VGC - A blitz on restructuring amidst rising challenges
FY2019 outlook - Industrial park lease as a key driver, while expecting building materials to improve in view of restructuring
VDSC thinks Viglacera is in a turnaround mode, demanding an effective restructuring against inside-out obstacles from the building materials, the segment representing 64% of profit. Several efforts have been carried out, including the divestment from ineffective businesses, investment in quality improvements and focusing on high-value products. My Xuan sanitary ware and Phu My ultra-white glass factories are expected to bring distinct advantages in the long term. Industrial park lease is expected to make substantial contribution to long term growth as a result of favored FDI and the manufacturing shift from China. Residential projects in Hanoi and social houses encircling industrial zones also will help the company maintain stable income.
Valuation and recommendation
We apply a sum-of-the-parts method, comprising of RNAV and EV/EBITDA, to evaluate the real estate and building materials segments, respectively. Our target price is down to VND 21,000 value per share, reflecting a tougher-than-expected competition in building materials. The failure of the MoC’s early divestment and a less optimistic prospect of building materials market may have contributed to the decline of stock price recently. However, we do not expect a worse scenario than the current situation. Upside potential depends on better restructuring performance while downside risk lies in the downturn of the construction market and properly a strong surge in fuel price. We come up with a BUY recommendation on Viglacera with a total return of 36%, as of the closing price in November 13th, 2018.
Viglacera Corp JSC. Viglacera Corporation - Joint Stock Company (Viglacera) is a Vietnam-based company primarily engaged in construction supplies sector. The Company, together with its subsidiaries, is involved in the manufacture and commerce of diversified construction materials and fixtures, including structural clay bricks, ceramic tiles, flat glasses, concrete bricks, as well as vitreous china plumbing fixtures and earthenware bathroom accessories, among others. Vigalcera also partakes in the mining of kaolin, quartz sand and other minerals. Additionally, the Company is engaged in the construction of residential, commercial and industrial infrastructures; the installation of aluminum frames, glass panels and doors; the leasing of residential and institutional buildings, and the provision of real estate management services.
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