Equities | Vietnam | Conglomerates

Vingroup (VIC - HSX)

Company Focus 24 September 2021

Hold (from Add)

Target price: VND88,500 (from VND115,111)
A challenging outlook – cut to Hold
Up/downside: 1.6%
 We cut our target price for VIC by 23.1% to VND88,500 and downgrade to
Share price (VND) (as of 23 Sep 2021) 87,100 Hold. This reflects lower earnings forecasts and a widening of the RNAV
Bloomberg code VIC VN discount to 20% from 10%.
52-week range (VND) 81,333-128,000
Trading value (5D) (VNDmn) 86,375  We cut our profit estimates for FY21, FY22 and FY23 by 83.1%, 85.3% and
Market cap. (VNDbn) 274,841 44%, respectively. This reflects lower gains from the CrownX stake sale, a
Market cap. (USDmn) 12,072 3% decrease in ownership in VHM and the negative impact of COVID-19
Shares outstanding (mn) 3,155 on the leasing, hospitality and manufacturing divisions.
Total FOL share room (mn) 1,546
Current FOL share room (mn) 982  The stock is trading at a 21.2% discount to our RNAV versus its 14.3%
Foreign ownership limit 49.0% average historic average; however, this discount may well widen further.
Foreign owned ratio 17.9%
Free float 27.4%
Major shareholder Chairman , related (66.5%) Event: Updates on the impact of COVID-19
Source: Company, HSC Research estimates
We assess the impact of COVID-19 on the operations of VIC’s key segments
Share price performance
including property development, leasing, hospitality and manufacturing.
VIC (VND) VN30 Index (rebas ed)
Specifically, lockdowns related to COVID-19 have led to mall closures and
160,000
150,000
reduced traffic, a massive decline in tourism activities and lower volumes of
140,000
130,000
cars sales.
120,000
110,000 We also analyze the impact of lower than expected gains from the stake sales
100,000
90,000 of CrownX in 1H21 and the reduction in contribution from VHM following the
80,000
sale of a 3% stake in 3Q21.
Volume

Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Impact: Cutting FY21, FY22 and FY23 earnings
Share price (%) -1 mth -3 mth -12 mth We are cut our FY21, FY22 and FY23 net profit forecasts by 83.1%, 85.3% and
Ordinary shares (9.46) (16.2) 3.69 44%, respectively. This is in order to reflect the larger than anticipated impact of
Relative to index (12.3) (14.4) (39.0)
COVID-19 on the results of the leasing division (VRE), the hospitality division
Relative to sector - - -
Source: Company, FactSet
(Vinpearl) and manufacturing (Vinfast) as well as lower estimated gains from the
stake sale in CrownX versus our previous projection.
HSC vs. consensus
We now estimate an 82.2% y/y drop in net profit in FY21 to VND971bn, followed
EPS adj. (VND) HSC Cons % diff
2021F (1,477) 978 (251.1)
by a 13.7% y/y recovery in FY22 to VND1,104bn. In FY23 we expect to see a
2022F 281 1,732 (83.8) 426% y/y growth recovery in net profit to VND5,808bn. Our adjusted EPS
2023F 1,479 2,763 (46.5) estimates are sharply below the street.
Source: Bloomberg, HSC Research estimates
Valuation and recommendation
Company description
We cut our target price by 23.1% to VND88,500. This is mainly due to lower
VIC is the largest private sector corporation in
Vietnam and the #1 residential & commercial
earnings estimates for FY21-23; a 3% decrease in ownership in VHM and a
developer. The group also manufactures cars, widening discount to RNAV to 20% (from 10%) which reflects uncertainties
motorbikes & electronic devices, and provides brought about by COVID-19 as well as a conglomerate discount.
services in education, hospitality & healthcare
VIC is currently trading on a 21.2% discount to our RNAV. While not expensive
relative to its average historical discount of 14.3%, we think there is a risk that
this discount might widen given the challenging earnings outlook, weakening
cashflow and a leveraged vulnerability to unexpected macro shifts, in particular
COVID-19. We downgrade to Hold.

Year end: December 12-19A 12-20A 12-21F 12-22F 12-23F

EBITDA adj. (VNDbn) 20,854 25,618 21,266  33,252 47,197
Reported net profit (VNDbn) 7,546 5,465 971  1,104  5,808 
EPS adj. (VND) 181 (635) (1,477)  281  1,479 
DPS (VND) - - - - -
BVPS (VND) 21,455 21,357 24,858  25,145 26,658 
EV/EBITDA adj. (x) 19.6 16.3 20.7 14.0 10.6
P/E adj. (x) 480 N/a N/a 310 58.9
Analysts Dividend yield (%) - - - - -
Ho Thi Kieu Trang, CFA P/B (x) 4.06 4.08 3.50 3.46 3.27
Manager, Head of Real Estate Research EPS adj. growth (%) 524 (450) (133) 119 426
trang.htk@hsc.com.vn Ret. on avg. equity (%) 11.6 7.02 1.11 1.15 5.84
+84 28 3823 3299 Ext. 129 Note: Use of ▲ ▼ indicates that the item has changed by at least 5%.
Source: Bloomberg, HSC Research estimates

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 Company Focus - Vingroup (VIC) 24 September 2021

A weakening financial position

We downgrade VIC to Hold (from Add) and reduce our target price by 23.1%. This
follows significant cuts in FY21-23 earnings and the widening of discount to RNAV
assumption to 20% (from 10%). Cashflow has been negatively impacted by the
resurgence of COVID-19, while the large levels of funding required for FY22-23 will
put pressure on the balance sheet. VIC is now trading at a 21.2% discount to its
RNAV versus the historical average discount of 14.3% seen since June 2019.

COVID-19 situation in Vietnam

At the timing of writing, around one third of the provinces in the country have been
applying strict lockdowns for months in order to fight against the fourth and the most
serious wave of COVID-19 yet that Vietnam has experienced.
HCMC has been applying a verystrict lockdown under Directive 16 since 10 July; this
will be extended to at least the end of September. The country’s borders remain closed
while domestic flights are also limited, especially flights departing from provinces with
high caseloads. This long lockdown has seriously impacted much of the economic
activity of the country and has particularly weakened consumption.
Short-term results were considerably hit
Vingroup’s key business segments have seen their operations being negatively
impacted by lockdowns. Specifically:
 Leasing (VRE): More than half of their malls have been required to close due to
lockdown measures applied in several provinces and cities across the country;
traffic has remained low at the malls which are still operating.
 Hospitality (Vinpearl): Tourism activities remain muted across the country due to
lockdowns and travel restrictions.
 Manufacturing (Vinfast): We expect lower car volumes to be delivered while we
also assume lower selling prices as the company conducts promotional campaigns
to boost sales.
Vaccine roll-out will be the key to recovery
At the time of writing, 100% of the population who are 18 or older in Hanoi and Ho Chi
Minh City have been vaccinated with at least one dose and the government continues
to actively push for double vaccinations in these two key economic centers.
As of Sep-16, Hanoi has loosened some lockdown measures while we expect the
same to happen in HCMC by end of this month. However, we believe that restrictions
will be removed only gradually, which implies that the expected recovery in
consumption and economic activity generally could be flatter than otherwise might be
expected.
Looking forward, the government has set a target to fully inoculate 50% of the
population in the country by the end of this year and 70% by early FY22. As vaccination
rates increase in FY22, we can expect to see an accelerated recovery in economic
activity.

Property development – resilience despite COVID-19

Although the lockdowns have resulted in limited activity in the property markets of
HCMC and Hanoi in the third quarter this year, we expect that the impact of COVID-
19 on VHM’s earnings in FY21 will be limited. This is because, for this year, we project
that income from bulk sales will constitute more than 65% of VHM’s profit.
In contrast to retail sales, bulk sales do not depend so much on construction progress
which means the cessation of activity on building sites due to lockdowns has had little
bearing on bulk sales negotiations. At the end of 2Q21, VHM indicated that it was
negotiating several bulk sales transactions with a total estimated value of around
VND21tn. Earnings from those transactions might be booked in the 3Q21 and 4Q21.
For 1H21, the company recorded VND36tn in revenue from deliveries of retail units to
home buyers, fulfilling 88% of our forecast for retail revenue this year and was in-line

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 Company Focus - Vingroup (VIC) 24 September 2021

with our expectation. We anticipate that current circumstances will have only a very
limited impact on the delivery of the remaining units scheduled for 4Q21. This is
because VHM normally pushes their construction ahead of schedule (by at least two
months) thus helps reduce the risk from delayed deliveries.
Figure 1: Forecasted revenue by project, VHM Figure 2: Forecasted revenue by type of sales, VHM
The three mega projects will drive earnings in FY21 & FY22 Revenue from bulk sales will constitute a significant proportion
of earnings in FY21
Vinhomes Ocean Park Vinhomes Smart city
Vinhomes Grand Park Vinhomes Wonder Park Bulk sales Retail sales
Vinhomes Galaxy Vinhomes Gallery
Vinhomes Co Loa Vinhomes Long Beach
150.0 Vinhomes Dream City Others
150

100.0 100
VNDtn

VNDtn
50.0 50

- -
FY21F FY22F FY23F FY21F FY22F FY23F
Source: HSC forecast Source: HSC forecast

Overall, we maintain our VHM forecasts of net profit of VND31tn (up 13.5% y/y) in
FY21. For FY22 and FY23, we are forecasting 7.5% y/y and 20.9% y/y net profit growth
to VND33.3tn and VND40.4tn respectively. For further details of our forecast, please
see our Company Focus on VHM, published 08 Jun 2021.
Figure 3: Forecasted earnings, VHM
We expect moderate growth in FY22 but strong growth in FY23
Revenue (RHS) Gross profit (RHS) Net profit (RHS)
Gross margin (LHS) Net margin (LHS)

120,000 74.0% 80.0%

70.0%
100,000
47.4% 60.0%
80,000 47.1%
39.4% 37.4% 50.0%
VNDbn

38.2%
60,000 53.2% 45.4% 33.9% 44.7% 40.0%
36.3% 30.0%
40,000
26.0% 20.0%
20,000
10.0%
- 0.0%
FY18 FY19 FY20 FY21F FY22F FY23F
Source: Company data, HSC forecast

Shopping malls – signficant hit, but recovery should be strong

The lockdowns in several provinces across the country have led to more than half
VRE’s 80 malls being shut down. Moreover, traffic to those malls which have remained
open has undoubtedly been negatively impacted as people prefer staying at home for
safety reasons.
As a result, we expect that VRE will be providing further financial support to all tenants
that are being impacted by malls closures and low traffic. In the first half of FY21, VRE
indicated that it had provided a financial support package worth VND424bn to tenants
that have negatively impacted by lockdowns.
We are assuming that a further support package with a value of around VND1.2tn will
be provided to tenants. This will largely consist of rent waivers for the second half of

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 Company Focus - Vingroup (VIC) 24 September 2021

this year. We have therefore revised down our FY21 revenue forecasts for VRE by
18.2% to VND7.0tn (down 16.4% y/y) to reflect the impact of rent waivers.
We also assume that traffic in some provinces may continue to be impacted in 1Q22
and that rental reversions will be lower than we had previously expected. We are
assuming that among VRE’s four formats, only the Vincom Center will see a rent
reversion in FY22 which will be around 4% versus 7% as previously, and is still below
the pre-COVID-19 levels at 7-10%.
All other formats (Vincom mega mall, Vincom Plaza, Vincom+) will see zero rent
reversions (vs. 2-4% previously) in FY22. Moreover, we assume reduced occupancy
rates across all formats of 0.5-2% in 2H21 and FY22 as some tenants have been or
will be forced to close stores permanently.
As a result, we expect that VRE will see a lower net profit of VND1.3tn (vs. our
previous estimate of VND2.5tn) in FY21. Nonetheless, we expect to see a strong
recovery in VRE’s earnings from mid FY22 and into FY23 as confidence returns and
retail demand soars. For FY22 and FY23, we forecast 97.8% y/y and 28.8% y/y growth
in net earnings of VRE to VND2.7tn and VND3.5tn, respectively.
For full details, please see our Company Focus on VRE, published on 10 Aug 2021.
Figure 4: Forecasted earnings, VRE
COVID-19 will hit FY21 results but recovery can be expected from FY22

Revenue EBITDA Net profit Gross margin Net margin

12,000 32.0% 90.0%

30.8% 29.3%
28.6% 80.0%
10,000 26.4%
70.0%
19.6%
8,000 51.5% 60.0%
47.6% 49.3%
45.9%
VNDbn

50.0%
6,000 39.9%
37.2%
40.0%
4,000 30.0%
20.0%
2,000
10.0%
- 0.0%
FY18 FY19 FY20 FY21F FY22F FY23F
Source: Company data, HSC forecasts

Hospitality – strict lockdowns are dragging down earnings

Due to the strict lockdown measures applied in several provinces across Vietnam
since early July, domestic travel and other tourism related activities have been in
hibernation.
Although a national lockdown has not been applied, travel demand has dropped
significantly since April as people choose to stay at home for safety reasons. Flights
between some provinces (those with a large number of cases) have also been
suspended. Meanwhile, in-bound tourism activities remain muted due to border
closures.
The situation with domestic travel has proved to be more serious than previously
forecast leading us to revise down our revenue forecast for the segment by 47% this
year to VND2.9tn (down 39.9% y/y).
In our FY21 forecasts, we have reflected a small resumption of in-bound tourism
activity and this may happen as early as October; the government has recently
announced plans regarding travel bubbles for some key tourism destinations such as
Phu Quoc, Khanh Hoa, Quang Ninh, Hoi An.

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 Company Focus - Vingroup (VIC) 24 September 2021

At present, Vinpearl owns and operates around 5,500 key rooms in Phu Quoc under
their own brand name. We estimate that occupancy rates in Phu Quoc properties
could increase to around 20-30% (versus nothing now) over the last three months of
the year if the government allows in-bound tourism activity to recommence to this
destination. However, for most other Vinpearl operations, we would expect to see
insignificant activity for the rest of the year.
As a result, we have revised up our forecasted increase losses for the hospitality
segment in FY21, rising by 23.6% to VND11.2tn.
Nonetheless, we still expect recovery in FY22 as domestic vaccination levels increase
and the government plans for in-bound tourism bubbles come to fruition. If in-bound
tourism bubbles are shown to work effectively and there is international tourism
demand, then there is upside risk to our forecasts
In FY22 and FY23, we are forecasting125.6% y/y and 52.4% y/y growth in revenue
for the hospitality segment to VND6.6tn and VND10.8tn, respectively. We maintain
our forecast that the hospitality division will breakeven at the EBITDA level in FY23.
Figure 5: Forecast revenue and EBITDA, Vinpearl
We are projecting EBITDA breakeven in FY23

Revenue EBITDA

15,000

10,000

5,000

-
FY20 FY21F FY22F FY23F FY24F FY25F
(5,000)

(10,000)
Source: Company data, HSC forecast

Automobile segment – challenges abound

We consider the impact of COVID-19 on the manufacturing division of Vingroup to
include:
 Sales: Lockdowns and the slowdown in economic activity has eroded people’s
incomes; as a result we can assume that sales volumes for this year and next might
be lower than our previous assumptions.
Vinfast, for this year, has run several promotional campaigns to boost sales
including offering lower selling prices for the three models - Fadil, Lux A and Lux
SA. Promotion prices are around 16-25% lower than original prices.
 Product deliveries: We believe that the lockdown situation in several provinces
has also led to delays in car deliveries to customers.
Given the above, we cut our revenue for the division by 27.8% and 20.7% for FY21
and FY22 to VND16.3tn (down 8.4% y/y) and VND23.2tn (up 41.8% y/y), respectively.
Overall, we forecast that Vinfast will deliver a total automobile volume of 35,750 units
this year, down from 44,200 units in our previous forecast. For FY22 and FY23, we
forecast 44,300 units (up 23.9% y/y) and 75,750 units (up 71% y/y) respectively.
Electric car update – plenty of work still to be done
After launching the first electric car model, the VFe34, in the domestic market earlier
this year, Vinfast has recently introduced two new models - the VFe35 and VFe36.
The VFe35 is a SUV in the D class while the VFe36 is a SUV in the E class. Both
models are available with either fuel or electric engine options and have advanced

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 Company Focus - Vingroup (VIC) 24 September 2021

autonomous driving features. At present, official prices for these two models have not
been announced yet.
Regarding delivery, the company still needs to complete orders of the VFe34 that they
took in March to clients. They intend to do this by the end of this year although any
information about volumes has not been provided.
We also understand that the company is continuing to work on launching EV products
in international markets in FY22. Phase one of its “go – international” strategy targets
markets in America and Europe such as the US, Canada, Netherlands, Germany and
France. The company indicates that they have already established offices in those
countries and is working to form sales teams, establish showrooms and run marketing
campaigns in the markets it intends to operate in. Next step will be accepting pre-
orders, starting first with the US market.
Target sales for international markets have not been disclosed by Vinfast. Our view is
that the company is in a very early phase of entering those markets so demand for
their products is hard to assess. Automobile producers and exporters are currently
faced with numerous challenges including global chip and shipping container
shortages.
Earlier this year at the AGM, the chairman of the group shared that one of the key
focuses of Vinfast in developing their automobile products is the advanced smart
feature integration which is expected to bring a competitive advantage. These include
advanced autonomous driving, AI personal voice assistant, integrated mobile payment
and smart home features connectivity, etc. Nonetheless, the more advanced those
smart features are, the greater the requirement of chips and the greater value they
become in total production cost.
According to Bloomberg, the Chairman of Taiwan Semiconductor Manufacturing Co
Ltd (TSMC), one of the largest semiconductors in the world, has stated that the current
global chip shortage is a result of poor planning in previous periods, a surge of demand
for electric devices including those in electric vehicles and a disruption in
manufacturing due to COVID-19.
According to TSMC, shortages may last until at least the end of FY22. This means
that should Vinfast receive sizeable a domestic and/or foreign orders for their electric
vehicles, their customers may face serious delivery delays due to chip shortages.
The surge in shipping costs around the world due to the container shortages is also
very problematic as it makes the final cost of exports products hard to estimate. Vinfast
may have to absorb additional shipping costs or sell at a higher price than they would
wish at launch.
Given all of the above factors, we are taking a conservative view in forecasting electric
car volume for Vinfast, for both this year and next. We assume demand for its electric
vehicles will come almost entirely from the domestic market.
We are forecast that for this year, Vinfast will deliver a total of 2,500 VFe34 units to
local customers while for next year, total volume is estimated to increase to 5,000
units. For FY23, we estimate a volume of 8,750, a growth rate of 75% y/y.
When forecasting the average selling price for the VFe4 model, we use an average of
the promotional price of VND590mn/unit for pre-orders made before 30 May and the
official launching price of VND690mn/unit. We then assume that selling prices will
increase by 10-15% in the next two years.

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 Company Focus - Vingroup (VIC) 24 September 2021

Figure 6: Forecasted sale volumes of Vinfast cars

We project a CAGR of 37% in volumes sold in FY20-23

Sedan SUV Hatchback EV

80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
FY20 FY21F FY22F FY23F
Source: Company data, HSC forecast

Divestment in CrownX – lower proceeds than expected

At the end of FY20, the balance of securities for trading on the consolidated balance
sheet of Vingroup came to VND5,538bn. We understand that this balance represents
the value of a 13% stake in CrownX – the entity after the merger of Masan Consumer
and Vincommerce.
In 1H21, VIC continued to sell down its stake in CrownX. Buyers and other details of
any transactions were not disclosed. We estimate that VIC sold a 11.7% stake in
CrownX in 1H21, for proceeds of VND12.5tn. The company recorded a gain of
VND7.6tn in financial income in the period which implies a value of USD4.6-4.8bn for
CrownX.
The estimated implied valuation was much lower than our original forecast. We had
based our previous estimation of USD7.5-7.9bn on the valuation VIC achieved for its
stake sale (9% of CrownX) in FY20. This was also close to the valuation that MSN
sold a 5.5% stake in CrownX to the consortium led by Alibaba Group (“Alibaba”) and
Baring Private Equity Asia (“BPEA”) in early May this year.
We have therefore revised down our estimated total gains from CrownX transaction in
FY21 from VND10tn to VND8.5tn while we also forecast that there will be no gain from
transactions in FY22 (this is versus VND5tn in our previous forecast).
The lower than expected proceeds from the recent sales of CrownX is a key driver
behind our downward revision in earnings of VIC in FY21 and FY22.

VHM stake sales

According to announcement by Vinhomes, from 19 Aug to 6 Sep, Vingroup sold
100,485,418 VHM shares, equivalent to 3% of total outstanding shares of VHM. After
the transaction, according to our estimates, Vingroup has reduced their effective
interest in VHM from 72.66% to 69.66%.
Due to the reduced interest of Vingroup in its subsidiary, VHM, by three percentage
points, we have revised down our estimated attributable profit from VHM by around
4.1% in each of FY21, FY22 and FY23.
We have also reflected VIC’s reduced ownership in VHM in our valuation which leads
to 0.5% cut in our fair value estimate of Vingroup’s equity.

Cutting FY21-23 earnings estimates

At the group level, we are cutting our net profit estimates for FY21, FY22 and FY23 by
83.1%, 85.3% and 44% to VND971bn (down 82.2% y/y), VND1.1tn (up 13.7% y/y)
and VND5.8tn (up 426% y/y) respectively. This is mainly due to:
(1) Lower gains from the sales of the remaining stakes in CrownX.
(2) Lower estimated profit from the leasing segment (VRE).

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 Company Focus - Vingroup (VIC) 24 September 2021

(3) Increased estimated losses from the hospitality segment (Vinpearl).

(4) Increase estimated losses from the manufacturing segment (Vinfast).
(5) Increase in profit attributable to minority shareholders as a result of VIC selling
down its stake in VHM.
We are revising down our revenue estimates for FY21, FY22 and FY23 by 11.9%,
6.3% and 2.7% to VND82.5tn (down 25.4% y/y), VND153.7tn (up 86.4% y/y) and
VND200tn (up 30% y/y) respectively. Details by division are as follows:
 Property development: We keep mostly unchanged our forecasted revenue for
property development at VND44.5tn (down 37.8% y/y), VND101.4tn (up 128% y/y)
and VND118.5tn (up 16.8% y/y) in FY21, FY22 and FY23, respectively.
 Leasing of commercial properties: We cut our leasing revenue estimates by
30.2% and 12.8% for FY21 and FY22 to VND6.8tn (flat y/y), VND9.7tn (up 41.4%
y/y), respectively.
For FY21, we expect that VRE will provide a larger financial support package of
VND1.6tn (vs. ~VND500bn as previously forecasted) for tenants that are negatively
impacted by COVID-19. We also project that vacancy rates will increase by 2-10%
in 2H21 and FY22. We also assume a lower rent reversion of between 0% and -4%
for FY22 (vs. 4-7% as previously). We keep unchanged our estimated revenue for
FY23 at VND11.5tn (up 18.5% y/y).
Figure 7: Forecasted earnings revision, VIC
We are cutting significantly our estimated earnings in FY21-23
FY21F
VNDbn Before After Change % y/y
FY21 forecasted earnings
Revenue 93,572 82,455 -11.9% -25.4%
Gross profit 10,627 4,527 -57.4% -73.9%
SG&A (22,565) (20,601) -8.7% -0.3%
Net financial income/(expenses) 28,529 26,688 -6.5% 46.1%
Profit before tax 16,566 10,587 -36.1% -24.1%
Net profit 5,757 971 -83.1% -82.2%
FY22F forecasted earnings
Revenue 164,002 153,722 -6.3% 86.4%
Gross profit 42,702 40,176 -5.9% 787.5%
SG&A (24,981) (22,864) -8.5% 11.0%
Net financial income/(expenses) (797) (5,159) 547.3% -119.3%
Profit before tax 16,924 12,153 -28.2% 14.8%
Net profit 7,517 1,104 -85.3% 13.7%
FY23F forecasted earnings
Revenue 205,245 199,784 -2.7% 30.0%
Gross profit 52,940 50,744 -4.1% 26.3%
SG&A (28,976) (26,700) -7.9% 16.8%
Net financial income/(expenses) (998) (3,055) 206.1% -40.8%
Profit before tax 23,983 21,006 -12.4% 72.9%
Net profit 10,366 5,808 -44.0% 426.2%
Source: Company data, HSC forecast

 Hospitality segment: We are cutting revenues for the hospitality segment by 47%,
30.9% and 17% in FY21, FY22 and FY23 respectively to VND2.9tn (down 39.9%
y/y), VND6.6tn (up 125.6% y/y) and VND10.1tn (up 52.4% y/y).
For FY21, we expect occupancy rates across Vinpearl projects to remain low at 10-
17% except for those in Phu Quoc where we assume that occupancy rates in 4Q21
increase to around 35%. This reflects the government’s plan to allow the
resumption of in-bound tourism. We expect negligible activities at other projects for
the whole of 2H21.
For FY22, we expect occupancy rates across projects to recover 20-40%, while for
FY23, we expect that, with the resumption of in-bound tourism, occupancy rates

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 Company Focus - Vingroup (VIC) 24 September 2021

will further recover to around 45-50% on average. We do not forecast any growth
in room rates for FY21 and FY22 but 5% y/y for FY23.
 Manufacturing: We are revising down our estimated revenue of Vinfast this year
by 27.8% to VND16.3tn (down 8.4% y/y). Although the sales of products at
promotional prices (which are 16-25% lower than official announced prices), implies
larger losses per unit which need to be borne by the company, this is partially offset
by a lower estimated total volume delivered of 35,750 units (vs. 44,200 previously).
We revise down FY22 and FY23 revenue for the manufacturing division by 20.7%
and 7.1% to VND23.2tn (up 41.8% y/y) and VND45.7tn (up 97.2% y/y) mainly due
to a cut of 17.2% and 3.8% in total volume of cars sold to 44,300 units and 75,750
units respectively.
Total gross profits for FY21, FY22 and FY23 are revised down by 57.4%, 5.9% and
4.1% to VND4,527bn (down 73.9% y/y), VND40.2tn (up 787% y/y) and VND50.7tn (up
26.3% y/y). This implies gross profit margins of 5.5%, 26.1% and 25.4%, respectively.
Net financial income/(expenses) in FY21 is also revised down by 6.5% to VND26.7tn
(up 46.1% y/y) due to lower estimated profit from the CrownX divestment.
Note that bulk sales income booked under financial income in FY21 is estimated at
around VND28tn making up 72.7% of total financial income in FY21 (at VND38.4tn).
For FY22 and FY23, we revise up our forecasts for net financial expenses to VND5.2tn
and VND3.1tn (vs. VND797bn and VND998bn), respectively. This reflects higher
estimated borrowing costs which are needed to finance operating losses for the
hospitality and manufacturing segments.
We also cut SG&A expenses in FY21, FY22 and FY23 by 8.7%, 8.5% and 7.9%
respectively to VND20.6tn (flat y/y), VND22.9tn (up 11% y/y) and VND26.7tn (up
16.8% y/y) on lower sales.
Our estimated total profit before tax is now 36.1% lower at VND10.6tn (down 24.1%
y/y) than our previous forecast in FY21. This is driven mainly by 45.2% lower profit at
VRE, 23.6% larger losses at Vinpearl and a lightly larger loss at Vinfast.
For FY22 and FY23, we cut our profit before tax forecast by 28.2% and 12.4% to
VND12.2tn (up 14.8% y/y) and VND21tn (up 72.9% y/y) mainly due to larger net
financial expenses respectively.
Figure 8: Forecasted profit before tax by segment, VIC
FY21F
(VNDbn) Before After Change % y/y
FY21F
Real estate (VHM) 44,394 44,394 0.0% 21.6%
Leasing (VRE) 3,114 1,707 -45.2% -43.0%
Hotel (9,082) (11,226) 23.6% 24.3%
Manufacturing (19,233) (18,998) -1.2% -206.2%
Others & adjustment (2,627) (5,290) 101.4% 36.1%
Total 16,566 10,587 -36.1% 224.5%
FY22F
Real estate (VHM) 45,621 45,621 0.0% 2.8%
Leasing (VRE) 3,890 3,376 -13.2% 97.8%
Hotel (5,968) (5,752) -3.6% -48.8%
Manufacturing (24,298) (20,895) -14.0% 10.0%
Others & adjustment (2,319) (10,197) 339.7% 92.7%
Total 16,926 12,153 -28.2% 14.8%
FY23F
Real estate (VHM) 54,774 54,774 0.0% 20.1%
Leasing (VRE) 4,353 4,349 -0.1% 28.8%
Education 349 349 0.1% 65.7%
Manufacturing (24,848) (22,490) -9.5% 7.6%
Others & adjustment (7,134) (12,663) 77.5% 24.2%
Total 24,086 21,006 -12.8% 72.9%
Source: HSC forecast

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 Company Focus - Vingroup (VIC) 24 September 2021

The net effect is that our net profit projections are cut by 83.1%, 85.3% and 44% to
VND971bn (down 82.2% y/y), VND1.1tn (up 13.7% y/y) and VND5.8tn (up 426% y/y)
respectively. Overall, we are forecasting a 2.1% CAGR in net profit for VIC in the next
three years with a base of VND5.5tn in FY20. Details are provided in figure 8 above.

Weaker cashflow due to COVID-19

Given the changes to our earnings estimates as described above, cashflow is likely to
be weaker overall for Vingroup. We estimate that consolidated operating and investing
cashflow for VIC in FY21, FY22 and FY23 will come to negative VND11.1tn,
VND23.7tn and VND36tn, respectively, versus positive VND6.8tn in FY21, and
negative VND40.5tn and VND34.8tn in FY22 and FY23, respectively, in our previous
estimates.
For this year, financing cashflows will be supported by the issuance of exchangeable
bonds at Vinpearl (which are exchangeable into VHM shares and VIC shares) for a
total consideration of around USD925mn, the 3% stake sale in VHM for total proceeds
of around USD466mn and the use of other debt instruments such as straight bonds
and bank loans.
Due to limited information available on the possible issuance of any equity or hybrid
instruments in future periods, we are assuming borrowing will increase in FY22 and
FY23. This has led us to revise up the group’s net debt equity ratio in FY22 and FY23
to 1.1x and 1.2x, respectively (up from 0.83x and 1.03x in our previous forecast). This
reflects larger debt drawdowns and, therefore, higher financing costs. EBITDA interest
coverage ratios on a consolidated basis for FY22 and FY23 are 2.8x and 3.0x,
respectively.
Nonetheless, we note that other financing options including equity/hybrid instrument
issuance or further sales of stakes in subsidiaries could be considered, especially
given that the net debt/equity ratios are already at a high level.
The weaker cashflows and the great uncertainty around recovery for several operating
segments had led us to add a 10% discount on top of the 10% conglomerate discount
we apply to Vingroup.

Valuation and recommendation

We are revising down our target price for VIC by 23.1% to VND88,500. This reflects:
1) Lower projected earnings for FY21, FY22 and FY23 due to the negative
impact of the COVID-19 on the leasing, hospitality and manufacturing
divisions as well as lower gains from the CrownX stake sales.
2) Reduced interest in VHM from 72.66% to 69.66%.
3) Widening discount to RNAV from 10% to 20%. This reflects a conglomerate
discount as well as uncertainties regarding the recovery path of several
operating segments of Vingroup.
Details of our valuation methodology are as follows:
 We have rolled our valuation to end FY22.
 We apply a sum of the part (SOTP) valuation for Vinhomes and Vincom Retail. For
the retail leasing segment of Vincom retail and the office leasing segment of
Vinhomes, we use a net operating income (NOI)/capitalization rate of office and
retail segments while for the property development segments at those companies,
we use RNAV. Details of VHM’s valuation can be found in our most recent report
issued on 08 June, while that for VRE was detailed in our note issued on 10 August.
 For the hospitality (Vinpearl) and manufacturing (Vinfast) divisions, we use DCF
models for valuation. Our growth phase is from to FY22-FY30. We apply a terminal
growth rate of 3% thereafter.
 Our assumed cost of capital is 10.2%. Our risk free rate assumption is 3% while we
use a market risk premium of 9%.

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 Company Focus - Vingroup (VIC) 24 September 2021

 We then adjust for other assets, liabilities, minority interest and net debt to arrive at
an RNAV for VIC of VND110,736.
 We have widened our discount to RNAV from 20% to 10% as we feel the cashflow
risks are now increasing. The remaining discount reflects a conglomerate discount.
The stock is trading on a 21.2% discount to RNAV, which is wider than its 14.3%
historical average, seen since June 2019. However, we think the discount could widen
further given the challenging earnings outlook, weakening cashflow and vulnerability
to macro environment, in particular COVID-19 situation.
We downgrade to Hold from Add.
Figure 9: Valuation, VIC
VNDbn Asset value Methodology
VHM 399,703 DCF
VRE 99,631 DCF
Hotel/Resorts 42,030 DCF
Vinfast 208,943 DCF
Gross asset value 750,307
Other assets 33,863 BV
Net debt (129,660)
Minority interest (229,438)
RNAV 425,072
Total outstanding shares 3,838,608,271
RNAV per share (VND) 110,736
Discount to RNAV 20%
Target price (VND) 88,500
Source: HSC estimates
Figure 10: Discount to RNAV, VIC
VIC’s discount to RNAV is at 21.2% versus its historical average of 14.3% seen in June
2019

0.15
0.1
0.05
0
-0.05
-0.1
Average
-0.15
-0.2
-0.25
-0.3
-0.35
-0.4
Jun-19
Source: Fiinpro, HSC estimate

Figure 11: Sensitivity analysis of RNAV/share, VIC

Our sensitivity analysis indicates price range between VND98,611-135,263
Risk free rate 2.0% 2.5% 3.0% 3.5% 4.0%
2.0%
121,053 114,941 108,751 103,822 98,611
Terminal growth rate

2.5%
123,825 117,415 110,932 105,785 100,342
3.0%
127,034 120,262 110,736 108,014 102,296
3.5%
130,795 123,570 116,295 110,569 104,520
4.0%
135,263 127,465 119,644 113,525 107,073
Source: HSC estimate

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 Company Focus - Vingroup (VIC) 24 September 2021

Risks
COVID-19 might weaken VHM pre-sales: For this year, VHM targets a pre-sales
value of VND91tn. Our estimate is lower at VND85tn, of which VND16.5tn is
expected to come from the three new projects in Hanoi, Vinhomes Wonder Park,
Vinhomes Dream City and Vinhomes Co Loa.
With our current assumptions that lockdowns will start to be loosened from the
end of September, the impact to pre-sales should be insignificant. However, those
launches are still vulnerable should the situation in Hanoi and other adjacent
provinces deteriorate.
Any delay of those launches would lead to lower earnings expectations for FY22.
Against this, however, VHM could accelerate launches in 1Q22 to compensate.
Remaining uncertainties around COVID-19: The short-to-mid term outlook of
several Vingroup divisions remain obsured by COVID-19 – the current extent and
duration of the recent outbreak in Vietnam remains highly uncertain.
The leasing and hospitality segments are especially vulnerable to further domestic
outbreaks of consequence. If the current situation were to deteriorate while the vaccine
roll-out proves to be slower than expected, further financial support packages might
need to be provided to VRE’s tenants in FY22 and the reduced occupancy rates
Vinpearl’s resorts and hotels will continue for longer.
Legal risks related to residential property development: As with most other
property projects, legal risk remains a key business risk for property developers. Any
legal obstacles around the approval process might signficantly lenghten the
preparation time to launch a project and this, in turn, may lead to cashflow propblems
for developers.
It is observed that the process of seeking approvals for large to very large projects
are normally more complicated and time consuming. We note that any legal issues
arising in the approval process might lead to delays in the development timelines.
This would cause earnings shortfalls in our earnings forecasts for VHM.
Nonetheless, a mega project which has obtained enough approvals for development
will fuel growth for several years and thus should protect the company from any
periods where there might be limits on new project approvals.
Business risks
The conglomerate structure has always concerned investors because of the inefficient
allocation of capital. In this case, the automobile business of Vingroup requires large
CAPEX and remains in need of further capital every time a new model is launched.
Vinfast is making a sizable operating loss and it might not breakeven in the next five
years. Leverage is likely to remain high and poses a risk should any untoward event
negatively impact the company.

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 Company Focus - Vingroup (VIC) 24 September 2021

Financial statements and key data

Income statements (VNDbn) 12-19A 12-20A 12-21F 12-22F 12-23F Cash flow statements (VNDbn) 12-19A 12-20A 12-21F 12-22F 12-23F
Sales 130,036 110,490 82,455 153,722 199,784 EBIT 12,517 15,555 10,976 20,397 31,967
Gross profit 37,551 17,313 4,527 40,176 50,744 Depreciation & amortisation (8,338) (10,064) (10,289) (12,855) (15,231)
SG&A (26,926) (20,657) (20,601) (22,864) (26,700) Net interest (4,672) (8,109) (7,727) (8,244) (10,977)
Other income 2,925 19,862 27,921 4,057 9,079 Tax paid (7,942) (9,410) (10,444) (11,057) (13,335)
Other expenses (1,034) (964) (870) (972) (1,156) Changes in working capital 9,848 14,309 (25,919) (21,993) (39,827)
EBIT 12,517 15,555 10,976 20,397 31,967 Others 428 (4,010) (22,455) (1,578) (6,744)
Net interest (4,672) (8,109) (7,727) (8,244) (10,977) Cash flow from operations 15,967 15,955 (48,610) (13,713) (28,204)
Associates/affiliates (688) (265) (25.9) (0.70) 16.9 Capex (55,176) (27,544) (15,518) (14,034) (16,888)
Other non-operational - - - - - Acquisitions & investments (61,533) (21,962) 0 0 0
Exceptional items 8,481 6,762 7,364 0 0 Disposals 34,429 26,390 53,034 4,057 9,079
Pre-tax profit 15,637 13,943 10,587 12,153 21,006 Others 22,413 6,903 0 0 0
Taxation (7,921) (9,397) (10,444) (11,057) (13,335) Cash flow from investing (59,866) (16,214) 37,517 (9,977) (7,810)
Minority interests (171) 919 828 8.35 (1,863) Dividends (2,189) (7.19) 0 0 0
Exceptional items after tax - - - - - Issue of shares 13,453 8,932 0 0 0
Net profit 7,546 5,465 971 1,104 5,808 Change in debt 37,525 2,292 14,646 26,284 27,884
Other financing cash flow 0 0 0 0 0
Net profit adj'd 666 (2,351) (5,800) 1,104 5,808 Cash flow from financing 48,789 11,216 14,646 26,284 27,884
EBITDA adj. 20,854 25,618 21,266 33,252 47,197
Cash, beginning of period 13,557 18,447 29,404 32,957 35,552
EPS (VND) 2,056 1,475 253 288 1,513 Change in cash 4,890 10,957 3,553 2,595 (8,129)
EPS adj. (VND) 181 (635) (1,477) 281 1,479 Exchange rate effects (0.48) (0.69) 0 0 0
DPS (VND) - - - - - Cash, end of period 18,447 29,404 32,957 35,552 27,422
Basic shares, average (mn) 3,670 3,705 3,839 3,839 3,839
Basic shares, period end (mn) 3,562 3,708 3,839 3,839 3,839 Free cash flow (39,208) (11,589) (64,127) (27,746) (45,092)
Fully diluted shares, period end (mn) 3,562 3,708 3,927 3,927 3,927

Balance sheets (VNDbn) 12-19A 12-20A 12-21F 12-22F 12-23F Financial ratios and other 12-19A 12-20A 12-21F 12-22F 12-23F
Cash 18,447 29,404 32,957 35,552 27,422 Operating ratios
Short-term investments 11,173 10,414 0 0 0 Gross margin (%) 28.9 15.7 5.49 26.1 25.4
Accounts receivable 63,872 52,396 37,952 43,121 49,539 EBITDA adj. margin (%) 16.0 23.2 25.8 21.6 23.6
Inventory 83,809 62,495 90,000 104,748 141,588 Net profit margin (%) 5.80 4.95 1.18 0.72 2.91
Other current assets 20,092 11,305 11,452 16,057 20,188 Effective tax rate (%) 50.7 67.4 98.7 91.0 63.5
Total current assets 197,393 166,014 172,361 199,477 238,738 Sales growth (%) 6.68 (15.0) (25.4) 86.4 30.0
EBITDA adj. growth (%) 28.2 22.8 (17.0) 56.4 41.9
PP&E 88,299 103,813 102,221 98,058 94,175 Net profit adj. growth (%) 559 (453) (147) 119 426
Intangible assets 19,970 21,827 24,917 26,429 27,721 EPS growth (%) 82.1 (28.3) (82.9) 13.7 426
Investment properties 33,872 34,726 37,871 41,007 44,448 EPS adj. growth (%) 524 (450) (133) 119 426
Long-term investments 1,803 4,688 4,688 4,688 4,688 DPS growth (%) - - - - -
Associates/JVs 2,147 2,725 2,700 2,699 2,716 Dividend payout ratio (%) - - - - -
Other long-term assets 60,256 88,710 89,296 89,990 90,797
Total long-term assets 206,348 256,490 261,692 262,871 264,545 Efficiency ratios
Return on avg. equity (%) 11.6 7.02 1.11 1.15 5.84
Total assets 403,741 422,504 434,054 462,348 503,283 Return on avg. CE (%) 6.24 6.54 4.14 7.21 11.0
Asset turnover (x) 0.38 0.27 0.19 0.34 0.41
Short-term debt 32,996 25,972 27,660 44,446 74,037 Operating cash/EBIT (x) 1.28 1.03 (4.43) (0.67) (0.88)
Accounts payable 17,564 18,511 21,200 21,239 27,239 Inventory days 331 245 422 337 347
Other current liabilities 73,272 79,657 70,380 68,815 66,565 Accounts receivable days 252 205 178 139 121
Total current liabilities 181,293 169,223 156,488 173,746 208,262 Accounts payable days 69.3 72.5 99.3 68.3 66.7

Long-term debt 84,430 98,309 111,268 120,766 119,059 Leverage ratios

Deferred tax 470 552 552 552 552 Net debt*/equity (%) 197 167 142 166 192
Other long-term liabilities 16,776 18,191 13,117 13,560 14,014 Debt/capital (%) 41.8 38.2 38.7 42.3 44.4
Long-term liabilities 101,677 117,052 124,936 134,877 133,625 Interest coverage (x) 2.68 1.92 1.42 2.47 2.91
Debt/EBITDA (x) 8.10 6.31 7.90 5.88 4.74
Total liabilities 283,152 286,651 281,801 308,999 342,263 Current ratio (x) 1.09 0.98 1.10 1.15 1.15

Shareholders' funds 76,417 79,196 95,419 96,523 102,331 Valuation

Minority interests 44,171 56,657 56,834 56,826 58,689 EV/sales (x) 3.15 3.78 5.34 3.02 2.50
Total equity 120,589 135,853 152,253 153,349 161,020 EV/EBITDA adj. (x) 19.6 16.3 20.7 14.0 10.6
P/E (x) 42.4 59.1 344 303 57.6
Total liabilities and equity 403,741 422,504 434,054 462,348 503,283 P/E adj. (x) 480 N/a N/a 310 58.9
P/B (x) 4.06 4.08 3.50 3.46 3.27
BVPS (VND) 21,455 21,357 24,858 25,145 26,658 Dividend yield (%) - - - - -
Net debt/(cash)* 98,979 94,878 105,970 129,660 165,673
Note: *Excluding short-term investments.
Source: Company, HSC Research estimates

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 24 September 2021

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Explanation of Institutional Equity Research Ratings

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