INVESTMENT THESIS
Large land reserves creates growth momentum as the real estate market recovers. Nam Long Investment Corporation (HSX: NLG) operates in the real estate development sector with products including villas/townhouses (Valora), affordable apartments (Flora), social housing (Ehome), and land plots in urban area projects with a total land reserves of up to 681 hectares. In 2024, NLG will continue to implement integrated urban area projects such as Mizuki Park (26 hectares), Waterpoint Phase 1 (165 hectares), Akari City (8.5 hectares), EHome Southgate, Izumi City (170 hectares), and Nam Long Central Lake (43 hectares). As of March 31, 2024, the value of real estate project inventories reached VND 18,051 billion.
Healthy financial structure thanks to a strategic partnership with Japanese partners. The debt-to-equity ratio as of March 31, 2024, was 0.5 times, much lower than other listed real estate companies. Although the outstanding debt at the end of Q1/2024 reached VND 6,214 billion, NLG holds cash, cash equivalents, and short-term financial investments amounting to VND 3,175 billion. Thanks to a healthy financial structure, NLG continues to maintain regular annual cash dividend payments (5% in 2023).
Business results have not yet shown positive signals. In Q1/2024, NLG recorded net revenue of VND 205 billion (-13.0% YoY) and a after-tax loss of VND 65 billion, mainly due to the low motivation for handovers at the beginning of the year when the New Year and Lunar New Year were close together. This is also a seasonal factor as the peak in revenue and profit for real estate companies usually occurs at the end of the year.
Positive sales progress is a highlight for the upcoming quarters. Sales that have not yet been recognized (presales) from NLG's projects were at VND 8,000 billion by the end of 2023, so the company expects to recognize revenue from handovers up to VND 6,000 billion this year and the remainder in the 2025-2026 period. In Q1/2024, sales reached VND 1,160 billion, five times higher than the same period last year. As of March 31, 2024, advance payments from customers amounted to VND 4,204 billion, up 10% from the beginning of the year and continuously increasing since Q3/2023.
Prospects:
•Possessing a large land reserves with clear legal status, diverse products, and focusing on the mid-range and affordable segments suitable for actual housing needs.
•The Land Law, Housing Law, and Real Estate Business Law, effective from August 1, 2024, are expected to resolve legal obstacles and promote the recovery of the real estate market, especially for developers with large land reserves and strong finances.
•A healthy financial structure enables the company to maintain stable operations during difficult periods and seize opportunities to increase its land reserves at low costs.
Risk:
•Rising interest rates lead to increased borrowing costs and reduced real estate investment demand.
RECOMMENDATIONS
OUTPERFORM recommendation with 1-year target price of 50,600 VND/share and potential price increase of 15.8% based on relative valuation and RNAV method. Currently, NLG's stock price is trading at a P/B ratio of 1.26 times, lower than the 3-year average P/B ratio of 1.5 times.
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