SCS Update Report – BUY

Saigon Cargo Service Corporation (SCS): Capacity expansion potential is a competitive advantage amid the recovery of import and export activities.

In 2023, SCS’s business performance faced challenges due to a decrease in cargo throughput, especially in international cargo, amidst a generally gloomy global trade environment and a decline in Vietnam’s import and export activities. However, the recovery of import and export activities from the second half of 2023, and particularly strong growth in the first five months of 2024 have supported SCS in rebounding. Additionally, SCS still has the potential to increase its capacity compared to its competitor (TCS) at Tan Son Nhat Airport, as SCS is currently operating at only about 60% of its designed capacity. This potential for expansion positions SCS for better profit growth prospects in the 2024-2026 period before Long Thanh terminal comes into operation. We project a compound growth rate for SCS’s net sales and net profit of 18.5% and 16.4%, respectively, for the 2024-2026 period. Using the DCF valuation method, we determine the fair value of SCS at the end of 2024 to be 114,300 VND/share, with a Buy rating.

Q1/2024 business results showed positive growth: Net sales reached VND 212.8 bn (+31.3% YoY). Gross profit was VND 168.3 bn (+37.2% YoY) with gross profit margin of 79.1%, an increase of 3.4% compared to Q1/2023. Total air cargo throughput was 58,442 tons (+34.2% YoY), with international cargo reaching 42,632 tons (+38.9% YoY) thanks to the contribution of new customer Qatar Airways and the overall global economic recovery. Net profit was VND 147.3 bn (+30.1% YoY).

SCS’s growth prospects in the coming time include the ability to compete with TCS for new customer contracts in a recovering trade environment, as SCS still has room to expand its operational capacity by up to 75% from the current level, reaching 350,000 tons/year.

Business plan for 2024: Management projected net sales and profit before-tax to reach VND 968 bn (+37.3% YoY) and VND 680 bn (+19.6% YoY), respectively. The total planned throughput is 248,000 tons (+30.7% YoY), with international cargo accounting for 190,000 tons (+38.7% YoY) and domestic cargo 58,000 tons (+10% YoY).

Profit distribution for 2023: Dividends will be paid in cash at a rate of 50% (equivalent to 5,000 VND per share), with 5% of net profit allocated to the welfare and reward fund and 1% to the board’s operational fund.