GMD announced unaudited 2019 business results with net sales of VND2,641bn (-2% yoy) and EBT declining by 68% yoy to VND705bn due to the recognition of a large amount of financial income in the last year. Although 2019 EBT missed our estimates by 12%, mainly due to weaker-than-expected Q4 19 results, the company still achieved its PBT plan on the back of the strong growth in JVs.
GMD is trading at its three-year low of VND19,900 per share, 31% lower than the target price in our 2020 Strategy report of VND26,000 per share. We had forecast revenue of VND2,951bn (+ 12% yoy) and net profit of VND528bn (+ 3% yoy) previously for 2020. We are revising our forecast as we see potential downside in 2020f container throughput. This is because (1) GMD lost a shipping line in Hai Phong by Q4 19, and (2) Vietnam’s import and export trading activities are expected to slow down due to the coronavirus epidemic. In addition, we also note that profit growth from associates in 2020 will be significantly lower than in 2019, due to the larger loss from Gemalink deep-water port joint venture (operational by Q4 20 in Cai Mep, Vung Tau) and profit growth from SCSC is likely to slow down. We have an Accumulate recommendation on the name.
Q4 19 recap: EBIT more than halved yoy due to customer loss; administration and salary costs surge
Net sales in Q4 19 declined by 6% yoy. This is because GMD lost a customer in container shipping company Hai phong (MSC), which changed its port of call from Nam Dinh Vu Port, a subsidiary of GMD, to HICT in October 2019. As illustrated in figure 1 in the full report, weekly port calls at Nam Dinh Vu in Q4 19 declined versus Q3 19.
Gross margin in Q4 29 contracted to 30%, dropping 10ppts from the 9M 19 average of 40%, mainly due to the increase in labour costs, depreciation costs (GMD invested in more RTG cranes at Nam Hai Dinh Vu port) as well as expenses for dredging at its ports in Hai Phong. However, compared to Q4 18, gross margin was almost unchanged. As a result, gross profit dropped 7% yoy in line with the decrease in sales.
SG&A expenses surged by 35% yoy, which resulted in the SG&A/sales ratio rising drastically by 7.2ppts to 23.2%. Consequently, this dragged down the EBIT margin (figure 2 in full report). This, coupled with a much lower financial income, eroded Q4 19 PBT by half compared to the same period last year.
FY 19 results: While sluggish growth in container throughput weighed on operating income, a surge gains from joint ventures helped fulfil its PBT plan
Total container volume growth rate rose only 4% yoy, a sharp deceleration compared to 2018’s figure of 16%. This was mainly attributed to the flat growth of GMD’s terminals in Hai Phong, following the loss of a major customer and subdued demand. While the US-China trade war has partly triggered a shift in production facilities reallocation from China to Vietnam, the positive impact on importing/exporting cargo volume in Hai Phong is not yet clear. GMD’s management, mentioned that the cargo volume between China and Hai Phong has suffered from the US-China trade war, lowering the growth rate in Hai Phong to only 2% in 2019. With this result, we estimate that GMD's market share in Hai Phong declined slightly by 0.4% to 18.4% by end-2019.
While the core business showed a lacklustre performance, gains from affiliates rose 80% in 2019, raising the core PBT growth to 9% yoy. Of this, the gains from SCSC surged by 50%, higher than a 15% raise in its net income in 2019, due to GMD recognising SCSC’s corporate income tax refund as a source of income. Additionally, two other joint ventures, namely GSH and GLH, together posted positive 2019 profit results after two years of cooperation with CJ Logistics.