Seasonal effect to boost real estate stocks in Q4
Seasonal effect to boost real estate stocks in Q4
As of November 5, the real estate price index had decreased by 4.5 per cent during the previous 12 months, better than HNX-Index (-7.8 per cent) but slightly lower than VN-Index (+2.3 per cent).
Home buyers still excited with the real estate market
According to Savills’ preliminary statistics, apartment sales volume in Ho Chi Minh City was 5,220 units in the third quarter of 2015, up five per cent quarter-on-quarter (q-o-q) and 59 per cent year-on-year (y-o-y). The absorption rate in Ho Chi Minh City is at 17 per cent, down two per cent points q-o-q and y-o-y. The absorption rate has decreased due to the sharp increase in supply. In the third quarter, primary stock was 30,500 units, up 17 per cent q-o-q and 78 per cent y-o-y.
Sales volume in Hanoi for the third quarter of 2015 was 6,650 sold units, up 44 per cent q-o-q. The absorption rate in Hanoi was 45 per cent, up 11 per cent points q-o-q and six per cent points y-o-y. This is the highest quarterly transaction volume and absorption rate for the last four years.
Apartment supplies are increasing strongly due to the warming of the real estate market. There are more than 57,500 units from 92 projects expected to enter Ho Chi Minh City’s market from the fourth quarter of 2015 to 2017. In Hanoi, there are 24,000 units from 43 projects expected to launch in 2016. The construction and construction materials sectors will also benefit from the improvement in future apartment supplies.
Expected strong growth of residential and industrial park segments
We believe that the residential segment, the majority of the real estate sector, is enjoying a growth phase in 2015 and will continue to do so in 2016. However, the competitive environment in this sector will intensify due to new foreign direct investment (FDI) players entering the market, as well as huge apartment supplies from the third quarter of 2015 to 2017. We have a positive view on real estate developers who have already acquired large land banks at low prices and have a healthy financial situation to maintain their competitive advantages over the long-term.
For the fourth quarter of this year, we expect that revenues and profits of property companies will continue to enjoy a considerable growth rate due to the seasonal effect and the increase of capital flows into the real estate market. At the end of the year, demands for residences increase due to psychological effects on local home buyers. In addition, credit to the real estate segment usually increases strongly in this quarter. We believe that credit growth in the real estate sector for the whole year could reach over 20 per cent. Remittances from overseas Vietnamese also tend to surge in the fourth quarter. Around 20-25 per cent of these remittances have been invested in the real estate market in recent years.
We have positive long-term views on industrial park developers due to the flow of FDI into Vietnam, which is expected to increase considerably due to the improvement of regulatory systems and the positive effects of the Trans-Pacific Partnership and other existing and other new free trade agreements in 2015, driving the growth in demand for industrial park real estate. According to the Ministry of Planning and Investment, there were 299 industrial parks in Vietnam as of September 2015, with a total area of approximately 84,000 hectares (66 per cent for leasing). The leased area is over 26,000 hectares giving an occupancy rate of 48 per cent. In the first nine months of 2015, total FDI capital flows into industrial parks reached $8.7 billion, up 12 per cent y-o-y.
Our stock recommendation:
Vingroup (VIC) – Expected net income to increase strongly from 2016.
We give a “buy” recommendation for VIC in the long-term, with its NAV of VND50,500 per share (18 per cent upside). Sales activity for Vinhomes Central Park in Ho Chi Minh City and Vinhomes Times City (Park Hill) in Hanoi is better than our expectations. The company has set a target for regular revenue streams, generated from shopping malls, retail, hospitality and leisure, hospitals, and schools, to account for 50 per cent of its net revenue and profit in the next five to seven years. These segments are less affected by economic cycles than the real estate segment, and will therefore help the company to achieve long-term stable growth. We believe that revenues and net profit will increase strongly in 2016 and 2017 when most segments will be profitable.
Nam Long Investment Corporation (NLG) – Enjoying long-term competitive advantage with a large and cheap land bank.
We give a “buy” recommendation for NLG for the long-term with a NAV of VND22,400 per share (11 per cent upside including an expected dividend yield). We have a positive long-term view for NLG as the company owns large clean land banks of approximately 567 hectares in Ho Chi Minh City, and Binh Duong, Can Tho, and Long An provinces. For 2015, we project that NLG’s net income will reach VND186 billion ($8.3 million), up 95 per cent y-o-y. With the sale and handover progress of current and future projects, we believe that NLG’s earnings will be very positive for the next three years.
