Equity Analysis /
Vietnam

Gemadept Corporation: Positive Q1 19 results from port operation and joint ventures

    Tung Do
    Tung Do

    Logistics, Aviation

    Hieu Nguyen
    Hieu Nguyen

    Market Strat, Pharma, Aviation

    Rong Viet
    3 June 2019
    Published by

    Q1 Highlights: GMD fulfilled 22% and 23% of 2019 revenue and PBT targets, respectively. PAT decreased sharply given last year’s one-off income from selling stakes in logistics and shipping subsidiaries. Excluding extraordinary items, core PBT grew by 9% yoy.

    2019 outlook: Core businesses to maintain healthy growth

    • Stable growth in volume throughput.
    • The HICT deep-water port will affect GMD ports in Haiphong less than its competitors.
    • Affiliates’ income will continue to boost earnings.
    • Deep-water port Gemalink project will restart, doubling capacity by 2021.

    Valuation and recommendation

    The Gemalink deep-water port project has finally been restarted after many years of being stalled and facing lack of capital. This strategic project is crucial for GMD to secure fast container volume growth in Cai Mep, Vung Tau, as shipping lines tend to use large vessels to transport containers. GMD will compete directly with market leaders Saigon New Port and Vinalines.

    In the short term, growth will mostly come from the northern port cluster. However, the region will witness fierce competition due to oversupply, especially after the arrival of a new player, HICT deep-water port. Still, despite the declining service prices, we believe GMD’s volume growth can compensate for this. We also think GMD's ports have several advantages compared with other river ports to withstand the competition from HICT. In addition to a good position in the downstream, GMD has experience in port operation and adds more value for its customers through a chain of logistics services (seaports, freight transportation, warehouses and distribution centers). Moreover, most of GMD's customers do not have direct calls at HICT.

    Meanwhile, operations of logistics associates are improving. Overall, we expect GMD's core EBT to grow by 24% yoy in 2019. We estimate fair value of GMD at VND30,000 per share and reiterate Buy with a total return of 21%.

    In terms of risks, investors should pay attention to the annual losses from its rubber plantations in recent years – the unpredictable commodity is a significant factor affecting PBT from 2019 onwards. We forecast that GMD will record a loss of VND70bn from the rubber segment (accounting for c10% of 2019 EBT) in 2019.