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Vietnam Container Shipping: Q1 20 earnings soar despite Covid-19 crisis

  • Q1 20 earnings jumped 41.8% yoy to VND57bn

  • 2020f earnings to inch higher by 3%

  • Despite cheap valuation, we see limited upside in the short term

Tung Do
Tung Do

Logistics, Aviation

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Rong Viet
5 May 2020
Published byRong Viet

VSC reported Q1 20 financial results with total revenue of VND409bn (which was slightly down 3.5% from Q1 19) and earnings jumping 41.8% yoy to VND57bn. 

The group’s total container throughput declined by 7% yoy to 263,000 TEUs in Q1 20. Of this, VIP Green Port handled 147,000 TEUs (-3% yoy) while throughput at Green Port dropped by 23% to 50,000 TEU. The outsourcing volume was maintained at 66,000 TEU. On average, the estimated weekly calls in Q1 20 at both Green Port and VIP Green Port reduced by one call per week. We believe this decrease was the result of the blank sailing programme (implemented by international shipping lines when Chinese ports halted their operation in February) and lower demand in the market in the wake of the Covid-19 pandemic. Although container handling revenue fell in line with container volume, healthy growth in the container transportation segment helped total revenue declined only by 3.5% yoy. 

NPAT-MI soared by 41.8% yoy on the back of (1) low base from last year’s Q1 results caused by other losses, (2) wider profit margins owing to better cost management and (3) lower interest expenses as VSC repaid the majority of its outstanding borrowings. 

2020F earnings to inch higher by 3%. For 2020, we expect revenue to plunge by 15.7% yoy to VND1,512bn, which is largely driven by a 12.1% decrease in the group’s total container volume as the Covid-19 pandemic is expected to weaken global trade flow and, hence, container shipping market demand as well. Nonetheless, we forecast 2020f NPAT-MI to rise by 3.2% yoy to VND241bn, which is supported by:

  1. Expanding profit margins. We expect GPM to improve by 2.5 ppts to 26.9% thanks to a significant reduction in outside services of 25%.
  2. Low 2019 earnings base. VSC recorded a significant amount of one-off other losses and corporate income tax provision of approximately VND40bn last year.
  3. Minor amount of interest expenses. By end-Q1, the remaining debt was only VND32bn and we expect this amount to be fully repaid in Q2 20. Thus, we expect interest expenses to drop to cVND4bn vs VND16bn in 2019. 

Limited upside for 2020. VSC is trading at 2020f P/E of 5.7x and 2020f EV/EBITDA of 2.3x. Despite the cheap valuation, we see limited upside in the short term as the share price has risen near our estimated 2020 fair value of VND27,000, implying 2020f P/E ratio of 6.1x and EV/EBITDA of 2.7x.