VIETNAM STOCK INDEX COMPONENTS REVIEW – VINHOMES (HOSE:VHM)

WHY VINHOMES?

Vinhomes might be a good stock for those who want to ride the thematic of the growing middle class in Vietnam. Likewise, investors in Vinhomes may benefit if the thesis of the Vietnam government rapidly developing their infrastructure roll out turns out to be correct. The continued urbanization trend in Vietnam should lead to increasing demand for new apartment living surrounded by the right infrastructure in place. Vinhomes are well placed to cater for such demand.

AN OVERVIEW OF THE VINHOMES (HOSE:VHM) BUSINESS

Vinhomes (HOSE:VHM), subsidiary of Vingroup, is the largest commercial real estate developer in Vietnam. It is a major player amongst all residential segments in Vietnam and sits on a large land bank across strategic locations to deliver sustainability and growth.

One of the strengths of the Vinhomes business model is to receive significant capital upfront in the sales process. For example, a major down payment at presales stage, then up to circa 70% of total purchase price when contract is signed and construction still ongoing.

Vinhomes as a part of Vingroup.

Vinhomes was a spinoff from Vingroup back in 2018 when 10% of the company was sold in IPO to list on the Ho Chi Minh Stock exchange.

The branding has tremendous reach across a range of consumer related sectors in Vietnam as the below company presentation slide shows.

Source: Vinhomes Corporate Presentation May 2020

Vinhomes key income statement and balance sheet trends 2020/21

Whilst 2020 was a challenging year for Vinhomes for obvious reasons, it has been able to whether the storm of challenges presented. It doesn’t hurt by the fact Vietnam has followed a global trend that would have surprised many when the pandemic was starting. That is, residential real estate prices have been strong worldwide. Declining global bond yields, demand for hard assets as inflation pressures build, easy money that has been directed away from other discretionary areas, desire to spend on our homes, all amongst factors helping support prices.

Profits still managed to even rise in 2020, as Vinhomes pivoted to a strategy of pursuing more bulk sales to quickly realise cash, rather than slowly make retail sales. The pandemic however at various stages has severely hampered their ability to continue with their construction plans, and also to conduct onsite sales campaigns. Overall though, they have a strong balance sheet and are a company that can come out the other side of the pandemic relatively well compared to others.

Vinhomes and the growing middle class in Vietnam

Vietnam’s middle-income population is expected to grow quickly.

Source: Vinhomes Corporate Presentation May 2020

Vinhomes and the urbanization trend in Vietnam

As solid income growth for the Vietnamese population continues, they are likely to demand improved lifestyles. This includes moving to cities, of which are increasingly becoming more developed in terms of the government’s aggressive plans to improve infrastructure. Vinhomes can launch new units to cater for such demand, of which an increasing amount are sold with a mortgage. The scale in which Vinhomes operates enables them to put forward favourable deals with banks and customers.

Source: Vinhomes Corporate Presentation May 2020

FACTORS TO DECIDE ON WILL VINHOMES SHARES KEEP RISING IN 2022?

Covid-19 – This risk can almost be copied and pasted to sit along side any stock analysis. At least we can to some extent look back in the rear vision mirror now to see some of the potential negative impacts that new variants could potentially bring. However obviously the future is still very uncertain.

Interest rate outlook – Vinhomes have positioned themselves well for the trend for more sales to come with mortgages. A steady interest rate outlook would be favourable in this regard and in general is a positive for real estate markets historically across the globe.

Inflation – In recent times the risks around inflation trending higher has risen. This could place plenty of pressure on margins for Vinhomes. It is becoming clear that the likes of construction materials and labour prices are on the way up, so can they maintain their margins in such an environment?

Middle class demand – It seems to be the consensus with economists that Vietnam’s middle class is destined to be an impressive growth story. However it is by no means certain this will evolve as they may hope. The country’s fortunes are also tied in with global growth and demand coming from key export trading partners. A weaker than expected global growth backdrop will hamper the appetite for demand for new housing from Vietnam’s middle class.

Demand from emerging segments – The vision for the company is to gradually tap into improving dynamics from the industrial and commercial segments, where this will help add diversity to their income streams and smooth volatility. This does seem like a good opportunity with rents in this space looking relatively cheap and room to grow substantially. However there are always execution risks in trying to implement the strategy. This move may also rely on the continuing trend of strong FDI flows into Vietnam.

Vingroup structure – The parent group has some ambitious plans for the long term that are worth keeping an eye on. From a capital perspective for Vinhomes, it is also important that Vingroup has a solid future.

VIETNAM STOCK MARKET VALUATIONS – VINHOMES PE RATIO, YIELD ETC.

Vinhomes PE Ratio – 9 times

Vinhomes dividend yield – 1.5%

* Source: TIKR data captured on January 24th 2022
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They are a “freemium subscription model”, so there is tons of free information and the full access pro plan you only have to pay for if you later feel comfortable you wish to do so. Note that I may receive a small commission if you join their paid plan, but at no additional cost to you.

VINHOMES SIZE IN TERMS OF VIETNAM STOCK INDEX AND COMPONENTS

Vinhomes at the time of writing is about the third largest company of my searches of Vietnam stock list of the largest companies. The market cap in USD is circa 15.9 billion.

IS VINHOMES A GOOD UNDERVALUED VIETNAMESE STOCK TO BUY FOR 2022?

Vinhomes looks like a very solid stock to own to play the common thematic that overseas investors often flock to Vietnam for. That is, to ride the tailwind of an emerging middle class and urbanization trend. It also appeals due to real state prices looking relatively attractive versus other major cities in the region, so there should be ample room to grow there.

The P/E ratio looks undemanding considering the solid growth outlook the company has. If Vinhomes can execute their plans over the next 5 years I see no reason why the multiple could not expand, being such a large well-known company in Vietnam.

OTHER VIETNAM STOCK INDEX COMPONENTS REVIEWS

If you are interested in similar summaries and analysis on other larger Vietnam listed stocks here is another link to check out.

VIETNAM STOCK INDEX COMPONENTS REVIEW – VINAMILK (HOSE:VNM) – VIETNAM STOCK MARKET (vietnamesestockmarket.com)

And should you want a very quick description of the largest 10 companies listed on the Vietnam stock exchange, be sure to visit the below blog post.

VIETNAM LARGEST 10 COMPANIES ON STOCK MARKET

I summarize the largest Vietnam companies by market cap:

VIETNAM LARGEST 10 COMPANIES ON STOCK MARKET

Is Vietnam a good investment?

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