VRE reported resilient Q2 2021 results on a year-on-year (YoY) basis with net revenue of VND1.5tn (USD65.7mn; -7% YoY) — which was mostly due to a 68% YoY decline in property sales while retail leasing grew 5% YoY — and NPAT-MI of VND388bn (USD16.8mn; +13% YoY). For H1 2021, VRE’s revenue reached VND3.7tn (USD162.5mn; +13% YoY) while its NPAT-MI was VND1.2tn (USD50.8mn; +40% YoY). VRE's H1 2021 results fulfilled 38% and 45% of our respective full-year forecasts for revenue and NPAT-MI. Although VRE’s H1 2021 NPAT-MI was broadly in line with our current full-year forecast, due to the current COVID-19 situation in major cities/provinces throughout Vietnam, we foresee downside risk to our current forecast for VRE as stated in our last Update Report, VRE [BUY +27.8%] - Lower support package; mall expansion to resume in 2021, dated May 21, 2021, pending for a fuller review. 

Leasing segment (accounting for 82% of VRE’s H1 2021 revenue)

In Q2 2021, this segment recorded 5% YoY revenue growth on the back of a recovery of tenant businesses in Q2 2021 vs Q2 2020’s low base as consumers resumed their typical shopping habits after the peak of COVID-19 disruptions in April 2020. Nevertheless, this segment’s revenue was down 20% vs Q1 2021 as VRE’s business performance was impacted by the fourth wave of COVID-19 in Vietnam that started in late April 2021 and has caused major cities/provinces to tighten social distancing measures — including the closure of non-essential businesses. For H1 2021, VRE’s retail leasing segment posted revenue of VND3.1tn (USD134.0mn; +12% YoY).

VRE spent VND424bn (USD18.4mn) for a tenant support package in H1 2021 vs VND675bn (USD29.3mn) in H1 2020. Nevertheless, as the new contribution of VMM Ocean Park (Hanoi) since December 2020 as well as VRE actively streamlining operation costs, gross margin of the retail leasing segment reached 52.3% in H1 2021 vs 45.5% in H1 2020. For H2 2021, management shared that the company has planned for a maximum VND1.0tn (USD43.5mn) support package under the assumption that the current closed malls (47 malls out of VRE’s total 80 malls — mostly in southern and central Vietnam) will remain closed until the middle of September 2021. We note again that in 2020, VRE provided a total VND865bn (USD37.6mn) support package (mainly in the form of rent rebates) to tenants who were heavily impacted by COVID-19. 

Total shopping malls under operation as of end-Q2 2021 remained at 80 malls with a total retail leasing GFA of nearly 1.7 million sqm. VRE’s management reaffirmed the company’s 2021 plan to launch three shopping malls in H2 2021, including the VMM Smart City in Hanoi (current occupancy of 85%) and two VCP malls in My Tho and Bac Lieu (current occupancy of 90% on average), adding a total of nearly 100,000 sqm of GFA. This amount would raise VRE’s total retail leasing GFA to 1.8 million sqm by the end of 2021, which is in line with our current forecast.

Property sales segment (accounting for 15% of VRE’s H1 2021 revenue)

The property sales segment reported Q2 2021 revenue of VND96bn (USD4.2mn; -68% YoY). Key handovers in Q2 2021 included shophouses in My Tho, Bac Lieu and Uong Bi, etc. For H1 2021, VRE’s property sales segment posted revenue of VND548bn (USD23.8mn; +11% YoY). Per management, VRE targets for the property sales segment to record revenue of VND1.2tn (USD52.2mn) in 2021, which is lower than our current forecast of VND2.4tn (USD104.7mn).