Equity Analysis /
Vietnam

Saigon Cargo Service: Covid-19 concern drives the stock to attractive valuation

  • 2019 – NPAT maintained double-digit growth yet at a slower pace

  • FY 20 outlook – Covid-19 will temporarily hit profit growth

  • We believe the recent crash in the stock price is a good chance to BUY

Tung Do
Tung Do

Logistics, Aviation

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Rong Viet
19 March 2020
Published byRong Viet

FY 20 outlook – Covid-19 will temporarily hit profit growth

Volume growth will be hurt as we expect volume contribution from China and Hong Kong, two markets that account for one-third of total flights operated by SCS’ airlines partners and 22% of total int’l cargo volume of the company in 2019, to be hit the most as a result of flights cut/reduction. We expect total Int’l cargo volume to modestly grow at 3.1% YoY in 2020 (-3.5 pps YoY). While revenue growth will decelerate in line with volume throughput, we expect operating expenses to rise marginally, as fixed costs account for the major part in the cost structure. Because of this, the company will be able to maintain its profit margins regardless of the Covid-19 pandemic.

We expect 2020F revenue to reach VND 773 Bn (+3.3% YoY) and NPAT to come at VND 525 Bn (+4.4% YoY). 2020F EPS (adjusted for preferred dividend, bonus and welfare fund) to be VND 8,975.

Valuation and recommendation

We believe that the coronavirus’ impact on business results of SCS should be temporary. In our base case, we expect the pandemic to be contained by the end of Q2/2020, followed by the reinstatement of flights as well as an improvement in the global supply chain in which China plays an integral role. 

This in turn will help bring the cargo volume back to a healthy growth trajectory going forward. Furthermore, the EVFTA, which is expected to come into force by mid-2020, will also bring opportunity for long-term growth. 

We expect that the company will benefit from the fact that many goods traded between Vietnam and the EU, including mobile phones, electronic devices, machinery components, pharmaceutical products, are transported via air. 

Thanks to this positive long-term outlook, we believe the recent crash in the stock price is a good chance to BUY it. It offers a total return of 26% as of March 18th, 2020 based on our FCFE-derived target price of VND122,500 together with an expected cash dividend of VND 8,000 per share.