What are the prospects for KBC?

In 2021, KBC recorded a gross profit of VND2,466 billion (258% YoY).

In 2021, KBC recorded a gross profit of VND2,466 billion (258% YoY) on revenue of VND4,309 billion (100% YoY), fulfilling 123.3% and 68.9% of the full-year plan, respectively. Positive results were attributable to the increase of 115.68 ha (94.21% YoY) in leased industrial land area.

At the 2022 Extraordinary General Meeting on February 10, 2022, KBC set targets for 2022F PAT at VND4,500 billion (471% YoY) and revenue at VND9,800 billion (237% YoY). From the BOD's perspective, 2022F earnings may grow well thanks to the acceleration of pending projects in 2021 and the 50-ha bulk sale of Trang Cat Urban Area. KBSV believes this is a relatively conservative plan when KBC has been selecting a contractor to level the first 50 ha in Trang Cat in 2Q22, which was granted the construction permit in 4Q21, reflecting the determination of the BOD in the bulk sale plan.

KBSV found two main reasons that may cause industrial park sales to fall short of KBC’s expectations: (1) complicated legal procedures leading to slow project implementation; and (2) decreasing FDI into Vietnam due to the unpredictable pandemic developments, which adversely affected KBC as 90% of its customers are foreigners. However, it assesses these two as low risks because: (1) its valuation only includes KBC’s approved projects with high compensation costs (Trang Cat, accounting for the largest proportion in the valuation, has paid off their compensation); (2) Vietnam will maintain competitive advantages in the next 10 years thanks to much lower labor costs at USD 252 vs. USD 968 per month in China and supply chain diversification; and (3) the pandemic will only have a short-term impact on FDI into Vietnam once the country achieves herd immunity in 2022.

Meanwhile, KBC has changed its plan from retail and bulk sale to bulk sale only and is looking for a contractor for ground leveling. The risk of construction and delivery delays may occur resulting from prolonged leveling progress under the impact of the pandemic. However, KBSV said this risk would appear low since Vietnam may achieve herd immunity this year. In addition, thanks to the approval and prime location, it is believed that Trang Cat will be handed over soon in 2022.

Furthermore, KBC has been actively working with authorities to get construction permits for new projects involving Nam Vung Tau Urban Area, Hai Duong industrial cluster, and Meridian Tower (900 ha) in Da Nang. Besides, KBC may also work with the Hai Phong City People's Committee to adjust the planning of the Trang Cat Urban Area from 582 ha to 900 ha due to sea encroachment. KBSV considers the approval of KBC’s new projects a positive signal and an upside risk to its forecast.

In addition, the recently announced private placement of 150 million shares may cause stock dilution to existing shareholders. However, KBSV is upbeat about this issue given the rising prices in all projects. Besides, to enhance its financial health for project implementation, KBC needs more financing from investors.

Based on the RNAV valuation method, KBSV recommends buying KBC shares with a target price of VND75,000/share, equivalent to an upside of 28.2% compared to the closing price of VND58,500/share on February 17, 2022. Due to the need for further information, KBSV's valuation for KBC does not cover the private placement of 150 million shares in 2022. Assuming an issue price of VND44,000/share, KBC may record a value of VND6,600 billion to supplement capital for new projects. Moreover, KBC plans to sell nearly 6 million treasury shares in 2022. KBSV‘s valuation for KBC covers newly approved projects that are the development orientation of KBC in the upcoming period, namely the Hung Yen industrial cluster. It also adjusted KBC's valuation on the potential bulk sale plan for the Trang Cat Urban Area.