNDirect believes Sonadezi Chau Duc IP should be one of the IPs that benefits the most with attractive rental prices and strong support from its parent company.

Besides, SZC’s residential property business is ripe for the picking in FY22-24F with its first phase, Sonadezi Huu Phuoc (40.5ha), launched in 2H21. In addition, SZC has completed a feasibility study at the Chau Duc urban area project with an estimated GDV of c.VND14,500bn after a ten-year delay, VNDirect believes the company will step up the legal procedures at this project to enjoy the residential price uptrend at BR-VT.

Upside catalysts for SZC are (1) better-than-expected IP and residential land sales; and (2) faster land clearance, which will speed up project implementation. The downside risks are (1) a prolonged 4th COVID-19 outbreak, which could restrict sales and investment activities; and (2) delays in residential and golf course launches.