Although the valuation of the real estate industry and stocks are discounted to a low level, Agriseco still takes a cautious view of the sector due to a lack of short-term rally momentum.
Realty stock prices need to lose another 10 - 20 per cent to create more opportunities for bargain-hunting activities.
In the update on the real estate industry, Agribank Securities (Agriseco) said that current real estate stock prices are trading around the price-to-book ratio (P/B) of about 2.5x, lower than the average of the last 3 years.
After hitting the peak in April, corresponding to the P/B of about 3.5x, real estate stock prices have dropped 30-50 per cent and created a short-term bottom at the P/E of 2.25x.
The securities firm said that in 2018-2019, when credit flows into the realty sector were controlled, the industry’s stock prices corrected and hit the bottom at the P/B of 2x.
Therefore, Agriseco Research expects the P/B of about 2x - 2.25x is the bottom of this period and is a suitable price range for investors to consider disbursing budgets for their medium and long-term investments.
"In general, the realty stock prices need to decline by another 10 - 20 per cent to create opportunities for bargain-hunting activities,” the company said.
Agriseco's statistics of 65 residential real estate businesses on the three stock exchanges, excluding Vingroup (VIC) as Vinhomes (VHM) was already counted, the total revenue and profit after tax in the first six months of the year were VND51.22 trillion (US$2.17 billion) and VND11.65 trillion, respectively, down 40 per cent and 50 per cent year-on-year.
The fall was mainly due to less positive results from leading enterprises in the industry. However, Agriseco noted that quarterly profit may not fully reflect the situation of real estate businesses as profit records occur when the product is handed over, usually in the second half of the year.
For the first six months of the year, the total earnings before interest and taxes (EBIT) of real estate enterprises reached VND6.25 trillion, a slight decrease over the same period last year.
Even though many businesses witnessed unexpected profit growth, the main contribution did not come from core business activities but from financial divestment or asset revaluation such as Hoang Quan Consulting-Trading-Service Real Estate Corporation (HQC), An Duong Thao Dien JSC (HAR), and Song Da Corporation (SJG). These amounts are considered to be one-off and are likely to be a hindrance to profit growth in the future.
According to Agriseco Research, the level of financial leverage at the end of June has increased significantly compared to the beginning of the year. The realty enterprises’ debt to equity ratio has risen from 47 per cent as of December 31, 2021, to 57 per cent as of June 30, equivalent to the level during the COVID-19 pandemic. Debts of 65 residential real estate enterprises (excluding Vingroup) are estimated at more than VND186 trillion, a gain of 25 per cent compared to the end of last year.
The securities firm said that amid the downcast corporate bond market and the narrowing of the credit room for real estate, small businesses with less land will face many difficulties in raising capital as well as cash flow risks.
Currently, listed real estate companies are mobilising loans in four main forms - bank credit, corporate bond issuance, prepaid customers and other sources of capital with proportions of 14 per cent, 17 per cent, 18 per cent and 51 per cent, respectively, according to FiinGroup's estimate.
Of which, numerous enterprises have a high proportion of bond debt in their debt structure of over 50 per cent, such as An Duong Thao Dien, VRC Real Estate and Investment (VRC), and Phat Dat Real Estate Development JSC.
Interest rates are also showing signs of increasing after two years at a record low. As a a capital-intensive industry with a high leverage ratio, the real estate industry may be negatively affected when the progress of project implementation and sales slow down, said Agriseco.
It also said that as credit for the real estate industry is strictly controlled and the mobilisation of corporate bonds is quiet ahead of the amended Decree 153, real estate enterprises with weak financial health will find it difficult to raise capital for restructuring due debt. — VNS