20151113_BSC_Vietnam Company Research_EN_SJS

We recommend to BUY SJS stock with 1-year target price of VND 25,307 (+8% compared to the share price on 30 October 2015) based on NAV valuation method; SJS owns cleaned land fund of more than 1,200ha, located mainly in Hanoi and the northern provinces. The project absorption rate is positive, with revenues mostly recognised in 2016.

Restructuring Sudico activities have been implemented strongly, bringing positive results: (1) Focusing on investing and selling in major projects like Nam An Khanh Urban (2) Restructuring debts borrowing, extending repayment term relaxation by 1, 2 years and reduced the average interest rate from 16% to 11% (3) Withdrawing capital gradually from inefficient financial investments and (4) Dissolving, changing the forms, reorienting the activities of subsidiaries and associated companies.

The projects has their own competitive advantages: (1) The projects has good location, located near major roads, in the areas of key planning (2) The selling prices are relatively competitive with the products of middle and high-end segment in same area partly because site clearance compensation and payment of land used had been done for many years before (3) The projects have varied designs, suitable for different customers.

Nam An Khanh Urban currently is Sudico’s major project, with revenues mainly recognized in 2016. In the first 9 months of 2015, Sudico transferred more than 3 ha in A Area of Nam An Khanh Urban to secondary investors, recognized VND 460 billion revenues. In Q4/2015, Sudico continues to have some transfer contracts which are expected to recognize revenues in Q4/2015 and early 2016. About retail segment, about 100 villas and adjacent houses successfully sold in the first 6 months of 2015, Sudico continues to sell additional 2 ha in the last 2 months of 2015, which can recognize revenues in 2016.

2015 earnings forecast: In 9 months of 2015, revenues reached about VND 470 billion (+453% yoy), EBT was about VND 80 billion, 3 times higher than the same period in 2014. We expect 2015EBT may reach VND 270 billion and 2015EPS of VND 2,096 when SJS recognizes revenues from the transfer contracts to secondary investors in Q4/2015.

We believe that the value of SJS largely depends on prospects land prices in Nam An Khanh Urban Project. In addition, the main risk is Sudico has large loan balance, always accounted for 2/3 of the total assets, while the total value of cash and short-term liquid assets is relatively low.