phat dat real estate development joint stock company reports/2016/t11/tvs_pdr...expectation stated...

Phat Dat Real Estate Development Joint Stock Company

Everich Infinity Project Expected to Save Life

NOT-RATED

Son Nguyen, Senior Analyst [email protected]

Trading Data and Key Metrics Ticker: PDR

Sector: Real Estate

Listed since 30/July/2010

Price as of 25/Nov/ 2016 VND13,800

52-week range (VND) 15,900/12,000

Market cap (VND bn) 2,784

Shares outstanding(mn) 201.80

Free Float (mn) 66.6

10-day average volume 976,221

T12M P/BV (x) 1.2

T12M P/E (x) 19.2

Source: TVS, Thomson Reuters Data

Price Performance Chart

Source: TVS research, Thomson Reuters Data

Price Perf. (%) 3M 12M YTD

Absolute 9.5 -0.7 3.8

Source: TVS research, Thomson Reuters Data

Company Description

Phat Dat Real Estate Development (PDR) is one of the leading real estate developers in Vietnam. PDR is well-known company that has developed a chain of real estate projects under the “Everich” brand name. EverRich 1, completed in 2010, established PDR’s reputation and laid down a foundation for future projects.

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PDR VNIndex

Update I November 27, 2016

3Q2016 results of Phat Dat Real Estate Development JSC (HSX: PDR) confirmed our

skeptical view on the firm performance this year. It also raised our concerns for the

firm’s performance outlook. Below are the updates:

No revenue recognition led to the worst performance since Q3-2011. PDR do not book

any revenue in 3Q2016 with minor part of VND 3bn (-97% YoY). It is in line with our

expectation stated in last report Missing 2016 Targets. We believe the slow sale

progression from River City and Everich III hits hard to their business plan.

EverRich Infinity as life buoy - with favorable location and proper pricing strategy, we

expect Everich Infinity may save the 2016 target partly when it is topped out 19 October

2016. If construction at Infinity runs smoothly and hand-over happens as planned, PDR

can record VND 346-433 billion revenue and VND 100-120 billion profit in Q4. 2016EPS is

projected to be VND 830-VND 930.

Cash flow risk does exist and expected to be carried forward to 2017. Cash-flow

constraint and high inventories are still the biggest problems that stem from strong

competitions and unreasonable pricing strategy. Our analysis showed that almost PDR’s

projects, targeted to middle-end segments, faced fierce competition from surrounding

projects in term of pricing and delivery. In addition, PDR do not reveal any viable option

to restructure finance. As the result, debt repayment plan may be challenged by slow sale

progression.

Interest Rate Risk - Less favorable interest rate in 2017 adding more gloominess on PDR’s

business outlook when we expect (i) the inflation is rising, (ii) bad debts incurs significant

operating costs for banks, (iii) Government issues large amount of bonds to compensate

for deficit; and (iv) a possibility of a Fed’s rate hike.

Table: Financial Performance Summary

VNDbn Q3-

2016 Q3-

2015 %

9M-2016

9M-2015

% 2016

guidance 2015A

% completion

Revenue 3 118 -97% 225 345 -36% 1,300 449 17%

Net income 11 23 -55% 68 79 -14% 240 156 28%

Source: Company data, TVS Research

Thien Viet Securities JSC (TVS) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see more important disclosures in the last pages.

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PHAT DAT REAL ESTATE DEVELOPMENT CORP (PDR:HSX) – EQUITY UPDATE 2

9M2016 BUSINESS PERFORMANCE UPDATE

No revenue booked in Q3. Real Estate Development Corporation Phat Dat

(“PDR”) announced its 3Q2016 consolidated financial statements. It is worth to

note that revenue was booked VND3.1 billion (-97% YoY) compared with

Q32015‘s VND118 billion. PDR had the worst quarterly revenue since Q32011.

The firm did not record any revenue from sale of apartments or land lots. Q3’s

revenue came solely from providing services at projects (mainly at EverRich I).

The Q3 results did not come as a surprise. It is reminded that while 91% of

6M2016 revenues came from sales of land (VND202 billion), revenue from sales

of apartment accounted for only 4.5%.

Figure 1: Performance in 2015 and 2016

VNDbn Q3-2016 Q3-2015 % change (yoy) 9M-2016 9M-2015 % change

Revenue 3 118 -97% 225 352 -36%

COGS 1 74 -99% 127 218 -42%

Gross profit 2 43 -95% 99 134 -26%

Net income 11 23 -55% 68 79 -14%


Figure 2: Quarterly revenue Figure 3: Quarterly Net Income

Source: Company data, TVS Research Source: Company data, TVS Research

Besides, the inventories increased by c.VND 1,200 billion to reach VND 7,248

billion. River City is still the biggest concern as this project makes up more than

60% of total inventories. EverRich III and EverRich Infinity contribute VND 1,564

billion and VND 950 billion to the inventories successively. Unearned revenue

0

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100

120

140

Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Q2-2016 Q3-2016

Revenue

0

10

20

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Net Income

No sale progression from River City and Everich III hit hard to 3Q2016 business performance

…and inventory from River City, Everich III and Everich Infinity added up to VND 7,248 bn.



increased steadily around VND400 billion per quarter to reach VND 1,202 billion

on 30 September 2016. The amount is mainly drawn from Everich Infinity’s sale.

Figure 4: Revenue and income


Q42016 and 2017 – Everich Infinity as Life Buoy

Q4’s performance relied primarily on EverRich Infinity. The company’s

performance is in accordance with the view stated in our last report (Missing

2016 Target). The company recognized no revenue in Q3 because projects are

still under construction and not yet handed-over. EverRich Millennium would

not generate revenue until 2018 while EverRich II & III progress is heavily

dependent on external partners’ capital. PDR would have to rely on cash-flows

from Infinity until Q4-2017 at the earliest. EverRich Infinity is PDR’s cash cow

this year and next year. Locating 4km from the Saigon’s Notre-Dame Cathedral,

EverRich Infinity is a mixed-use project providing 764 residential and officetel

units. Prices range from VND45 -55 million per sqm. Sales progression has been

promising due to its locations and reasonable prices. The developer has been

reported to halt the selling of the remaining officetel units as demand has been

higher than expected. PDR anticipates high profit margin due to a favorable

Floor Area Ratio (FAR) and low land costs. The project was topped out on 19

October 2016 and began to hand-over some units in the last two months of

2016. If construction at Infinity runs smoothly and hand-over happens as

planned, PDR can record VND 346-433 billion revenue and VND 100-120 billion

profit in Q4. EPS is projected to be VND830-VND930. The last quarter may boost

whole year’s performance, yet we continually hold a conservative view on

completion of this year’s earnings. PDR will continue to record earnings from

Infinity in 2017.

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2012A 2013A 2014A 2015A 9M-2016

Revenue

Income

With favorable location and proper price strategy, Everich Infinity expected to save revenue’s life.





Figure 5: EverRich Infinity


Table 1 : EverRich Infinity details

Project EverRich Infinity

Location An Duong Vuong street, district 5

Land area 8,050sqm

Sellable area 54,050sqm

Number of units

Residential apartments: 439

Officetel: 325

Commercial: 1,271sqm

Unit sizes Apartments: 70-110sqm

Officetel:29-59sqm

Price from VND 45 million per sqm

Sale progress (estimate) >50% sold


More concerns to come in 2017. PDR pledges full commitment with creditors,

especially Dong A Bank, to find steps paying off the debts. The developer

announced that the principal would be repaid within 3 years 2016-2018, while

interest will be paid in 2019 and 2020. By 2020, the firm would pay off all

interest. Yet, PDR’s debt repayment plans pretty much depend on sale

progression.



Table 2: Repayment Schedule

No Source Principal (VNDbn)

Interest (VNDbn)

2016 2017 2018 2019 2020

1 River City Project 450 700 800 500 500

2 River City III 50 200 200 100 100

Land Lots 50 - - - -

Block A

200 100 100 100

Block B,C - - 100 - -

3 Other Projects - 100 50 - -

Total 500 1,000 1,050 600 600

Source: PDR’s management guideline

Our opinions on the firm’s troubles have not changed. We think cash-flow

constraint and high inventories are PDR’s biggest problems for the following

reasons:

Firstly, apart from EverRich Infinity, other projects face strong competition

in terms of price and location. Property market increasingly seems to have

over- supply in mid-segment (VND30-60 million per sqm) in which most of

PDR’s projects are positioned. For example, Masteri Millennium (Ben Van

Don, district 4) encounters fierce competitions from Novaland (Icon 56,

Tresor, River Gate, Galaxy 9, Royal Residence); Refico & Sotrans (The Pier);

Trung Thuy Group (Lancaster Lincoln and Lancaster Legacy); TNR Holdings

(The Gold View). EverRich 3 faces rivalry from Phu My Hung’s Saigon South

Residence and Keppel Land’s Riviera Point… We are concerned about the

earnings visibility of PDR’s other projects once Infinity drained out revenue.

Secondly, we think River City is being put in a less comparative position by

being tagged with a 20%-25% price premium while potential buyers have

plenty of comparable options (in terms of population density; distance to

CBD or design of apartment) in districts 2 and 7. Unit sizes and surrounding

areas do not justify for the prices of River City. We believe that River City’s

small and average sizes of residential apartments should mainly focus on

young, newly married couples without children or first- home- buyers, who

could find River City’s current prices unappealing. The firm’s motivation in

setting such prices may come from pressure to repay the debts or from new

external partners’ decision.

Furthermore, we do not expect interest rate in 2017 to be lowered because

(i) the inflation is rising, (ii) bad debts incurs significant operating costs for

banks, (iii) Government issues large amount of bonds to compensate for

deficit; (iv) a possibility of a Fed’s rate hike. The interest rate issue may

Less favorable in interest rate add more burden on 2017 performance.



negatively affect debt repayment plans of the firm.

In addition, PDR regularly records revenue from providing services at its flagship

project EverRich I. However, there have been between disputes residents and

the developer regarding common ownership in EverRich I. Residents aim to use

legal means to regain possession of certain areas that they claim to belong to

common usage. This may constitute a risk of the firm’s revenue and reputation.

In short, strong competition from competitors’ projects and unreasonable

pricing strategy could prolong PDR’s effort to reduce inventory and improve

cash-flows. Many of the competing projects have similar launching phases

which will put more pressure on the sales progression of River City.



FINANCIAL SUMMARY

Earning Model (VNDbn) 2012A 2013A 2014A 2015A

Balance Sheet (VNDbn) 2012A 2013A 2014A 2015A

Net sales 104 40 415 403

Cash and equivalents 10 7 8 32

Cost of sales 61 12 337 256

Financial investment - - - -

Gross profit 43 28 78 146

Accounts receivable 177 149 206 449

Selling expenses 36 28 25 22

Inventory 4,667 5,164 5,413 6,035

General administration expenses 0 0 0 22

Prepaid expenses, other CA 35 42 78 230

Other operating income/(expenses) - - - -

Total current assets 4,890 5,363 5,705 6,745

EBITDA 8 2 54 103

Property and equipment

Depreciation & Amortization - - - -

At cost 79 83 89 143

EBIT 7 0 53 103

Less accumulated depreciation -4 -4 -5 -5

Net interest income/(expenses) 0 0 0 0

Net property and equipment 76 79 84 138

Net investment income - - - -

Net intangibles 118 118 118 2

Others (recurring) 3 0 2 1

Total investments 45 45 97 464

Pretax Profit 6 4 54 201

Other long - term assets 58 53 48 191

Income tax 2 2 12 45

Total Assets 5,187 5,658 6,053 7,541

Tax rate (%) 23 39 22 22

Account Payables 9 30 47 173

Minorities 0 0 0 0

Short-term debt 0 12 0 97

Net Income 5 2 42 156

Other current liabilities 1,013 634 1,080 1,264

EPS (basic, reported) 31 15 259 922

Total Current Liabilities 1,022 676 1,127 1,534

Long-term debt 2,285 2,567 2,157 2,244

Common dividend declared 0 0 - -

Other long-term liabilities 454 987 1,301 1,492

DPS (VND) 0 0 0 475

Total long-term liabilities 2,740 3,554 3,458 3,736

Dividend Payout ratio (%) 0 0 0 0.52

Dividend Cover (x) - - - 1.94

Stockholders' equity 1,426 1,428 1,468 2,271

Common Equity 1,302 1,302 1,302 2,018

Treasury shares 0 0 0 0

Growth and Margin (%)

Retained earnings 39 40 81 165

Sales Growth (%) 17.2% -62.0% 948.2% -3.1%

Budget sources and other funds 85 85 85 88

EBITDA Growth (%) 206.% -81.8% 3461.7% 90.7%

Minority interest - - - 0

EBIT Growth (%) 157% -100.8% 98212.4% 92%

Total liabilities and equity 5,187 5,658 6,053 7,541

Net Income Growth (%) 12.6% -52.6% 1678.2% 274%

Capitalized leases - - - -

EPS Growth (%) 12.6% -52.6% 1679% 256.5%

Capital employed 4,166 4,982 4,926 6,007

Gross Margin (%) 41.5% 69.3% 18.9% 36.3%

EBITDA Margin (%) 8.0% 3.9% 13.1% 25.7%

Ratios (%)

EBIT Margin (%) 6.6% -0.14% 12.9% 25.5%

ROE (%) 0.4 0.2 2.9 8.3

ROA (%) 0.10 0.04 0.7 2.3

Cash flow Statements (VNDbn) 2012A 2013A 2014A 2015A

ROIC (%) 0.12 0.05 0.84 2.85

Net Income 6.5 3.9 53.5 200.6

Inventory days 25,967 149,516 5,747 8,176

Adjustments for:

Receivable days 630.4 1507 156.4 297.7

Depreciation and amortization 1.60 1.23 0.79 0.79

Payable days 54.6 597.8 41.75 156.8

Change in inventories -193 -63.8 -150.3 -385.9

Asset Turnover (x) 0.0x 0.0x 0.1x 0.1x

Change in trade receivables 91.5 23.2 244.2 -441.5

Net debt/equity (x) 1.9x 1.9x 1.9x 1.2x

Change in trade payables -35.1 -16.2 -199.3 451.3

Interest cover - EBIT(x) 0.5x 1.0x 0.0x 0.0x

Other operating cash flow -182.2 50.8 112.5 -80.4

Cash flow from operations -310.7 -1.0 61.4 -255.2

Valuation (Multiples)

Net Capital expenditure -8.7 -3.5 -5 -127.5

EV / EBITDA (x) 652.0x 3547.0x 96.4x 52.2x

Acquisition - - - -

P/E (x) 543.9x 1127.0x 59.3x 14.4x

Divestures - - - -

Dividend Yield (%) 0.00 0.00 NULL 3.6

Other investments, net 0.2 0.1 0.05 0.9

P/B (x) 1.9x 1.8x 1.7x 1.2x

Cash flow from investing -7.6 -3.5 -56.9 -351.8

Equity issued - - - 650.7

Net borrowings 270.4 1.9 -4 -20.1

Dividends to shareholders 0.00 - - 0.00

Cash flow from financing 270.4 1.9 -4 630.6

Net cash flow -47.9 -2.6 0.5 23.6

Opening cash 58 10 7 8

Notes: CA = current assets; CL = current liabilities; PP&E = Property and Equipment at Cost

Closing cash 10 7 8 32

Source: Thompson Reuters data, TVS Model



ANALYST CERTIFICATION

I, Nguyen Thanh Son, hereby certify that all of the views expressed in this report accurately reflect my personal

views about the subject company or companies or its or their securities. I also certify that no part of my

compensation was, is or will be, directly or indirectly, related to the specific recommendations or views

expressed in this report.

RATING and VIEWS

Buy (B), Neutral (N), Sell (S) – Analysts recommend stocks as Buys or Sell based on his own views. Being

assigned a Buy or Sell is determined by as total stock’s return (TSR) potential that represents the price

differentials between the current share price and the price target expected during the time horizon plus

expected dividend yield. Any stock not assigned as Buy or Sell is deemed Neutral.

TVS Investment Research: Equity Rating Definitions

12-month rating Definition

Buy Total Stock’s Return Potential > 15%

Neutral Total Stock’s Return Potential between (-15%) and 15%

Sell Total Stock’s Return Potential < (-15%)

Short-term rating Definition

Buy Stock price expected to rise within three-month because of a specific catalyst or event

Sell Stock price expected to rise within three-month because of a specific catalyst or event

Not-rated The investment rating and target price, if any, suspended as there is not a sufficient fundamental basis for determining an investment rating or target.

DISCLAIMER

Copyright©2016 Thien Viet Securities JSC (TVS). ALL RIGHT RESERVED. This research report is prepared for the

use of TVS clients and may not be redistributed, retransmitted or disclosed as a whole or partially in any form or

manner without the prior written consent of TVS. The information herein is obtained from various sources and

TVS does not guarantee its accuracy. Neither the information nor any opinions expressed in this publication

constitutes a buy or sell recommendation on any securities or investment. TVS therefore does not take any

responsibilities for any investor’s decisions.



THIEN VIET SECURITIES JOINT-STOCK COMPANY

HO CHI MINH

63A Vo Van Tan St, District 3

Floor 9, Bitexco Nam Long Building

Tel: +84 (8) 299 2099

Fax: +84 (8) 299 2088

HA NOI

22 Lang Ha, Dong Da

TDL Building

Tel: +84 (4) 220 3228

Fax: +84 (4) 220 3227

RESEARCH DEPARTMENT

Duy Nguyen (Mr.), Manager

Equity Capital Market

[email protected]

Trang Vu (Ms.), Senior Analyst

Basic Material

[email protected]

Son Nguyen (Mr.), Senior Analyst

Real Estate

[email protected]

Trung Dong (Mr.), Associate

Consumer Goods

[email protected]

Bach Nguyen (Mr.), Analyst

Oil & Gas

[email protected]

Quang Luong (Mr.), Analyst

Team Assistant

[email protected]

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