The stock’s re-rating would depend on the recovery in Vietnam’s property sentiment which is unlikely before FY24F.

Since 2Q22, the price of building materials has slowed. Particularly, local steel prices have fallen 14.1% from their April peak and are now only 0.1% above where they were at the start of 2022. The selling price of construction steel is predicted by VNDirect to steadily decline in 2023F, which should lessen pressure on the gross margins of building contractors and real estate developers and hasten the completion of public investment projects and help real estate developers lower home prices.

For Vinhomes (VHM: HOSE)

VHM released 3Q22 results, reporting net revenue of VND17.8tr (-13.9% yoy) and net profit of VND14.5tr (29.8% yoy). The financial income from large sales transactions, which totaled over VND8.9 trillion, as well as the ongoing transfers of retail space at Ocean Park, Grand Park, Smart City, and The Empire were the main drivers of the brisk net profit development. As a result, VHM reported a 9.M22 NP drop of 27.3% yoy, which was significantly better than the 1H22 NP's abrupt shrinkage of 68.3% yoy.

Pre-sales for Vinhomes Ocean Park 3 - The Crown and Vinhomes Golden Avenue in Quang Ninh, both of which are scheduled to open in November, will assist VHM's 4Q22 presales. Pre-sales for FY22F are projected to total VND129.7 trillion (64.4% yoy) when accumulated. According to Ms. Nguyen Cam Tu, analyst at VNDirect, presale activities in FY23F would see a reduction in presales value of 33.8% yoy due to decreased investor demand for real estate in the context of rising interest rates.

“With a significant distribution from The Empire and The Crown, we anticipate VHM's FY23F revenue to reach VND83,124bn (66.4% yoy from lowbase in FY22F). However, because a significant amount of bulk sales were reported in financial revenue in FY22, the net profit for FY23F only improved by 3.3% year over year to VND32,087bn”, said Ms. Nguyen Cam Tu.

Regarding Nam Long (NLG: HOSE)

NLG reported 3Q22 revenue up by 484% yoy to VND882bn, thanks to handovers at Flora Akari and Valora Southgate. However, 3Q22 net profit sharply dropped by 97% yoy to only VND8bn due to lack of one-off gains.

Ms. Nguyen Cam Tu expects NLG to launch 35 low-rise units in Southgate project, valued at c.VND700bn in 4Q22. Accumulated, we estimate FY22F presales surge by 78.9% yoy to VND10,601bn. For FY23F, she forecasts FY23F presales to plunge 41.8% yoy to VND6,516bn due to subdued housing demand.

“We forecast NLG to report FY23F revenue down 29.3% yoy to VND2,816bn, still mostly from Valora Southgate and Can Tho 43ha projects. However, we estimate FY23F net profit to surge by 104% yoy to VND465bn on BCC project handovers namely Mizuki and FY22F low base, a six-year low”, said Ms. Nguyen Cam Tu.

As for Khang Dien (KDH: HOSE)

KDH posted 3Q22 revenue down by 33% yoy to VND803bn, thanks to handovers at Classia project. 3Q22 gross profit margin impressively expanded by 23.7% pts yoy thanks to high-margin low-rise project handovers. As a result, 3Q22 net profit rose by 11% yoy to VND352bn.

Property sector index is currently selling at 1.9x current P/B, a 32% discount to its 3-year average of 2.7x

Ms. Nguyen Cam Tu forecasts KDH’s 4Q22 presales to VND700-800bn from Classia project (vs. VND100-150bn in 4Q21 due to lack of new project launches). Accumulated, FY22F presales soar 676% yoy to VND2,804bn on FY21 low base. FY23F presales rise 78.7% yoy to VND5,484bn on two new project launches namely Clarita and Privia. She believes KDH could maintain positive take-up on transparency legal document, high quality product, high exposure to end users, as buyers in these projects are less sensitive to high inflation and mortgage rate.

“We estimate KDH’s FY23F revenue to decrease slightly 0.8% yoy to VND2,942bn, mostly from Classia and Clarita projects. FY23F gross margin will still be high at 60.8% (-5.0% pts yoy) on low-rise handovers. However, we forecast FY23F net profit to decline by 23.6% yoy to VND1,070bn due to lack of one-off gains”, said Ms. Nguyen Cam Tu.

Concerning Dat Xanh Group (DXG: HOSE)

DXG’s 3Q22 revenue slightly decreased by 4% yoy to VND1,255bn due to a drop of 35% yoy in property handover revenue. However, 3Q22 financial income sharply surge 349% yoy to VND211bn thanks to divestment activities. As a result, 2Q22 net profit rose 195% yoy to only VND153bn.

Ms. Nguyen Cam Tu estimates DXG’s FY23F revenue to bounce back 82.2% yoy thanks to the last phase of Gem Sky Word and Opal Skyline handovers. FY23F gross profit margin will stay at high level of 50.5% (-2.4% pts yoy). Following that, we forecast FY23F net profit surge by 132% yoy to VND2,762bn on FY22F low base.

While the stock is trading at cheap valuations, Ms. Nguyen Cam Tu believes the stock’s re-rating would depend on the recovery in Vietnam’s property sentiment which is unlikely before FY24F. The downturn in housing market likely keeps worse in 1H23F, until inflation is under control and interest rates revert back to more sustainable norms, allowing market pricing to reset.