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Vietnam Container Shipping: Q4 19 review: Better-than-expected results thanks to profit margin improvement

  • Net sales rose 6% yoy to reach VND1,793bn, PBT declined 12% yoy to VND342bn

  • VSC is currently trading at VND25,150 per share, 9% lower than our target price

  • For 2020, we forecast net sales of VND1,929mn (+ 7.6% yoy) and net profit of VND260bn (+ 11% yoy).

Tung Do
Tung Do

Logistics, Aviation

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Rong Viet
7 February 2020
Published byRong Viet

VSC announced unaudited business results for 2019. While net sales rose 6% yoy to reach VND1,793bn, PBT declined 12% yoy to VND342bn. However, VSC still managed to surpass its 2019 PBT plan by 12% on the back of robust Q4 19 results. Following three consecutive quarters in the negative zone, Q4 19 PBT growth rate turned positive, up 10% yoy, thanks to profit margins expansion, significantly lower interest expenses and a record other income.

2019 net sales decelerated drastically in line with container volume growth rate

Total container volume reached 1,174K TEU (+1.3% yoy). In particular, VSC directly stevedored 890k TEU (-9% yoy), while the outsourcing volume (mainly exploited at PTSC Dinh Vu Port) reached 285k TEU (+58% yoy). In general, the container volume growth rate has dropped sharply compared to 2018 (growth rate of 28%) due to limited headroom in capacity and the increasingly fierce competitive landscape in Hai Phong, which have made attracting customers become more demanding. After discussing with the company, we learned that VSC has renewed the contracts with existing shipping lines. As a result, service routes in 2020 calling at VSC’s ports will be maintained.

Improved profit margins boosted Q4 19 results

Although GPM in Q4 19 decreased slightly by 0.5ppts over the same period to 26.5%, it improved significantly compared to the average GPM in 9M 19 of 23.7% following a stricter input costs management policies.

Net profit margin increased by 2.3ppts over the same period, and reached 19.5% thanks to:

  • Profit from Joint ventures surged 20% to VND7bn as VSC increased its outsourcing activities at an affiliate, PTSC Dinh Vu port. Since 2018, VSC has actively transferred a number of service lines from Green Port to PTSC Dinh Vu Port in order to accommodate large vessels.
  • Interest expenses plummeted to VND550mn in Q4 19 from VND6.9bn in Q4 18 as the company repaid VND85bn of its debt in Q4 19. Thanks to robust cash flow from operation and minor capex demand, outstanding long-term borrowing has decreased by VND209bn from the beginning of the year to VND 64bn by end-2019. It is likely that VSC’s remaining long-term debt will be fully paid off in Q1 20.
  • VSC recorded other income of VND8bn in Q4 19 from assets liquidation.

Coronavirus epidemic could put the Hai Phong’s Q1 20 container volume throughput at risk

After discussing with several port operators in Hai Phong, we learned that these terminals still serve vessels coming from China as scheduled. The short-term impact of the coronavirus outbreak on container volumes hasn’t been clearly measured as the disease outbreak coincided with the Lunar New Year occasion, which is also known as the slack season of port operations. We are concerned that the growth of export and import goods volume in Hai Phong in Q1 20 may be dampened as China reduced industrial production and import-export activities in an effort to contain the spread of the virus. This also led some container lines to announce void sailings at some Chinese terminals due to curtailed demand. Accordingly, Alphaliner estimates that port volumes in China could take a hit of 6 million TEU in Q1 20 from the impact of the coronavirus. This could compromise the global supply chain in which Vietnam is a link. Considering the Hai Phong's vital position in Vietnam’s import and export activities, we believe that Hai Phong’s seaports volumes could be negatively impacted in the next few months.

VSC is currently trading at VND25,150 per share, 9% lower than our target price in our 2020 Strategy Report (VND28,200 per share). For 2020, we forecast net sales of VND1,929mn (+ 7.6% yoy) and net profit of VND260bn (+ 11% yoy). We are revising our forecast for 2020 due to a material change in gross profit margin as a result of the company’s stricter input costs management as well as adjusting container volume for the impact of the coronavirus.