Credit Rating Result
Hanoi, 29 May 2024 - Vietnam Investors Service (VIS Rating) has assigned a long-term issuer rating of BBB to Ha An Real Estate Investment and Business Joint Stock Company (Ha An). The outlook on Ha An’s BBB issuer rating is stable. This is the first time VIS Rating assigned a rating to Ha An.
SUMMARY OF KEY FACTORS
| Extremely weak | Very weak | Weak | Below average | Average | Above average | Strong | Very strong | |
|---|---|---|---|---|---|---|---|---|
| Stand-alone Assessment | ▲ | |||||||
| Scale | ▲ | |||||||
| Business Profile | ▲ | |||||||
| Profitability & Efficiency | ▲ | |||||||
| Leverage & Coverage | ▲ |
| Low | Moderate | High | Very high | Extremely high | |
|---|---|---|---|---|---|
| Affiliate support | ▲ | ||||
| Government support | ▲ |
Rating rationale
Ha An’s BBB long-term issuer rating reflects the company’s average standalone assessment. The average standalone assessment incorporates the company’s average scale and business profile, its very strong profitability and efficiency, as well as its below-average leverage and coverage, which we expect to improve modestly over the next 12-18 months.
Established in 2018 as a project company by Dat Xanh Group Joint Stock Company (DXG), Ha An has grown to become the real estate development arm of DXG. Since 2019, DXG contributed equity capital and transferred its residential projects to Ha An for development and commercialization. As part of DXG, Ha An benefits from operational support in branding, project management, sales, and marketing from DXG and its affiliates. Ha An’s annual revenue of VND 2-3 trillion over the past 3 years reflects its ‘Average’ scale.
We assess Ha An’s business profile to be ‘Average’, incorporating the average industry profile score of the residential real estate sector in which the company operates and Ha An’s average competitive position and diversification score.
The residential real estate industry in Vietnam is characterized by a high barrier to entry, average levels of competition and volatility, and a moderate growth outlook. Developers in the sector operate in a highly regulated environment and undertake project development work that is both time-consuming and highly capital-intensive. We view the sector growth to be moderate, underpinned by strong housing demand in major cities and a gradual increase in housing supply.
We position Ha An’s competitive position and diversification at an ‘Average’ level. Our assessment incorporates the company’s and DXG’s well-established market position and competitive advantage in the residential real estate development industry, its fairly diversified business coverage by geography and product segments, and its average track record of executing its strategic plans and projects.
Over the last 3 years, DXG - through Ha An – is ranked among the ten largest listed developers by revenue. Ha An’s track record in project development is demonstrated by the launch and sale of 12 projects by DXG since 2007, and 3 recent projects launched by Ha An following its establishment in 2018.
Ha An has a large portfolio of residential projects with a total area size of 517 ha, of which around 307 ha are located in Ho Chi Minh City (HCMC) region and neighboring provinces such as Binh Duong and Dong Nai, which are among the fastest developing economic regions in Vietnam. Most of its projects in the Southeast region of Vietnam are in localities where legal approvals of new real estate development projects had been brisk, and which are well-connected by current and new transportation infrastructure such as Long Thanh International Airport and national highways. Ha An’s projects include a fairly diverse mix of mid-to high-end products including land plots, shophouses, townhouses, and condominiums, and its geographical strategic focus on the Southeast region.
We note that Ha An partners with Dat Xanh Real Estate Services Joint Stock Company (DXS) - a subsidiary of DXG and owner of the largest real estate brokerage network nationwide – to execute its project development and sales. According to the company management, DXS provides Ha An with local market insights on market valuation and pricing trends, as well as dedicated sales and marketing support for Ha An’s projects. Such synergies have contributed to Ha An’s project successes of late.
Ha An’s recent projects were mostly successful. For example, it was able to fully pre-sell Opal Boulevard and Opal Skyline projects within six months following project launch, and hand over the units to homebuyers ahead of schedule. Its other project, Gem Sky World, however, experienced hand over delays by around 12 months. According to the company management, these delays have been resolved and around 60% of the project’s sold land plots and shophouses had received land ownership certificates.
We assess Ha An’s profitability and efficiency as ‘Very Strong’, underpinned by its track record of high EBITDA (Earnings before interest, taxes, depreciation & amortization) margins of 27-30% over the past 3 years. Its operational efficiency is better than industry-average.
Over the last 3 years, Ha An’s revenue was driven by sales of its new residential real estate projects including Opal Boulevard, Gem Sky World, and Opal Skyline. We note that its revenue growth has been quite volatile in recent years, partly due to legal obstacles that resulted in delays in handovers. In 2024, we expect a significant increase in its revenue by around 50% from the prior year, driven by the recognition of contracted sales from its Opal Skyline and Gem Sky World projects following the completion of the handover process.
We position Ha An’s leverage and coverage at a ‘Below-Average’ level, reflecting the company’s ‘Strong’ leverage but ‘Very-Weak’ coverage level.
Ha An’s strong leverage reflects the significant amount of equity capital infused by DXG since 2018 to support the company’s capital expenditures and business growth and repay maturing debt. The company’s leverage, measured by Debt/EBITDA, improved to 5x in 2023 from 11x in 2022. Its Debt/Equity of 29% in 2023 was much lower than industry average of 76%.
We note that DXG completed another round of equity infusion of VND1,119 billion in Ha An in March 2024. According to the company management, Ha An will use the new capital proceeds to repay the majority of Ha An’s (including its subsidiaries) maturing debt in 2024. Coupled with EBITDA growth of 44% in 2024, we expect the company’s leverage will improve to around 3x-4x by the end of 2024.
Ha An’s very weak coverage is driven primarily by its negative cash flow from operations, which resulted from relatively weaker project sales over the last two years and high level of capital expenditures for new project development. Its CFO (Cash flow from Operations)/Debt was -22% in 2023. Its interest coverage – measured by EBIT (Earnings before interest and taxes)/ Interest expense – was 1.5x in 2023, much lower than the industry average of 2.9x.
Over the next 12-18 months, we expect its weak coverage metrics to improve modestly. We view the cash inflows from a recovery in project sales alongside improving homebuyer sentiment will help to partially meet the company’s new capital expenditures.
We understand from the company management that the company’s new capital expenditures in 2024 for their ongoing projects - Gem Sky World, Opal Luxury, and Dat Xanh Home Park View - are around VND950 billion, of which we assume 70% to be funded by debt.
We assess Ha An’s liquidity risks in 2024 to be largely mitigated by its plan to use proceeds from the recent capital infusion by DXG to repay the majority of maturing debt of VND903 billion. Going forward, its debt repayment capacity will continue to rely on new cash resources, for example through new capital infusions.
Following DXG’s recent annual general shareholders meeting, it announced its intention to raise around VND1.8 trillion of new equity capital by issuing new shares to existing shareholders from Q4/2024 to 2025, of which VND1.4 trillion of the proceeds will be used to boost Ha An’s capital and repay VND1.3 trillion of debt maturing in 2025. According to the company management, Ha An does not intend to pay any shareholder dividends over the next two years.
We do not incorporate any affiliate support uplift to Ha An’s issuer rating. Ha An is DXG’s largest subsidiary in terms of assets, and we view DXG to have limited financial resources in other parts of the group that could be available to extend extraordinary support to Ha An.
Ha An’s long-term issuer rating is stable, reflecting our view that its credit fundamentals will remain stable over the next 12-18 months.
Factors That Could Lead to an Upgrade/Downgrade
Rating methodology
Non-Financial Corporates Rating Methodology.
For more detailed information, please refer to our full credit rating methodology at: here
Credit rating history
| Date | Rating type | Rating | Outlook | Action |
|---|---|---|---|---|
| 29 May 2024 | Long-term issuer credit rating | BBB | Stable | First-time assignment |
Regulatory disclosures
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Ha An’s ownership stake in VIS Rating: 0%
The ownership ratio of Ha An held by VIS Rating’s staff: 0%
Cases in which analysts and credit rating council members cease their participation in the credit rating contract before the contract expires and the reason for the cessation: 0
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Analyst & Committee
Primary Analysts
Rating Committee Members
Credit Rating Announcement Number
Public credit rating announcement no: VN3702642596-001-290524
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