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TNG - Upside potential is limited as high-growth phase ends

Using the Sum-of-the-Parts (SoTP) method, we conducted an initial valuation of TNG stock. We believe that the current stock price broadly reflects the company’s long-term growth prospects. Our target price for TNG is VND 26,700/share, corresponding to a projected P/E ratio of 9.8x for 2024. Along with a cash dividend of VND 800 share over the next year, we recommend an ACCUMULATE rating with a total expected return of 9% based on the closing price as of December 2nd, 2024.
• Garment processing growth is expected to slow down amid industry saturation
o TNG’s revenue is projected to reach VND 7,650 billion in 2024 (+8% YoY) and VND 8,800 billion by 2028, with a compound annual growth rate (CAGR) of 4%. Growth will primarily come from the EU market due to additional orders from Decathlon.
o Gross margin is forecast to improve from 13.8% in 2023 to 15.2% in 2024 and reach 15.6% by 2028. Key drivers include (1) Higher cost efficiency due to increased order volumes and (2) an increased proportion of orders from Decathlon, which has a higher gross margin of around 18% than TNG's other customers.
o Net margin is expect to improve slightly, reaching 4.0% in 2024 and 5.4% in 2028 (Page 5).
o Net profit is forecast to reach VND 305 billion in 2024 (+2% YoY) and VND 473 billion by 2028, corresponding to a CAGR of 9%. EPS for 2024 is projected at VND 2,488.
• Son Cam 1 Industrial Cluster offers leasing potential
o Son Cam 1 Industrial Cluster is a TNG project to attract textile and garment-supporting industries to invest in Thai Nguyen. We assume the remaining 47 hectares of leasable area will be fully occupied within the next 10 years, with a rental rate of USD 100/m², growing at 1% annually.
Risks to our call
• Strong competition could prevent TNG from maintaining its projected profit margins.
• One of TNG’s major customers, TCP, is undergoing restructuring and is experiencing declining performance, posing a risk of increased bad debt provisions that could impact TNG’s profitability.
• With 75% of capital sourced from debt (the highest among domestic textile companies), TNG faces heightened solvency risks under unfavorable business conditions.