Which real estate stocks will continue uptrend?

In VNDirect’s view, the property developers that meet the following key criteria will attract more and more investors. First, they are about to launch projects for which they already have construction licenses or land use right (LUR) certificates, or have a high likelihood of securing the license/certificate in 2021F. Second, with material exposure to the mid-range and affordable condo segments as these segments are driven by real end-user demand. Third, they are buffered by a healthy financial position (low leverage, strong liquidity) to counter the risk of tightening credit for the real estate market as discussed above. Based on the above criteria, VNDirect said, Vinhomes (VHM), Nam Long (NLG), and Khang Dien (KDH), are its top picks.

In 2Q21, condo prices at NLG’s projects increased the most at 3.7% qoq on average while rental yield at VHM’s projects reached at 4.7%, higher than the yield of 3.4-4.1% seen in projects of NVL, KDH and NLG

VHM’s total land bank, including land under acquisition, was 16,400ha as of Mar 2021, about 3.3 times higher than that of the second-ranked company – Novaland, which translates to 16,400ha of residential GFA. This highlights its strong land acquisition and master planning capability. As at end-2021, 92% of its total land bank had not been deployed yet, showing the huge potential of the VHM in the future. This stock company expects VHM’s estimate gross development value of VND1,118tr (US$48.2bn) up to FY25F. VHM sets a target of VND91tr in presales value (44.9% yoy) and 37,000 units in presales volume (34.2% yoy) for FY21F with the noticeable launches of three new projects including Vinhomes Co Loa, Vinhomes Dream City and Vinhomes Wonder Park.

Vinhomes Central Park Tan Cang Project

Meanwhile KDH is preferred by VNDirect for its scale, financial capacity, huge ready-to-use land bank (578ha for residential and 110ha for industrial park as of end-May 2021) amid the shrinkage on new supply in HCMC and legal transparency. These factors position KDH well to capture real demand for residential property and stable earnings prospects. This stock company projects KDH’s presales value to bounce back in FY21-22F with three new project launches namely Clarita (5.7ha), Armena (4.3ha) in Thu Duc City and 158 An Duong Vuong (1.8ha), which has a potential GDV of VND12,342bn.

The upside risks in the short term could come from higher-than-expected average selling prices for KDH’s three new projects; VNDirect’s mid- to long-term investment thesis is dependent on whether KDH can clear legal hurdles to start its Tan Tao project. While downside risks are delays in obtaining permits for new launches and continuous upward trend in construction material prices.

As for NLG, this company has a sizeable land bank of 681ha as of end-1Q21. Most projects are located at HCMC’s neighbouring provinces namely Dong Nai, Long An, Can Tho which are drawing investors’ attention thanks to infrastructure development, and NLG’s high exposure to the mid-range and affordable condo segments as these segments are driven by real end-user demand.

Given its six potential project launches in FY21F, VNDirect projects VND12,746bn in FY21F presales value, the highest-ever level. Re-rating catalysts are higher-than-expected selling prices of Izumi City and Can Tho 43ha projects. Key downside risks will come from regulatory delays, higher mortgage rates as these may dent NLG's mid-range condo presales, and continuous upward trend in construction material prices.