NOVALAND GROUP - OUTPERFORM (NVL: HSX - Real Estate)

Transcription

1 Listing highlights Listed firm: Novaland Group Address: 313B-315 Nam Ky Khoi Nghia, District 3, HCMC Chartered capital: VND5,961,992,340,000 Bourse: Hochiminh Stock Exchange Ticker: NVL Number of listed shares: 589,369,234 Date of listing: December 28, 2016 Reference price: VND50,000 Current price: VND60,100 Market capitalization: VND35,421 billion Key data Current price (VND per share) 60,100 Fair price (VND per share) 63,866 Upside 6.3% Market cap (VNDbillion) 35,421 Market cap (US$billion) 1.57 Enterprise value (VNDbillion) 41,213 Enterprise value (US$billion) 1.83 Main Ratios FY2016F FY2017F Liquidity - Current ratio Quick ratio Profitability - Gross margin 20.6% 28.1% - Net margin 22.5% 17.0% - ROE 20.2% 25.9% - ROA 4.9% 6.5% Operating Efficiency - Receivable turnover Inventory turnover Asset turnover Earnings model NOVALAND GROUP - OUTPERFORM (NVL: HSX - Real Estate) Unit: VNDmillion FY2013 FY2014 FY2015 FY2016F FY2017F FY2018F Net sales 1,600,398 2,801,811 6,673,435 7,463,825 17,769,816 25,148,800 y/y% 75.1% 138.2% 11.8% 138.1% 41.5% Gross profit 320, ,371 1,339,863 1,538,442 5,007,744 6,496,350 y/y% 48.3% 181.9% 14.8% 225.5% 29.7% EBITDA 220, , , ,173 4,251,029 5,311,866 y/y% 17.1% 220.8% 6.7% 380.2% 25.0% NPAT 7,559 96, ,760 1,684,816 3,034,320 4,032,710 y/y% % 359.3% 281.4% 80.1% 32.9% NPATMI 7,292 93, ,423 1,642,355 2,952,865 3,818,256 y/y% % 343.4% 295.3% 79.8% 29.3% EPS (VND) ,374 3,446 4,741 6,130 y/y% 895.9% 75.9% 150.8% 37.6% 29.3% P/E EV/EBITDA P/B Source: NVL; (F): HSC forecast We initiate coverage of Novaland Group with an Outperform rating and a fair value of VND63,866, equivalent to a FY2017 P/E of 13.5xs. A leading real estate developer focused on middle to high-end segment with a market share of 24.5% in HCMC and 15.1% nationwide. Aggressively acquired land bank through M&A activity. Now possesses a cleared land bank of 615 ha with over 40 projects in the pipeline. HSC forecasts sales CAGR of 83.6% and NPATMI CAGR of 52.5% over the next two years thanks to strong pre-sales. We see margin gains through construction cost savings and an improved product mix as they move into lower rise townhouses & villas. We view Novaland as an alternative investment to VIC in the property sector given its dominance of middle to high-end segment, a large land bank in HCMC and proven execution capability. Head of Real Estate Sector Research Nguyen Thi Yen yen.nt@hsc.com.vn 1

2 Investment Conclusion We initiate coverage of Novaland Group (Ticker: NVL HSX) with an OUTPERFORM rating. We value the company at a fair value price of VND63,866 per share based on a blended methodology using both RNAV and P/E. In our earnings model, we forecast net sales CAGR of 83.6% and an NPATMI CAGR of 52.5% over FY And note that their earnings from now until 2018 are largely assured given strong pre-sales. Novaland Group (NVL) is a privately owned real estate company based in HCMC and focused on the mid to high-end residential housing segment. Their products; mostly apartment units aimed at the middle classes carry a selling price ranging from US$1,200 to US$2,500 per square meter. Typically an NVL project has 500-3,000 units which is an optimal size giving a faster payback timeline and a lower capital requirement. NVL is one of the few property developers to possess a large land bank in HCMC totaling nearly 615 ha in prime locations. To date, NVL has launched 28 projects selling more than 26,000 apartments and 2.8 million sqm of GFA. They plan to launch 5 projects in 2017 with a total GFA of 2.1 million sqm. Then they have 11 other projects in the pipeline, equivalent to a land bank of 290 ha. Which will sustain for at least 5 years without the need to acquire new land. Over the past three years, NVL has built up their land bank through many M&A transactions and have also accelerated development thus putting some strain on their balance sheet. However, the company has successfully raised fund from banks and some financial institutions to enable them to continue developing and selling their projects. Furthermore, they also enjoyed a recovery of the property market to help them raise capital from customers through pre-sales. Our valuation model values the company at a fair value of VND63,866 based on a combination of both RNAV & forward P/E methodologies. And at the fair value price, the company is valued at a forward P/E of 13.5xs for FY2017, which is lower compared than peers. Most other listed real estate developers are either small to mid-caps and for many years Vingroup (VIC) has dominated the sector in terms of total market capitalization. And so, Novaland Group which has a current market capitalisation of VND35.4 trillion (US$1.6 billion) is the first listed real estate stock to offer a real potential alternative investment to VIC in this sector. Lakeview City project 2 Page 2

3 Valuation Methodologies Share price Weighting Contribution RNAV 58,191 50% 29,095 P/E 69,541 50% 34,770 Weighted average price 100% 63,866 Current market price 60,100 Upside/Downside potential 6% Source: HSC calculation We rate NVL as an OUTPERFORM with a fair value price of VND63,866. Our target price is based on a blended mixed of a RNAV valuation and a comparative P/E valuation approach. RNAV valuation yields a price of VND58,191 We use the RNAV approach as our primary valuation method for NVL as we believe it delivers a better appraisal of a property developer s value compared to other methodologies due to factors such as the long lead time for development projects, timing of construction completion and the booking of earnings. For projects already for sale, we use DCF methods to calculate the NPV of each project based on the expected cash flow. We forecast sales progress and the level of cash collection for each project and then recognized as cash inflows on a per project basis. Meanwhile we calculate all estimated cash outflows including total investment per project such as land cost, construction cost, selling expense and tax payment. Incidentally we used a WACC of 10.58% on the cost of equity of 15.6% and after-tax cost of debt of 8.4% for NVL. For projects under compensation or lacking GFA details where infrastructure has not been developed yet, we apply the market price for the land area based on the comparables approach. We collect various price points for comparable projects in the surrounding area and then adjust to determine the most appropriate market price for the project. Our calculations are all based on the total current outstanding share of million shares. However we saw a potential dilution risk for NVL from (1) the conversion of the remaining of 6.83 million convertible preferred shares to million common shares and (2) conversion of convertible loans worth of US$60 million to million shares. Project % stake owned by NVL Revaluation by HSC SR South 69.90% 333,916 DCF SR Central 69.90% 94,541 DCF SR North 69.90% 64,145 DCF Prince 99.81% 65,261 DCF Tropic Garden % 96,754 DCF Lexington 99.90% 115,304 DCF Icon % 158,298 DCF Galaxy % 257,698 DCF Lucky Dragon % 9,352 DCF Golf Park 69.90% 76,755 DCF Lucky Palace % 194,948 DCF Orchard Garden % (35,222) DCF Garden Gate 94.02% (13,623) DCF River gate 99.70% 914,180 DCF Tresor 99.89% 866,600 DCF Kingston 99.90% 746,263 DCF Sun Avenue 99.90% 2,050,440 DCF SR Cityview 99.90% 522,856 DCF Wilton 99.89% 387,700 DCF Orchard Parkview 74.00% 279,959 DCF Botanica % (182,361) DCF Golden Mansion 73.98% 366,603 DCF Newton 99.90% 178,594 DCF SR Riverside 99.90% 2,422,722 DCF Lakeview 98.96% 3,627,408 DCF Richstar % 810,591 DCF Botanica Premier 99.90% 580,313 DCF SG Royal 99.96% 1,041,475 DCF Methodology Harbor City 99.90% 1,832,181 Comparables Water Bay 98.96% 3,364,823 Comparables Palm Marina 77.42% 730,094 Comparables Serai Nova Phu Sa resort % 124,166 Comparables Saigon Me Linh 42.09% 1,276,726 Comparables Project A 99.90% 318,490 Comparables Project B 99.90% 428,206 Comparables Project C 99.90% 7,853,027 Comparables Project D 99.90% 219,780 Comparables Project E 99.90% 796,862 Comparables Project F 99.90% 1,517,334 Comparables Project G 99.90% 409,530 Comparables Project H 99.90% 2,270,270 Comparables Project I 99.90% 4,736,998 Comparables Project J 99.90% 1,929,120 Comparables Project L 99.90% 600,707 Comparables Total 44,439,786 Net debt 6,122,625 Other liabilities 4,019,653 RNAV 34,297,508 No of outstanding shares 589,399,234 RNAV/share 58,191 Source: HSC calculation 3 Page 3

4 Fair value based on P/E multiples is VND69,541 per share NVL s peer valuation comparison Comparables Exchange Price (VND) Market cap (VNDbn) P/E P/B FY2016F FY2017F FY2016F FY2017F Capital Land Singapore 47, , Keppel Corporation Singapore 92, , Gamuda Malaysia 24,557 58, VIC HSX 41, , KDH HSX 20,200 4, NLG HSX 21,750 3, DXG HSX 12,050 3, Weighted average FY2017 EPS (VND) 4,741 Fair 2017 PE (xs) 14.7 NVL fair price based on P/E valuation 69,541 Source: Bloomberg; HSC forecasts We have also done a peer analysis on P/E valuation. NVL s comparables in our list of choice include 3 international peers in Singapore and Malaysia and 4 domestic listed property companies that are trading at a weighted average P/E of 14.7xs for FY2017. We then applied this average P/E to calculate the equivalent fair value price for NVL. In our earnings model, we forecast that in FY2017, NPATMI will reach VND2,953 billion, generating an EPS of VND4,741. Then by applying the P/E of 14.7xs, we come at a P/E only fair value price of VND69,541. We then applied a 50:50 blended approach to reach our combined fair value price of VND63,866 using both methods. 4 Page 4

5 5 reasons we like Novaland Pure residential housing player only focused in the middle to low high end market Novaland has a very focused approach to the residential market. Targeting their product at the mid to high-end segment with a selling price band of around US$1,200 US$2,500 per sqm. Developing medium-scale projects offering around 500-3,000 units. Their projects are typically located in 4 prime development zones in HCMC including Central (District 1 & 4), East (district 2, 9 and Binh Thanh), South (district 7, Nha Be) and West (Tan Binh, Phu Nhuan, Tan Phu) with the location not more than 10 km from the CBD. According to Novaland, most of their customers are end users. Rather than short term investors. They estimate that around 65% of their projects are owner occupied with much of the rest being buy-to-let. And about 85% of projects are paid for in cash with mortgages accounting for only about 15% (although this has increased from 5% previously). Effective land bank acquisition Novaland has secured many good locations in recent years through an active M&A strategy. With an emphasis on medium scale projects with a clear land bank and ready for development in order to save time and cost. Therefore, they adopt a three pronged strategy to acquire their land bank from (1) developers/ex-developers who lack the financial capabilities to execute projects or (2) SOEs companies who have divested non-core real estate assets and also (3) distressed assets from banks. Currently, they possess a huge land bank of nearly 615 ha located in HCMC, mostly within a 10 km radius of the CBD. Generally close to upcoming or recently completed infrastructure developments such as highway, ring roads or the new metro line. This land bank is large enough to support its current rate of real estate development for the next 5-7 years. Rapid development process Novaland has built a reputation in the market as a developer that always stays on schedule, finishing projects faster than peers. The normal development process for a new project from land acquisition to apartment handover takes approximately 30 months. This enables them to deploy and recoup their money in shorter cycles. Outstanding sales competency Novaland has developed an in-house professionallytrained sales team of more than 610 staffs with 15 trading floors in both Ho Chi Minh City and Ha Noi. Meanwhile most other real estate developers outsource sales to real estate agents which often results in higher cost and brand dilution. Aggressive use of pre-sales financing Normally, for a project development, NVL will use its own equity and bank loans to finance the land cost which makes up 30-40% of the total investment capital. And then they will use pre-sales financing to fund its construction costs which accounts for the balance of 60-70% of the total investment capital. NVL s ability to finance a higher proportion of its construction cost via pre-sales compared to its local peers due to the company s strong reputation of delivering apartments on time, in good location and at a competitive selling price. Prince Residence 5 Page 5

6 Project location map Source: NVL 6 Page 6

7 Company overview Novaland Group listed all their million shares on HSX on the 28 th of December, At the reference price of VND50,000 per share, Novaland had a market capitalization of VND29,468 billion or US$1.3 billion. And since then the share price has appreciated some 20% or so. Leading developer in HCMC in mid to low high-end segment Novaland was established in 1992, formerly known as Nova Group with the core business of veterinary medicine, animal health products and villa for rent. In 2007, Nova Group was divided into two groups. Anova Corporation operating in the field of cattle feed, and veterinary medicine Novaland Group operating in the real estate segment. Novaland Group launched its first major real estate project namely Sunrise City in FY2009. And to date, the company has built up a large land bank with total of 45 projects in HCMC through an active M&A strategy. They are known for fast and efficient execution and have a strong brand name in the market place aimed at the middle segments of the residential market in HCMC. As of the end of FY2016, Novaland had launched 28 projects offering over 26,000 apartments with a total GFA of 2.8 million sqm in HCMC. Of which, they have finished and handed over to buyers 7 projects. Then a further 21 projects are now under construction. In the plan, they will launch another 5 projects next year. Novaland enjoys strong sales thanks to good locations and an attractive selling price. To date, 11 projects have already sold more than 50% of the offered units. And even recently-launched projects such as Lakeview, Saigon Royal and Botanica Premier, have a selling rate of 30-40% within the first 3 months after launch. A pioneer in providing officetel product to the market Novaland have launched a number of projects with product mix of both apartments and officetels. A studio in other words. Typical apartment sizes range between 65 to 90 sqm per unit while an officetel s average size is just around sqm per unit. An officetel is a multifunctional apartment model which combines workplace and residence. This model saves much cost and time for the owners, especially suitable for small and medium enterprises who require a small office areas. This product is also suitable for single people or small families with limited financial capacity. Handed-over projects Development projects Pipeline Launched To be launched 7 Page 7

8 Sell-through ratio (2017 & 2018 handed-over projects) 120% 100% 99% 99% 100% 100% 99% 96% 91% 85% 86% 89% 85% 80% 78% 77% 70% 66% 71% 60% 57% 50% 50% 43% 48% 50% 40% 33% 26% 20% 0% Sunrise City South Sunrise City North Tropic 1.2 Lexington Lucky Dragon Golf Park Lucky Palace Orchard Garden Garden Gate Rivergate The Tresor Kingston Residence The Sun Avenue Sunrise Cityview Wilton Residence Orchard Parkview The Botanica Golden Mansion Newton Residence Sunrise Riverside Lakeview City Richstar Botanica Premier Saigon Royal Source: NVL Expansion to low-rise properties In FY2016, Novaland expands its product portfolio into the low-rise segment by developing mid-scale urban landed-property project namely Lakeview City with a total of 988 villas and townhouses in district 2. This project has been very successful with 43% of the total units sold to date at an average selling price ranging from US$250,000 to US$450,000 per unit. They also plan to launch another landed-property project called Harbor City in district 8 which includes 3,240 villas and townhouses in FY2017. This product takes a shorter time to develop, normally around 6-9 months for construction and therefore it improves cash flow efficiency. Highly concentrated ownership structure By August FY2016, NVL had a chartered capital of VND5,220 billion, equivalent to 522 million outstanding shares. However, in November 2016, the company issued 52.2 million shares through a private placement and then issued 22 million shares to convert 11 million shares out of 17.8 million of convertible preferred shares. After that, NVL s chartered capital increased to VND5,962 billion. Currently, Mr. Bui Thanh Nhon, the founder of Novaland Group, and his related parties holds a 65.4% stake of the company while foreigners hold a 10.56% stake. Shareholders structure Large land bank in reserve for development During FY period, Novaland completed a number of M&A deals. And currently, they have 11 projects in the pipeline covering 290 ha and a total GFA of 4.11 million sqm. Others, 24.1% Foreigners, 10.6% Mr. Nhon and related parties, 65.4% Source: NVL 8 Page 8

9 Current key projects Master table of project pipeline Project Location Use Stake Area GFA Unit Sqm per unit % sold as of Dec 31, 2015 % sold as of Sep 30, 2016 (%) (sqm) (sqm) Unit % Unit % Completed projects Sunrise City South Nguyen Huu Tho, D.7 Mix used 69.9% 128, Completed, handed over from Q3, FY2012 Sunrise City Central Nguyen Huu Tho, D.7 Mix used 69.9% 51, , ,595 93% 2, % Completed, handed over from Q1, FY2015 Sunrise City North Nguyen Huu Tho, D.8 Mix used 69.9% 87,822 1, Completed, handed over in FY2016 Prince Residence Nguyen Van Troi, Phu Nhuan Mix used 99.8% 4,644 39, % % Completed, handed over from Q4, FY2015 Tropic Garden Thao Dien, D.2 Apartment 100.0% 23, , % % Completed, handed over from Q4, FY2014 Lexington Residence An Phu, D.2 Mix used 99.9% 21, ,641 1, ,474 99% 1, % Completed, handed over from Q4, FY2015 Icon 56 Ben Van Don, D.4 Apartment 100.0% 2,994 29, % % Completed, handed over from Q4, FY2015 Galaxy 9 Nguyen Khoai, D.4 Apartment 100.0% 6,228 51, % % Completed, handed over from Q4, FY2015 Under development projects Lucky Dragon Do Xuan Hop, D.9 Apartment & townhouse 100.0% 9,024 30, % % Low-rise area: completed and handed over High-rise area: plan to hand over from Q1, FY2017 Golf Park Long Thanh My, D.9 Townhouse & villa 69.9% 25,398 27, % % Under development, plan to hand over from Q1, FY2017 Lucky Palace Phan Van Khoe, D.6 Apartment 100.0% 3,876 50, % % Under development, plan to hand over from Q2, FY2017 Orchard Garden Hong Ha, Phu Nhuan Mix used 100.0% 4,303 29, % % Under development, plan to hand over from Q1, FY2017 Garden Gate Residence Hoang Minh Giam, Phu Nhuan Apartment 94.0% 4,887 48, % % Under development, plan to hand over from Q3, FY2017 Rivergate Residence Ben Van Don, D.4 Mix used 99.7% 7,069 77,991 1, % % Under development, plan to hand over from Q3, FY2017 The Tresor Ben Van Don, D.4 Apartment 99.9% 6,202 64, % % Under development, plan to hand over from Q4, FY2017 Kingston Residence Nguyen Van Troi, Phu Nhuan Mix used 99.9% 4,580 40, % % Under development, plan to hand over from Q1, FY2018 The Sun Avenue Mai Chi Tho, D.2 Mix used 99.9% 38, ,363 2, % 1, % Under development, plan to hand over from Q1, FY2018 Sunrise Cityview Nguyen Huu Tho, D.7 Mix used 99.9% 15, ,898 1, % % Under development, plan to hand over from Q2, FY2018 Wilton Tower Dien Bien Phu, Binh Thanh Apartment 99.9% 7,169 49, % % Under development, plan to hand over from Q1, FY2018 Orchard Parkview Hong Ha, Phu Nhuan Mix used 74.0% 9,184 64, % % Under development, plan to hand over from Q3, FY2018 The Botanica Pho Quang, Tan Binh Mix used 100.0% 9,028 54, % % Under development, plan to hand over from Q3, FY2017 Golden Mansion Pho Quang, Phu Nhuan Mix used 74.0% 15,129 86, % % Under development, plan to hand over from Q4, FY2017 Newton Residence Truong Quoc Dung, Phu Nhuan Mix used 99.9% 2,807 24, % Under development, plan to hand over from Q1, FY2019 Sunrise Riverside Nguyen Huu Tho, Nha Be Mix used 99.9% 39, ,420 3, % % Under development, plan to hand over from Q2, FY2018 Lakeview City District 2 Villa, townhouse 99.0% 301, , % Under development, plan to hand over from Q1, FY2017 Richstar Tan Phu Mix used 100.0% 29, ,138 2, % % Under development, plan to hand over from Q4, FY2018 Botanica Premier Tan Binh Mix used 64.7% 17,237 94,443 1, % % Under development, plan to hand over from Q4, FY2018 SG Royal District 4 Mix used 100.0% 6,669 72, % Under development, plan to hand over from Q1, FY2019 Harbor City District 8 Villa, townhouse 27.9% 500, ,312 3, Not launched yet, plan to hand over from Q4, FY2017 Status COMPANY REPORT Page 9 9 July 14h 2008 Tuesday, January 3 rd 2017

10 Master table of project pipeline (cont.) Project Location Use Stake Area GFA Unit Sqm per unit % sold as of Dec 31, 2015 % sold as of Sep 30, 2016 (%) (sqm) (sqm) Unit % Unit % To be developed projects Water Bay District 2 Apartment 99,0% Not launched yet, plan to hand over from Q1, FY2019 Palm Marina District 9 Villa, townhouse 77,4% Not launched yet, plan to hand over from Q4, FY2018 Serai Nova Phu Sa resort Can Tho Resort 100,0% Not launched yet, plan to hand over from Q2, FY2017 Saigon Me Linh District 1 Apartment/office 42,1% Vacant land Project A District 1 Apartment 99,9% Vacant land Project B District 10 Apartment 99,9% Vacant land Project C District 2 Mix used 99,9% Vacant land Project D District 12 Villa, townhouse 99,9% Vacant land Project E District 4 Apartment 99,9% Vacant land Project F District 2 Apartment 99,9% Vacant land Project G District 3 Apartment 99,9% Vacant land Project H District 2 Apartment 99,9% Vacant land Project I District 2 Mix used 99,9% Vacant land Project J District 1 Apartment 99,9% Vacant land Project L Tan Binh Apartment 99,9% Vacant land Source: NVL Status COMPANY REPORT Tuesday, January 3 rd 2017 July 14h Page 10

11 FY2016 financial performance 9M results Unit: VNDmillion 9M2015 9M2016 % y/y FY2016 target % Fulfilled Net sales 2,323,931 7,176, % 6,735, % Cost of goods sold 1,990,953 5,750, % Gross profit 332,978 1,425, % Financial income 277,447 1,895, % Financial expense 318, , % Net financial income (40,573) 1,188,138 SGA expenses 330, ,403 86% Operating profit (38,592) 2,000,745 Pretax profit (55,831) 2,001,668 Net profit of parent's shareholders (56,651) 1,565,446 1,650, % Gross margin 14.3% 19.9% Pre-tax margin -2.4% 27.9% Net margin -2.4% 21.8% 24.5% Source: company s financial statement Successful sales from newly launched projects so far last year Novaland launched several new projects including Lakeview City in district 2, Saigon Royal in district 4, Botanica Premier in and Newton Residence in Phu Nhuan district. To date, pre-sales have gone very well selling from 33-57% of the units already. Novaland launched 988 villas & townhouses in the Lakeview City project from April and have sold 43% or 424 units at a selling price ranging from US$250,000 to US$450,000 per unit. They also sold 57% of a total of 767 units in the Saigon Royal Residence project at an average selling price of US$3,000 per sqm. And sold 50% of a total of 1,109 units in the Botanica Premier project at an average selling price of US$1,600 per sqm. While they also launched 247 units in the Newton Residence in April at an average selling price of US$2,000 per sqm and by the end of Q3, they sold 82 units or 33%. In the first 9M FY2016, sales came to 5,583 units, accounting for a 24.5% share of the HCMC market and a 15.1% nationwide market share. For the full year, the company expects to sell over 8,000 units (+12.5% y/y) and total contracted sales of VND20,000 billion which will be booked in FY after they handover. Impressive results in the first 9M - Novaland released impressive results in the first 9M FY2016 showing net sales of VND7,176 billion (+209% y/y) thanks to the booking some projects, while NPATMI came to VND1,565 billion, compared to a loss of (VND56.7 billion) in the same period last year. Thanks to financial income of VND1,613 billion from the revaluation of their investment in a subsidiary plus a gain on investment disposal. This result fulfilled 107% and 95% of the company s target for sales and net profit respectively. Sales performance (sold units) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,058 3,337 6,686 5,583 8, M F Source: NVL 11 Page 11

12 9M FY2016 revenue breakdown Commercial, 9.7% Others, 7.9% 9M FY2016 gross profit breakdown Commercial, 14.2% Others, 9.0% Officetel, 4.3% Officetel, 1.7% Apartment, 78.1% Apartment, 75.2% Source: NVL Source: NVL Strong growth in the top line thanks to booking of handed-over projects - In the first 9 months, NVL continued recording revenue and earnings from 7 handedover projects. Such as Lexington, Sunrise City (North and Central), Galaxy 9, The Prince Residence, Icon 56, Tropic Garden and Lucky Dragon. These projects were finished and started to hand over to the buyers starting from last year. Revenue from the apartment segment amounted to VND5,603 billion, accounting for 78.07% of total revenue meanwhile revenue from commercial segment increased to VND697 billion (accounting for 9.71%), revenue from officetel contributed VND311 billion (accounting for 4.33%) with the remaining VND566 billion (or 7.89%) coming from other services. Gross profit margin improved Gross profit surged to VND1,426 billion (+328% y/y), leading to an improvement in the GPM to 19.9% compared to 14.3% in the same period last year. The company enjoyed a higher GPM thanks to efficient construction cost management and also higher selling prices. By division, GPM of the apartment segment was 19.1%, officetel was 7.6%, commercial was 29% and other services was 22.7%. Gains on investment revaluation and disposal boosted financial income The company recorded a gain of VND1,272 billion on the revaluation of their initial investment in The 21 st Century JSC Lakeview City project. After they increased their stake in this company from 50% to 82.46% in Q2, FY2016. Plus VND56 billion on the revaluation of their investment in Nha Rong Investment & Commercial JSC and Mega Housing JSC. The company also recorded a financial gain of VND284 billion from selling their stake in Sabeco Pearl JSC who owns Saigon Me Linh project to reduce their holding from 74% to 42.1%. The company also recorded interest income of VND263 billion (-3.3% y/y). Thus leading to a financial income of VND1,896 billion (+583% y/y). Surge in interest expenses leading to higher financial expenses Financial expenses increased significantly to VND707 billion (+122% y/y) on a surge in interest expenses to VND587 billion (+101% y/y) as both short term and long term debt soared. By the end of Q3, total debt amounted to VND12.1 trillion (+51% YTD), including VND3.5 trillion of short term loans, VND4.3 trillion of long term loans and VND4.3 trillion of long term bonds. Therefore, the debt/equity is rather high at 1.58xs, compared to an average ratio of around 0.5xs of other peers. Aggressive land bank acquirement and development boost inventory item - On the balance sheet, we saw a significant increase in inventories to VND13.9 trillion (+94% YTD), accounting for 42.8% of total assets, given the company s aggressive strategy to acquire land bank and develop their project pipeline. They also have other receivables of VND5 trillion by the end of Q3 coming from deposits for the third party to buy land, stake and also cooperate. Meanwhile advances from customers by the end of Q3 dropped by 32% YTD to VND5,570 billion as part of the amount was recognized as revenue. 12 Page 12

13 HSC forecast a sales growth of 12% y/y and NPAT- MI growth of 295% y/y in FY We forecast net sales of VND7,464 billion (+12% y/y) and NPATMI of VND1,642 billion (+295% y/y) given our following assumptions: The company will hand over and book the remaining revenue and earnings from 7 completed projects as we mentioned above. We assume gross profit margin of 20.6% compared to 20% last year, leading to a gross profit of VND1,538 billion (+15% y/y). Net financial income will come to VND1,237 billion, compared to a net financial loss of (VND106 billion) given the booking of financial gains of revaluation and disposal of investments. SG&A expenses will increase to VND673 billion (+12% y/y) given higher SG&A expenses as the company has to allocate goodwill from acquiring subsidiaries. NVL's debt book Unit: VNDmillion FY2015 9M FY2016 Short-term borrowings 2,513,143 3,472,588 Short-term bank loans 1,545,800 1,331,984 Borrowings from related parties 9,940 45,565 Borrowings from 3 rd party - 2,059,913 Long term bonds - current portion 580,989 - Long term borrowings - current portion 376,413 35,125 Long-term borrowings 5,480,588 8,542,821 Long-term bank loans 317,435 2,876,327 Bonds 4,435,802 4,304,334 Borrowings from related parties 51,151 26,560 Borrowings from 3rd party 676,200 1,335,600 Total debt 7,993,730 12,015,409 Total interest expenses 351, ,530 Source: NVL 13 Page 13

14 FY2017 & FY2018 outlook Novaland s strategy is simple. Focus on medium-scale projects which can be developed and sold quickly to enhance profitability and cash conversion. Besides the HCMC market, Novaland also plans to expand its footprint to other cities such as Da Nang, Vung Tau and Can Tho. Whilst offering apartments on selective projects and expanding their commercial area to provide stable recurring income, NVL will gradually developing their larger township projects such as Lakeview City, Harbor City to provide good quality and lifestyle to buyers with full amenities and professional project operation and management. Going forward, the company targets to sell around 8,000 10,000 units each year and for next year, they forecast contracted sales of about VND24,000 billion (+20% y/y). For FY2017 the company targets growth of 160% y/y for revenue to VND17,528 billion and growth of 91% for NPAT to VND3,144 billion. Meanwhile for FY2018, they target net sales of VND24,129 billion (+38% y/y) and an NPAT of VND5,084 billion (+62% y/y). They have a high level of confidence of hitting these rather impressive targets for next year based on very good existing pre-sales progress. According to NVL, 70% of the FY2017 sales target and 40% of the FY2018 sales target have already been contracted. Revenue breakdown by project Revenue 2016F 2017F 2018F Sunrise City South 203, Sunrise City Central 52, Sunrise City North 1,489, Prince Residence 469, Tropic Garden 1,055,858 29,654 - Lexington Residence 2,590, Icon , Galaxy 9 715, Lucky Dragon 31, ,999 - Golf Park - 294,025 16,038 Lucky Palace - 744, ,555 Orchard Garden - 697,745 - Garden Gate Residence - 989,810 - Rivergate Residence - 1,494,290 1,494,290 The Tresor - 2,104, ,808 Kingston Residence - 833, ,231 The Sun Avenue - 1,305,722 1,379,758 Sunrise Cityview - - 1,718,367 Wilton Tower - 615, ,652 Orchard Parkview - - 1,497,349 The Botanica - 1,265,661 - Golden Mansion - 376,930 1,974,447 Newton Residence ,579 Sunrise Riverside - - 3,197,791 Lakeview City - 5,081,990 1,721,485 Richstar ,549 Botanica Premier - - 2,423,972 SG Royal Harbor City - - 4,291,879 Project D - 1,098, ,813 Newberry ,035 Total revenue 6,800,603 17,073,432 24,417,597 Source: HSC forecasts 14 Page 14

15 Impressive sales growth over next two year thanks to strong pre-sales Based on the existing pre-sales progress of current projects that will be handed over to the buyers in FY2017- FY2018, we expect impressive growth in both the top line and bottom lines. We forecast Novaland s sales will grow at a CAGR of 83.6% and NPATMI at CAGR of 52.5% over the period of FY In our model, we assume the company will complete construction and hand over to the buyers a list of projects including Lucky Palace, Garden Gate Residence, Orchard Garden, The Botanica, Rivergate, Tresor, Kingston, Golden Mansion and Lakeview City. Project development timeline Sunrise City South Sunrise City Central Sunrise City North Prince Residence Tropic Garden Lexington Residence Icon 56 Galaxy 9 Lucky Dragon Golf Park Lucky Palace Orchard Garden Garden Gate Residence Rivergate Residence The Tresor Kingston Residence The Sun Avenue Sunrise Cityview Wilton Tower Orchard Parkview The Botanica Golden Mansion Newton Residence Sunrise Riverside Lakeview City Richstar Botanica Premier SG Royal Harbor City Water Bay Project D Newberry And expect margins improve given a better product mix with a greater emphasis on landed townhouses which carry higher margins (of up to 30%). Therefore, we forecast FY2017 net sales of VND17,770 billion (+138% y/y) and NPATMI of VND2,953 billion (+80% y/y). Meanwhile, for FY2018, we assume NVL records the remaining revenue from handed-over projects. And then complete and deliver projects including Sunrise Cityview, Sunrise Riverside, Sun Avenue, Botanica Premier, Orchard Parkview, Richstar, Newton Residence, Wilton Tower and Harbor City. We forecast FY2018 net sales of VND25,149 billion (+42% y/y) and NPATMI of VND3,818 billion (+29% y/y). Pre Page 15

16 Sunrise City project Sun Avenue project Improved profit margin thanks to efficient cost management According to the company, their net profit margin will improve thanks to (1) Low interest cost (2) Efficient construction cost management. Apparently construction cost per sqm has been steadily reduced from US$800 per sqm to less than US$350 per sqm given close cooperation with construction companies such as CTD; Hoa Binh Construction and Cofico. (3) Improved product mix as low-rise products normally generate higher profit margin than high-rise products. The company targets a net profit margin of around 10-18% for apartment and 20-30% for villa & townhouse. Construction progress will be funded by aggressive advances from customers, leading to lower leverage ratio In FY2016, we have assumed in the model that the company funded land bank acquisition through bank loans and the recent private placement. However, for the period FY , we expect that the company will use cash flow from pre-sales units and to fund the construction of their project pipeline. Therefore, we forecast both inventories and advance from customers will increase significantly. Meanwhile, the company will gradually reduce their debt/equity ratio to below 1.0xs in FY2018. In our model, we forecast profit margin will improve over the period FY with GPM improves from 20% in FY2015 to 28.1% in FY2017 and 25.8% in FY2018. Meanwhile, net profit margin also improves from 6.6% in FY2015 to 17% in FY2017 and 16% in FY Page 16

17 FINANCIAL RATIO COMPANY REPORT Unit: VNDmillion INCOME STATEMENT FY2013 FY2014 FY2015 FY2016F FY2017F FY2018F Net sales 1,600,398 2,801,811 6,673,435 7,463,825 17,769,816 25,148,800 Cost of goods sold 1,279,848 2,326,440 5,333,572 5,925,383 12,762,072 18,652,450 Gross profit 320, ,371 1,339,863 1,538,442 5,007,744 6,496,350 Net financial income (195,128) (127,834) (105,864) 1,237,076 (435,887) (240,105) SGA expense 114, , , , ,433 1,219,181 Operating profit 9, , ,253 2,106,020 3,792,900 5,040,887 EBITDA 220, , , ,173 4,251,029 5,311,866 Pretax profit 16, , ,113 2,106,020 3,792,900 5,040,887 Net profit after tax 7,559 96, ,760 1,684,816 3,034,320 4,032,710 NPATMI 7,292 93, ,423 1,642,355 2,952,865 3,818,256 EPS (VND) ,374 3,446 4,741 6,130 BALANCE SHEET FY2013 FY2014 FY2015 FY2016F FY2017F FY2018F Current Assets 7,565,139 14,353,287 18,133,290 31,154,295 42,460,579 49,740,941 Cash and cash equivalents 248,981 2,779,415 3,859,710 6,698,576 8,207,369 9,583,493 Short term investments 148, , , , , ,888 Receivables 1,288,349 3,135,397 6,058,946 6,628,271 6,599,582 6,546,343 Inventories 5,837,374 8,151,085 7,158,828 16,785,845 26,281,205 31,987,741 Other current assets 42,401 80, , , , ,476 Long-term Assets 1,262,626 1,740,424 8,437,119 9,036,358 8,740,244 8,467,080 Long-term receivables 6, ,232 3,309,363 3,309,216 3,309,216 3,309,216 Fixed assets 49,582 69,039 87, , , ,361 Investment Properties 645, ,784 1,082,786 1,098,943 1,115,424 1,132,234 Long term assets in progress 73,310 85,776 1,069,151 1,069,151 1,069,151 1,069,151 Long-term investments 62,522 20,880 1,581, , , ,309 Other long-term assets 425, ,714 1,306,148 2,796,222 2,437,516 2,078,809 Total Assets 8,827,765 16,093,710 26,570,409 40,190,653 51,200,823 58,208,021 Liabilities 7,388,997 12,731,365 20,475,199 30,037,100 38,513,939 42,017,856 Current Liabilities 4,923,607 9,906,274 13,354,624 20,045,468 29,766,225 34,737,536 Long-term Liabilities 2,465,390 2,825,091 7,120,575 9,991,632 8,747,714 7,280,320 Owners' Equity 1,438,769 3,362,345 6,095,209 10,153,553 12,686,884 16,190,166 Shared capital 1,200,000 2,300,000 3,682,958 5,961,992 5,961,992 5,961,992 Retained earnings & other funds 238,769 1,062,345 2,412,252 4,191,561 6,724,892 10,228,173 Total Resources 8,827,765 16,093,710 26,570,409 40,190,653 51,200,823 58,208,021 CASH FLOW STATEMENT FY2013 FY2014 FY2015 FY2016F FY2017F FY2018F Net cash flow from operating activities 228,359 2,152,637 (2,309,406) (4,687,947) 3,214,703 1,564,800 Net cash flow from investment activities 159,120 (1,059,010) (2,950,296) (618,776) 270, ,467 Net cash flow from financing activities (414,385) 1,436,807 6,339,997 8,145,590 (1,976,306) (427,143) Net cash flow of the year (26,906) 2,530,434 1,080,296 2,838,866 1,508,793 1,376,124 Cash&cash equivalents at the beginning of year 275, ,981 2,779,415 3,859,710 6,698,576 8,207,369 Effect of foreign exchange differences (104) Cash&cash equivalents at the end of year 248,981 2,779,415 3,859,710 6,698,576 8,207,369 9,583,493 Source: NVL, HSC forecasts 17 Page 17

18 RATIO ANALYSIS FY2013 FY2014 FY2015 FY2016F FY2017F FY2018F Valuation EPS (VND) ,374 3,446 4,741 6,130 EBITDA (VNDm) 220, , , ,173 4,251,029 5,311,866 BVPS (VND) 11,990 14,619 16,550 17,030 21,280 27,156 DPS (VND) P/E (x) EV/EBITDA (x) P/B (x) Dividend yield (%) Profitability Gross margin 20.0% 16.9% 20.0% 20.6% 28.1% 25.8% EBITDA margin 13.8% 9.2% 12.4% 11.9% 23.9% 21.1% Pretax margin 1.1% 4.7% 9.1% 28.2% 21.3% 20.0% Net margin 0.5% 3.4% 6.6% 22.5% 17.0% 16.0% SG&A/sales (%) 7.2% 8.3% 9.0% 9.0% 4.4% 4.8% ROE (%) 0.5% 3.9% 8.8% 20.2% 25.9% 26.4% ROA (%) 0.1% 0.8% 1.9% 4.9% 6.5% 7.0% Liquidity Current ratio Quick ratio Leverage Debt/Equity Total debt ratio EBIT interest coverage ratio Efficiency Days sales outstanding Days in inventories 1, Days payables outstanding Cash Conversion Cycle (days) 1,604 1, Source: NVL, HSC forecasts 18 Page 18

19 Global Disclaimer July 14h 2008 Copyright 2016 Ho Chi Minh Securities Corporation (HSC). All rights reserved. This report has been prepared and issued by HSC or one of its affiliates for distribution in Vietnam and overseas. Opinions, estimates and projection expressed in this report represent the current views of the author at the date of publication only. They do not necessarily reflect the opinions of HSC and are subject to change without notice. HSC has no obligation to update, amend or in any way modify this report or otherwise notify a reader thereof in the event that any of the subject matter or opinion, projection or estimate contained within it changes or becomes inaccurate. The information herein was obtained from various sources and we do not guarantee its accuracy or completeness. Prices and availability of financial instruments are also subject to change without notice. This published research may be considered by HSC when buying or selling proprietary positions or positions held by funds under its management. HSC may trade for its own account as a result of short term trading suggestions from analysts and may also engage in securities transactions in a manner inconsistent with this report and opinions expressed there in. Neither the information nor any opinion expressed in this report constitutes an offer, nor an invitation to make an offer, to buy or to sell any securities or any option, futures or other derivative instruments in any jurisdiction. Nor should it be construed as an advertisement for any financial instruments. Officers of HSC may have a financial interest in securities mentioned in this report or in related instruments. This research report is prepared for general circulation for general information only. It does not have regard to the specific investment objectives, financial situation or particular needs of any person who may receive or read this report. Investor should note that the prices of securities fluctuate and may rise and fall. Past performance, if any, is no guide to the future. The financial instruments discussed in this report may not be suitable for all investors. Investors must make their own financial decisions based on their independent financial advisors as they believe necessary and based on their particular financial situation and investment objectives. As this report is HSC s property and not public information, this report and any part of this report may not be copied, reproduced, published or redistributed by any person for any purpose without the express permission of HSC in writing. Please cite sources when quoting. Any Party shall be liable to HSC for any cost, loss or damage incurred by HSC or HSC clients as a result of any other breach under this Disclaimer in accordance with law. Explanation of Equity Research Ratings BUY: Expected to outperform the market by more than 10% per annum OUTPERFORM: Expected to outperform the market by 10% per annum HOLD: Expected to perform in line with the market UNDERPERFORM: Expected to underperform the market by 10% per annum SELL: Expected to underperform the market by more than 10% per annum HEAD OFFICE Level 5 & 6, AB Tower 76 Le Lai, District 1, HCMC T : (+84 8) F : (+84 8) HANOI OFFICE Level 4 & 5, 66A Tran Hung Dao Hoan Kiem District T : (+84 4) F : (+84 4) E: info@hsc.com.vn W: 19 Page 19