• KBC released Q2 2021 results with revenue surging 336% YoY to VND750bn (USD32mn) and NPAT-MI of VND34bn (USD1.5mn) vs a loss of VND3bn (USD130,000) in Q2 2020. We note that Q2 2020 was an extremely low base due to the outbreak of COVID-19. 
• The revenue growth in Q2 2021 was mainly driven by land sales from the Nam Son Hap Linh IP and Trang Due Urban Area (UA). KBC recorded 4.4 ha of IP land sales and 0.9 ha of UA land sales in Q2 2021 vs 2.9 ha and 0.5 ha in Q2 2020, respectively. 
• In addition to weak revenue in Q2 2021 compared to Q1 amid COVID-19, KBC’s bottom line was further dragged down by a 230% YoY surge in financial expenses that was mainly due to a debt balance increase of 248% as of end-Q2 2021 vs the end-Q2 2020 balance.  
• In H1 2021, KBC’s revenue surged 278% YoY to VND2.8tn (USD119mn) while its NPAT-MI rocketed 12x YoY to VND634bn (USD27mn). We note that KBC achieved the highest quarterly NPAT-MI of VND599bn (USD26mn) in Q1 2021 since its listing. 
• KBC recognized a total of 71 ha IP land sales and 2.2 ha of UA land sales in H1 2021, which completed 46% and 26% of our full-year IP and UA sales forecasts, respectively. 
• KBC’s H1 2021 revenue and NPAT-MI completed 51% and 42% of our full-year forecasts, respectively. We believe the weak Q2 2021 results were mainly due to disruptions by COVID-19 in the industrial northern provinces of Bac Ninh and Bac Giang. 
• As the COVID-19 situation in these provinces has been brought under control, we do not anticipate significant risks to our 2021F full-year forecasts, pending a more extensive review.

Weak Q2 2021 due to disruptions from COVID-19 in provinces where KBC has high exposure. The fourth wave of COVID-19 in Vietnam happened in northern industrial provinces (including Bac Ninh and Bac Giang) from early to mid-May 2021, which disrupted manufacturing activities and operations of IPs. KBC’s existing IP projects are concentrated in Bac Ninh and Bac Giang, accounting for ~65% of the company’s remaining leasable IP land as of end-Q1 2021, per our estimates. COVID-19 negatively affected KBC’s land sales in Q2 2021; however, the spread of COVID-19 in these provinces is currently under control, which could support KBC’s land sales in H2 2021.

Debt balance surged mainly from straight bond issuances. In Q2 2021 alone, KBC issued VND2tn (USD86mn) of straight bonds. These bonds have a two-year term and fixed interest rate of 10.5%-10.8% p.a. In early July 2021, KBC announced unsecured lending transactions to three subsidiaries for a total value of VND1.5tn (USD65mn). While KBC’s standalone company does not have any expansion projects or new projects, its three subsidiaries have new projects. Thus, we believe these lending transactions are for KBC’s subsidiaries to start investments in their new projects. According to KBC, the new projects are mainly industrial cluster projects in Long An Province.

Financial income was ahead of our forecasts, which was mainly due to higher-than-expected interest income from deposit investments and lending receivables. Although the gross debt balance surged VND1.7tn (USD74mn) as of end-Q2 2021 vs the end-2020 balance, the net debt balance only increased VND542bn (USD23mn) as KBC did not disburse for any new/expansion projects during the period. As such, financial income was ahead of our forecasts. We thus see potential upside risk to our 2021F financial income forecasts. 

Minority interest was above our forecasts due to the weak performance of KBC’s fully owned projects. In H1 2021, minority interest completed 98% of our full-year forecasts as KBC’s partially-owned projects (such as the Quang Chau and Tan Phu Trung IPs, of which KBC owns 88% and 72%, respectively) were main profit contributors in H1 2021. Meanwhile, KBC’s fully-owned projects (including the Nam Son Hap Linh IP and Phuc Ninh UA) contributed only 6.4% to H1 2021 revenue vs our current forecast of 49% to 2021F revenue. 

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