2022 is out of breath, 2023 is full of promise

2022 is out of breath

Amid the Covid-19 pandemic, most industries have plummeted, with only a few industries successfully weathering the storm. Besides pharmaceuticals, industrial real estate is a rare bright spot. In particular, industrial real estate has benefited from the US-China trade war and the relocation of factories to Vietnam.

Because of the strong growth in 2020 and 2021, it is understandable that industrial real estate stocks will correct in 2022.

According to statistics from SSI Securities Company, in 2022, industrial real estate stock prices decreased by 38.6%, 6.7% lower than the VN-Index.

Industrial real estate in 2022 is hot in 2023, picture 1 — Industrial real estate is out of breath in 2022 but is expected to grow well in 2023. Illustrative photo

Most stocks in the industrial real estate sector (such as IDC, KBC, GVR, LHG, SZC) have fallen significantly, especially in the mid- and small-cap group. The sector's performance in 2022 is said to be affected by many factors, including slow land handover (due to the prolonged approval process) or management restructuring.

ITA is the stock with the least positive performance (down 75.3% compared to the beginning of the year) because this stock was put on the warning list by the General Department of Taxation.

Meanwhile, BCM was the best performing stock, with a 25.7% YoY increase in 2022, thanks to the successful sale of land in Binh Duong New City to CapitaLand (18.9 hectares with a total value of USD 242 million) and strong net profit growth of 60% YoY in the first 9 months of 2022).

According to SSI Securities Company, P/E and P/B of industrial park development companies will be 12.8x and 1.8x respectively in 2022, down slightly from 13.6x and 2.1x in 2021 due to improved net profit with increased rental prices at industrial parks (for remaining leasable areas) and recording retroactive profits and revaluation profits of 100% occupied industrial parks.

2023 is a promising year

Despite "running out of steam" in 2022, industrial real estate is still highly valued in 2023. SSI Securities Company forecasts that in 2023, the net profit of listed industrial park development companies is expected to grow by about 12% over the same period.

There are two main reasons for this optimistic signal. That is, the total area of land for lease increases by about 10%/year and the rental price is expected to increase by 3% over the same period in industrial parks in the South and 2% over the same period in industrial parks in the North in 2023.

In addition, SSI also analyzed the future of industrial real estate in more detail. According to SSI, in the context of newly registered FDI capital slowing down at the end of 2022, 2023 could be a more challenging year for FDI enterprises in Vietnam due to the risk of a global recession.

However, the ongoing trend of shifting production from China to Vietnam will be a growth driver. Vietnam is one of the countries attracting large manufacturers such as Lego (investing 1 billion USD), LG with plans to invest an additional 4 billion USD in Vietnam with the aim of turning Vietnam into a future smartphone manufacturing hub, as well as Foxconn, one of Apple's main suppliers, which is planning to invest 300 million USD.

In addition, Samsung is looking to increase its investment in Vietnam to $20 billion, focusing on artificial intelligence, big data and other areas. In 2022, Quanta Computer - the world's third-largest software outsourcing company - is said to be planning to build a factory in the north, where the company is expected to fulfill orders for Apple MacBooks; BOE Technology Group Co Ltd (China), a supplier to both Apple Inc and Samsung Electronics Co Ltd, plans to invest a large amount of capital to build two factories in Vietnam, leasing 100 hectares of land in the north.

In addition, according to SSI, investment in Vietnam's industrial parks is considered attractive because the dong has depreciated less than the currencies of regional countries such as Indonesia, Thailand, India and Malaysia and other key markets in Asia Pacific such as Japan.

Vietnam's FDI attraction policies also help attract investors by offering many incentives such as corporate income tax exemption for the first 4 years of operation, 50% reduction in corporate income tax for the next 5 years and other business support incentives.

Industrial land rental prices in Vietnam are still low compared to other ASEAN countries, specifically 30~36% lower than in Indonesia and Thailand. According to Colliers, in industrial park centers such as Bogor - Sukabumi, Tangerang and Bekasi in Indonesia, the average land price fluctuates around 164 USD/m2/rental cycle, 36% higher than the land price in industrial park centers in Vietnam such as Binh Duong, Dong Nai, Bac Ninh, Hai Phong.

There are 2 industrial real estate stocks that SSI highly appreciates in 2023. They are IDC of IDC Group Joint Stock Company and KBC of Kinh Bac Urban Development Corporation.

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