Industrial real estate: Leverage from rebounding FDI

Sat, 29 Jan 2022 10:07:00  |  Print  |  Email   Share:

FDI recovery after economic reopening is expected to boost industrial parks in the coming time.


The protracted pandemic has affected foreigners’ demand for leasing industrial parks in 2021.

Negative impact of pandemic

The protracted pandemic has affected foreigners’ demand for leasing industrial parks in 2021. Newly registered FDI in 11M21 inched up 0.1% YoY to USD26.46 billion, which is low compared to the pre-COVID CAGR of 11.5% in 2012-2019. Notably, disbursed capital dropped 4.2% YoY to USD17.1 billion. The pandemic not only makes the demand lower but also slows down the construction and delivery progress of industrial parks, shown in small newly leased area of 520 ha in 9M21.

In terms of legal issues, the total area of industrial parks approved by the Prime Minister in 9M21 is up to 7,670 ha, 2.2 times higher than the total area recorded in 2020. The industrial real estate industry also witnessed a significant increase in the average rent, reaching USD114/m2 (7.3% YoY) in the South and USD108/m2 (6.1% YoY) in the North as of 3Q21.

Catalysts in 2022

In KB Securities’ opinion, the catalysts for the industrial parks in 2022 include: (1) Accelerated public investment vs the current low of 65.7% capital disbursed in 11M21; (2) the stimulus package of VND 800,000 billion, which is expected to boost the construction of infrastructure and make Vietnam's industrial parks more attractive to investors; (3) recovering FDI inflows as the need to move manufacturing bases away from China is still very large; (4) shortened time for legal approval of industrial parks thanks to the government's efforts in policy reform (Currently, there are many enterprises operating in this sector have available landbank but have not been able to implement the project because of prolonged licensing process); and (5) strongly rebounding industrial park rents in 2022 thanks to increasing production demand, improving infrastructure and lacking supplies of industrial parks.

However, KBSV believes the biggest risks for the industrial parks in the coming time are (1) Protracted legal procedures (Vietnam's industrial park approval process is complicated, delaying the construction progress of industrial park projects); and (2) lasting adverse effects of the pandemic on FDI flows into Vietnam.

Stock picks

Among shares of industrial parks, KB Securities recommend buying Cuong Thuan IDICO (CTI) shares with a target price of VND39,100/share, equivalent to a total yield of 55% based on the SOTP. Because, it expects that the toll stations of build-operate-transfer (BOT) 319 and BOT for building material transportation would bring in VND17 billion and 77billion in gross profit to CTI in 2022, raising net profit to VND386 billion (41.5% YoY). CTI should also earn VND500 billion in refund of the discontinued BOT 91 T2 project, which will not affect CTI's profit and loss.

“The potential of CTI's core businesses is high thanks to: (1) High growth potential of the new stone segment (currently 25% of design capacity), (2) high likelihood of bid winning of the construction segment given the need to disburse VND110,000 billion for Long Thanh International Airport (LTIA) and regional infrastructure, and (3) potentially increasing prices of construction projects which are adjacent to many key projects such as Metro Ben Thanh - Suoi Tien and LTIA”, KB Securities said.

Besides, KB Securities recommends buying Tin Nghia Industrial Park Development (TIP) shares with a target price of VND81,550/share, potential upside 52.7% based on SOTP. Because TIP owns Tam Phuoc Industrial Park (323 ha and occupancy rate 100%) and considers investing in two new industrial parks, Commune Road 25 Industrial Park (250 ha) and Long Duc 3 Industrial Park (253 ha). The Commune Road 25 Industrial Park project is applying for the Prime Minister’s approval of the investment policy and should be opened for sale in 2023, while the Long Duc 3 Industrial Park is waiting for the capital mobilized via share issuance.

By: Business Forum Magazine



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