SSI Research: FPT's IT Sector May be Double-digit Growth in the Second Half of the Year

The domestic IT segment increased by 7% in the year's first half but could rise by 20% in the second half, thanks to a backlog of VND 5,000 billion. FPT will continue leveraging its advantage of reasonable labor costs amid the global recession risk.

According to SSI Research, at the investor meeting on August 9th, the management team of FPT Corporation (HoSE: FPT) affirmed that the 2022 business result could exceed the target of the 2022 pre-tax profit plan of VND 7,600 billion, an increase of 20% compared to the previous year.

In the first half of the year, FPT recorded its net revenue of VND 19.826 billion, up 22% year-on-year; profit after tax of VND 3,637 billion, up 24%, and net profit of VND 2,490 billion, up 31%. As a result, the company achieved 47% of its revenue target and 48% of its profit target.

In the field of overseas IT services, in 6 months, the value of new deals increased by 20% in Japan, 50% in the United States, and 10% in Europe. By July, the Japanese market showed more significant development, with the value of new deals increasing by 50%, while the growth rate in the US market fell to 50%. FPT leaders expect new contracts to sustain double-digit growth in the second half of 2022.

At the same time, FPT actively participated in derivative contracts to prevent the Japanese Yen's devaluation risk. As a result, the prompt actions of the Corporation helped the profit margin of the foreign IT segment not be reduced by 2% in the first half of 2022. (The Japanese market's revenue accounted for about 40% of total IT sales abroad). However, the foreign IT segment recorded an operating profit margin in the first six months of 15.8%, compared to 15.9% YoY. The slight decrease was partly due to salary adjustment and the implementation of the talent retention program for employees.

Based on FPT and SSI Research statistics, the IT engineer wages of FPT and Vietnam as a whole are about 25% lower than competitors in India and other Asian countries. In the context of inflation, cost control is a priority. In 2020, during the Covid pandemic, thanks to its low-cost advantage and its M&A deal with Intellinet, FPT successfully won a huge USD 100 million IT contract with a US auto manufacturer. SSI Research expects FPT's low-cost precedence to continue to be promoted amid the global slump. FPT management team is also confident of maintaining the USD 1 billion revenue target (an estimated 25% year-over-year increase) for the foreign IT segment by 2023.

The domestic IT services segment decelerated due to constrained bank credit growth and tightened real estate markets. As a result, 6-month revenue and PBT growth were maintained at 7%. However, the leaders aim to increase to 20% YoY in the year's second half, thanks to a backlog of VND 5,000 billion.

The profit margin of the telecommunications sector improved to 19,1% due to the positive development of Pay-TV services. The number of Pay-TV's new subscribers grew by 25%, while the profit margin reached 13%. They said the rate could gain 15%-17% due to more broadcast content. SSI Research estimates that in the event of unforeseen economic fluctuations, stable cash flows from telecommunications services could be a guarantee for FPT.

The education sector may become another growth driver as management determines that it may expand by more than 30% over the same period in the next three years.