VHM: IPO in 17/52018

1. VHM.HM: IPO IN 17 MAY 2018
A. HIGLIGHTS
1. Increased real demand for low- to mid-end segments and favourable borrowing conditions
Source: CBRE
Source: JLL & Oxford Economics
Firstly, real demand for real estate properties,
especially for the low-end and mid-end segments, is
expected to increase in the next 10 years. This could
be explained by the trend of young people living
independently of their parents. Statistically, demand
for middle-end segment accounted for >50% of total
demand in HCMC and Hanoi in 2017, and is expected
to increase by 348.2% in HCMC and Hanoi during
2017-2022 (CBRE). This is a positive sign of a
sustainable real estate market, and will boost demand
for borrowing for real estate purchases.
Secondly, SBV’s decision to increase the risk-weight
from 150% to 200% instead of to 250% as suggested
earlier eased concerns about slowing real estate
sales. Increasing risk weighting of real estate loans to
250% means that for every new real estate loan, risk-
weighted assets increase by 2.5 times of the loan; this
will significantly discourage banks from lending to real
estate buyers. A decision to increase the risk weight
to 200% instead shows that the government is less
concerned about speculative demand causing real
estate bubbles. This will encourage banks to lend to
real estate buyers. Statistically, as lending rates
decreased continuously from 13.5% to 7.6% during
2012-2017, loan outstanding balance for the real
estate market increased by 12.5% from 2015 to 2016.
As lending rates are expected to decrease further
from 7.6% to 6.5% during 2017-2020, loan
outstanding balance for the real estate market is
expected to further increase, facilitating real estate
purchases and sales.

2. 2. Strong sales prospects for selling & starting projects
VHM’s strategy is building closed ecological urban areas on the outskirt of HCMC and Hanoi, with two project pipelines
Vincity (for low-end and mid-end segments) and Vinhomes (for high-end segments). With strong real demand in the
low-end and mid-end segments, excellent execution in projects for high-end segments in the past, well-positioned
locations of ongoing projects, unique closed ecological systems that no other real estate developers offer, and good
sales team with 100% for the 2 completed projects, ongoing projects are expected to succeed with good sales rate.
Below is my detailed assessment of VHM’s projects in HCMC.
Areas Districts Investment opportunities VHM’s projects Potential issues
Urban areas
Tan Cang Binh
Thanh
(+) Location: near central districts;
(+) Economic activities: commercials, services, tourism, small industrial and
handicraft clusters
→ higher-middle income residents;
(-) Population density: high (22,642 people/km2);
(-) Transport infrastructure:
(1) frequent traffic jam issues at Dan Chu - 3/2 - CMT8 Crossroad (District 10), Ly Thai
To - Le Hong Phong Crossroad (District 10);
(2) Ben Thanh - Suoi Tien Metro Line bridging Nguyen Huu Canh Street & Dien Bien
Phu Street is planned to go into operations in 2020 & reduce traffic jam issues in this
area; however, further delay is expected due to insufficient budget;
(-) Drainage infrastructure:
(1) 11 drain locations (the highest number of drain locations in HCMC), including
Nguyen Huu Canh Street;
(2) 'Smart Pump' to reduce drainage in Nguyen Huu Canh Street was put into
operations at the end of 2017; however, it has shown inefficiency in addressing
drainage issues in recent rainy reasons;
(-) Land bank: limited and expensive;
=> There is significant potential for high-end residential housing; however, it could be
expected that the pace of development of transport and drainage infrastructure will
not keep up with the pace of real estate development;
3 Vinhomes projects:
+ Vinhomes Central Park
(722 Dien Bien Phu, Ward
22, Binh Thanh District),
started handover in 2015;
+ Vinhomes Landmark
Serviced Apartment (Dien
Bien Phu Street, Binh
Thanh District), starting
construction in 2018,
starting handover in 2019;
+ Vinhomes Dinh Tien
Hoang (Dinh Tien Hoang
Street, Ward 3, Binh Thanh
District), starting
construction in 2018,
starting handover in 2019;
Potential traffic
jam & drainage
issues if the 3
projects are
completely
handed over;
North-
Northeast
District
9
(+) Population density: low (2,311 people/km2);
(+) Economic activities: education & research;
(+) Land bank: large lots available;
(+) Transport infrastructure: Long Binh Bridge connecting with Nguyen Xien Street is
expected to be completed in 2018, reducing traffic jam issues near the area;
(-) Transport infrastructure:
(1) frequent traffic jam issues at Le Van Viet - Phong Phu Temple Intersection (District
9), La Xuan Oai Street (District 9), Tay Hoa Crossroad (District 9 - Thu Duc), Thu Duc
Crossroad (District 9 - Thu Duc);
(2) Ben Thanh - Suoi Tien Metro Line bridging Thu Duc Crossroad (District 9 - Thu Duc)
is planned to go into operations in 2020 & reduce traffic jam issues in this area;
however, further delay is expected to due insufficient budget;
(-) Drainage infrastructure: 5 drain locations;
=> Potential for low-end and mid-end residential housing for migrants coming to the
district for educational & research purposes, especially for students;
2 Vincity projects:
+ Vincity New Saigon
(Nguyen Xien - Phuoc
Thien, Long Binh Ward,
District 9), starting in 2018,
starting handover in 2019;
+ Vincity Tay Thang Long
(Long Truong Ward,
District 9), starting
construction in 2020;
Potential traffic
jam & drainage
issues if the 2
projects are
completely
handed over;
South District
10
(+) Location: near central districts;
(+) Population density: very high (40,638 people/km2);
(+) Economic activities: commercials, services, small industrial and handicraft clusters
(+) Transport infrastructure: no major traffic jam hot spots;
(+) Drainage infrastructure: no major drain locations;
(+) Land bank: limited & expensive;
=> Potential for high-end residential housing;
1 Vinhomes project:
Vinhomes Ky Hoa (Le Hong
Phong Street, Ward 12,
District 10), starting
construction in 2019;
N/A
Surburban areas
Northwest Cu Chi (+) Population density: low (819 people/km2);
(+) Economic activities: agriculture, fisheries & manufacturing (with many large
industrial zones/clusters with total area of 1760.64 ha)
=> low- to middle-income residents;
(+) Transport infrastructure: complete national/provincial/county highway and
ringroad system; connecting to HCMC via Highway No.22;
(+) Land bank: large lots available; cheap, high, easy to clear;
=> There are potential for low-end and mid-end residential housing for industrial local
and migrant workers, and potential for high-end tourism & entertainment activities
due to its locked-away position with only one entry by Highway No. 22. However, for
low-end and mid-end residential housing, strong awareness-raising sales activities are
required;
+ 1 Vinhomes project:
Leman Golf Course (Cu Chi
District), starting
construction in 2020;
+ 1 Vincity project: Vincity
Cu Chi (Cu Chi District),
starting construction in
2020;
N/A
South Can Gio (+) Population density: low (100 people/km2);
(+) Economic activities: mainly agriculture & fisheries;
(+) Transport infrastructure: complete national/provincial/county highway and
ringroad system
(+) Land bank: large lots available;
=> Potential for high-end beach tourism and eco-tourism activities;
1 Vinhomes project:
Vinhomes Long Beach Can
Gio (Can Gio Distirct);
starting construction in
2021;
N/A
Source: Statistics Office in Ho Chi Minh city, Sumitomo, Tuoi Tre Online, Vinhomes, VOV & own research

3. 3. Profit-booking period in 2018 & 2019
As at 31/12/2017, VHM and its associates had unrecognized revenues of 74,314 billion VND from 8 projects, including
Vinhomes Central Park, Vinhomes Park Hill, Vinhomes Green Bay, Vinhomes Golden River, Vinhomes The Harmony,
Vinhomes Imperia Hai Phong, Vinhomes Dragon Bay, and Vinhomes Skylake. In 2018, VHM and its associate are
expected to hand over most apartments and recognize 92% of these revenues, as detailed below.
2018 2019
Income from real estate businesses
Net revenues 24,614 80,338
EBT 6,826 26,003
Net income 5,461 20,803
Income from associates
EBT 15,145 7,577
Net income 12,116 6,062
Total income
EBT 21,971 33,581
Net income 17,576 26,864
(*) Revenues are recongized according to contract completion method, when real estate properties are handed over and full payments are received. VHM’s
conslidated financial statements only incorporate from financial statements of associates items after EBT, not revenues.
Source: VHM’s Prospectus
B. P/E VALUATION
VHM’s P/E clearly indicates that the stock is undervalued. Although VHM’s D/E before IPO implies significant risks,
strong prospects of VHM’s projects indicate strong outlook. With outperforming ROE and just slightly expensive price,
the stock is clearly being undervalued.
Ticker Company Name Headquarter Market Cap (mil USD) P/E ROE Dividend Yield D/E
VHM.HM Vinhomes JSC Vietnam 13,003 19.44x (*) 58.8% - 415.80%
NVL.HM No Va Land Investment Group Corp Vietnam 1,975 18.04x 5.82% 0.03% 142.34%
KDH.HM Khang Dien House Trading and Investment JSC Vietnam 605 19.66x 2.84% - 31.80%
ALI.PS Ayala Land Inc Philippines 11,758 23.77x 4.62% 1.55% 105.40%
LH.BK Land and Houses PCL Thailand 4,104 12.00x 4.02% 6.28% 97.86%
Average 18.37x 4.33% 2.62% 94.35%
(*) As estimated in VHM’s Prospectus
Source: Thompson Reuters
The explanation for underpriced VHM could be VHM’s choice of IPO method of book building (*). Firstly, the reason for
IPO is the mere issue size of $1.35b, which is the largest issue in Vietnam since TCB’s raising $922m, and requires
information symmetry. Secondly, the justification for book building method could be the fact that VHM wanted to
maintain relationship with regular investors, and thus adopted book building approach to offer solicited prices and
allocate shares on a discretionary basis to preferred institutional investors in case of oversubscription.
VHM could be expected to increase in both short term and long term. In the short term, the undervalued VHM will
increase to its intrinsic value. In the long run, as a result of the long-term relationship with institutional investors, VHM
is expected to receive significant price support and demonstrate solid performance.
Retail investors wishing to buy VHM can only do so via unofficial channels, as the stock is already oversubscribed by
institutional investors by the first trading day and all 3-million stocks placed by retail investors were void. Buying via
unofficial channels involves 3 main risks:
1. Uncertainties associated unofficial channels;
2. Dependence on market makers (Dragon Capital);
3. Uncertainties about off-market transactions;
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(*) There are 3 IPO pricing mechanisms, differing in terms of price setting and share allocation methods:
Price setting mechanism Share allocation mechanism
Fixed price Underwriters determine the price based on their valuation Pro-rata basis
Auction Investors submit bids above the minimum price, and shares are sold at the prices between the
IPO price and the cap prices
Pro-rata basis
Book building Underwriters determine the price after soliciting regular investors at road shows; Discretionary basis