LHG_BUY_TP 54,800 VND_Upside 74%_Appealing Valuation_BSC Company update

Valuation

We recommend BUY LHG shares with the target price of 54,800 VND/share, upside +74.0% compared to 26/06/2022 price using Revalued Net Asset Value (RNAV) method and discounting 10% to the enterprise’s value due to uncertain factors on contigent liability for Tan Thuan Technology Development One Member Co., Ltd (IPC).

Business Performance Forecast BSC forecasts

LHG’s revenue and NPAT in 2022 to achieve 843 billion VND (+8% YoY) and 357 billion VND (+21% YoY), respectively; EPS fw= 6,569 VND/share and P/E fw= 4.8x, P/B fw= 0.9x based on expectations that:

(1) Leased land area in 2022 reached 11.5 hectares (equivalent to 2021) offset by high rental price of 210 USD/m2/lease term (+5% YoY)

(2) Leased factory land based on demand (?) (BTS) at (LH3) and (LH2) reached 6,850 m2 (2020-2021 N/A) with rental price of 240 USD/m2/lease term.

Investment Thesis

▪ Appealing valuation as the business’s growth prospects remains positive due to (1) high rental price, (2) clear land bank expansion and project implementation plan, (3) new factory land ready for sale is relatively stable to maintain stable cash flow annually.

▪ Healthy financial status due to absence of net debt and annual dividend.

 Risk

▪ High contigent liability to IPC.

▪ Slower than expected speed of leasing and project implementation.

Business Updates

▪ 2021 Business Performance: revenue reached 782 billion VND (+21% YoY) and NPAT reached 295 billion VND (+49% YoY). Even though business activities were severly affected in the later half of 2021 due to COVID-19, growth remained positive due to (1) leasing ~11.5 hectares in the first half of 2021, (2) gross margin reached 52.7% (compared to 45.6% of the same period last year) due to high rental prices.

▪ Q1/2021 Business Performance: revenue reached 114 billion VND (+4% YoY) and NPAT reached 49 billion VND due to (1) stable rental prices, (2) reduced cost of SG&A, (3) financial revenue from bank deposits.