Vinhome — VietEcon

The market was down again today. HCMC was -2.39% and Hanoi -1.68%. So not doing that well. It seems like large caps are getting hit more: VN30 was down 3.1% today.

But there were some bright spots, mostly driven by earnings. Let’s discuss Vinhomes today.

Last year was a record for Vinhomes, with the company hitting almost every metric out of the park. Specifically, the company had more than VND91tr (almost $4bn) in new bookings. I used to cover Emaar back in the day, which was giant, but I don’t really remember them every booking so many sales. That was for 61,000 units at an average price of VND1.5bn ($65k).

The company has a backlog of VND91.4tr, in line with its new sales. This backlog will throw off profits next year, when they are delivered. For example, in 2018, the backlog was VND69.8tr, and the company recognized revenue of VND65.1bn in 2019. That actually was down 13% from 2018’s revenue of VND74.5bn. But even with the decline in revenues, gross profit and net profit were up 44% and 49%, respectively, in 2019. That’s because gross margin increased from 33% in 2018 to 55% in 2019! That’s crazy high.

Return on equity, because of the strong profits, was 37.5% (using average equity over 2019). The company is trading at 13.5x P/E or so, which seems pretty low, given that earnings are likely to be up a bit next year as it delivers more units. The balance sheet seems strong too, with net debt-to-equity of 0.3x, down from over 1.4x in 2017.

I am sure there are things to worry about. The company is heavily dependent on bulk sales, although it’s trying to move to a direct sales approach. That can add volatility and additional expenses, although the overall cost should be better. And it will be hard to show strong growth from 2019, because deliveries will be up under 10%.

Plus, while P/E is low at 13.5x (or at least not crazy high), P/B is 4.4x, which is high. Probably the land on the balance sheet needs to be marked up to fair value (it is usually kept at cost), which would raise the book value, lowering P/B. But still, this ain’t no value stock. For example, Emaar is trading at 0.55x P/B and 1.09x P/Sales (Vinhomes is at 4.4x P/Sales, although 3.2x P/Bookings).

Overall, these are very good earnings, but they might be getting close to a peak. Can the company sell more than 61,000 units in a year? Can a 10% increase in deliveries (expected in 2020) result in more than double digit growth in revenues? Can gross margin every get above 55%? Both seem hard. While 2020 earnings will likely be higher (just given the backlog), we might be close to the peak. In that case, the stock, which was up 12% over the past year, may be pricing in a lot of this and not be that attractive. I would have to dig in more here, but I can see why some concerns.