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
independentlyof 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,andwill boostdemand
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.Increasingriskweighting of real estate loans to
250% meansthat foreverynew real estate loan, risk-
weightedassetsincrease by2.5timesof the loan;this
will significantlydiscourage banksfromlendingtoreal
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 strategyisbuildingclosedecological urbanareasonthe 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’sprojects Potential issues
Urban areas
Tan Cang Binh
Thanh
(+) Location: nearcentraldistricts;
(+) Economic activities: commercials, services, tourism,smallindustrial and
handicraft clusters
→ higher-middleincomeresidents;
(-) Population density: high (22,642people/km2);
(-) Transport infrastructure:
(1) frequent traffic jamissues at DanChu -3/2 -CMT8 Crossroad (District 10), Ly Thai
To - Le Hong Phong Crossroad (District10);
(2) Ben Thanh -Suoi TienMetro Linebridging Nguyen HuuCanh Street& DienBien
Phu Street is plannedto go into operations in2020& reduce traffic jamissues inthis
area; however,furtherdelay is expecteddueto insufficient budget;
(-) Drainage infrastructure:
(1) 11 drain locations (the highest number ofdrain locations in HCMC), including
Nguyen Huu Canh Street;
(2) 'Smart Pump'to reduce drainageinNguyen HuuCanh Street was putinto
operations at theend of2017; however, ithas shown inefficiency inaddressing
drainageissues in recentrainy reasons;
(-) Land bank: limited andexpensive;
=> There is significant potential for high-endresidential housing; however, it could be
expected thatthepaceofdevelopmentoftransport and drainageinfrastructurewill
not keep up with the paceofreal estatedevelopment;
3 Vinhomes projects:
+ Vinhomes CentralPark
(722 Dien BienPhu,Ward
22, Binh Thanh District),
started handover in2015;
+ 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, Ward3, Binh Thanh
District), starting
construction in 2018,
starting handover in 2019;
Potentialtraffic
jam & drainage
issues ifthe3
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 BinhBridge connecting with NguyenXien Streetis
expected tobe completed in2018, reducing trafficjamissues near thearea;
(-) Transport infrastructure:
(1) frequent traffic jamissues at Le Van Viet -Phong PhuTempleIntersection (District
9), La Xuan Oai Street(District9), TayHoa Crossroad (District 9 -Thu Duc), Thu Duc
Crossroad(District9 -Thu Duc);
(2) Ben Thanh -Suoi TienMetro Linebridging Thu DucCrossroad (District 9 -Thu Duc)
is plannedto go into operations in2020& reduce traffic jamissues inthis area;
however, further delay is expected to dueinsufficientbudget;
(-) Drainage infrastructure: 5 drain locations;
=> Potentialfor low-endand mid-end residential housing for migrants coming to the
district for educational& research purposes, especially for students;
2 Vincity projects:
+ Vincity NewSaigon
(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;
Potentialtraffic
jam & drainage
issues ifthe2
projects are
completely
handed over;
South District
10
(+) Location: nearcentraldistricts;
(+) Population density: very high (40,638people/km2);
(+) Economic activities: commercials, services, small industrial and handicraft clusters
(+) Transport infrastructure: no major trafficjam hot spots;
(+) Drainage infrastructure: no majordrainlocations;
(+) Land bank: limited &expensive;
=> Potentialfor high-endresidentialhousing;
1 Vinhomes project:
Vinhomes Ky Hoa (LeHong
Phong Street, Ward12,
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 withtotalarea of1760.64 ha)
=> low-to middle-incomeresidents;
(+) 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 toclear;
=> There are potentialfor low-endandmid-end residentialhousing for industrial local
and migrant workers, and potentialfor high-endtourism& entertainment activities
due to its locked-awayposition with only one entry by Highway No.22. However,for
low-end andmid-end residentialhousing,strong awareness-raising sales activities are
required;
+ 1 Vinhomes project:
Leman GolfCourse(Cu Chi
District), starting
construction in 2020;
+ 1 Vincity project: Vincity
Cu Chi (Cu Chi District),
starting constructionin
2020;
N/A
South Can Gio (+) Population density: low (100 people/km2);
(+) Economic activities: mainlyagriculture& fisheries;
(+) Transport infrastructure: complete national/provincial/county highway and
ringroad system
(+) Land bank: large lots available;
=> Potentialfor high-endbeach tourism and eco-tourismactivities;
1 Vinhomes project:
Vinhomes Long BeachCan
Gio (Can Gio Distirct);
starting constructionin
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 recongizedaccording to contract completion method, when real estate properties are handed over and full pay ments are received. VHM’s
conslidated financial statements only incorporate from financial statements ofassociates 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,
strongprospects of VHM’s projectsindicate strongoutlook. 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 DienHouseTrading and InvestmentJSC 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 explanationforunderpricedVHMcouldbe VHM’schoice of IPOmethod of bookbuilding(*). Firstly,the reasonfor
IPOis the mere issue size of $1.35b, whichisthe largestissue inVietnamsince TCB’s raising$922m, and requires
informationsymmetry. Secondly,the justificationforbookbuildingmethod couldbe the factthat VHMwantedto
maintain relationshipwithregularinvestors,andthusadoptedbookbuildingapproachtooffersolicitedpricesand
allocate shares ona discretionarybasistopreferredinstitutional investors incase of oversubscription.
VHM couldbe expectedtoincrease inbothshorttermandlongterm.In the short term, the undervaluedVHMwill
increase toitsintrinsicvalue.Inthe longrun, as a resultof the long-termrelationshipwithinstitutionalinvestors,VHM
isexpectedtoreceive significantprice supportanddemonstratesolidperformance.
Retail investorswishingtobuyVHMcan onlydo so viaunofficial channels,asthe stockisalreadyoversubscribedby
institutional investorsbythe firsttradingdayandall 3-millionstocks placedbyretail investorswere void.Buyingvia
unofficial channels involves3mainrisks:
1. Uncertaintiesassociatedunofficial channels;
2. Dependence onmarketmakers(DragonCapital);
3. Uncertaintiesaboutoff-markettransactions;
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(*) There are 3 IPO pricing mechanisms,differing in terms ofpricesetting and shareallocation methods:
Price setting mechanism Share allocation mechanism
Fixed price Underwriters determinethepricebased ontheirvaluation Pro-rata basis
Auction Investors submit bids abovetheminimumprice, and shares are sold at theprices between the
IPO price and thecap prices
Pro-rata basis
Book building Underwriters determinethepriceafter soliciting regular investors at roadshows; Discretionary basis