SCS update – BUY

Saigon Cargo Services Corporation (SCS VN)

We reiterate our BUY recommendation with a TP of VND201,400/sh (+20.6% TSR) on the back higher ASP and cargo volume.

Events: SCS ended FY2021 with VND839.1bn of revenue (+21.1% YoY) and surpassed our expectations by 7.3%. Total cargo volume reached 227,940 tonnes, slightly lower than our forecasts by 3.3% but ASP increased by an avg. of 12.6% during the year, mostly thanks to the 4Q2021 contract renewal period. As the result, revenue generated from the core cargo business increased by 22.6% YoY and contributes 94.6% to SCS’s blended revenue in 2021. The office rental business remains stable with 1.3% YoY revenue growth and the apron rental segment grew 1.2% YoY to VND1.2bn (still lower than the pre COVID-19 pandemic in 2019 of VND7.4bn). Despite higher cargo fees, SCS’s gross margin in 2021 remains stable at 77.7% (vs. 77.6% in 2020) driven by 1) the low revenue generated by the apron rental segment and 2) higher labor costs (~+20% YoY) which we believe is underpinned by COVID-19 tests and prevention measures. SCS’s reported VND529.0bn of net profit, +22.9% YoY and 5.5% above our expectations.  

Outlook and forecast changes: We factor a 3.5% YoY ASP increase in 2022 as contract renewal is effective from 4Q2021. As stated in our last report, we maintain our belief of higher cargo volume in 2022 on the back of inventory refill post pandemic. As international commercial flights resumed in early 2022, belly cargo will grow again. As 1Q2022, SCS’s international cargo volume grew strongly by 40.8% YoY which will be the key catalyst for SCS in 2022. Domestic volume declined by 34.6% YoY in 1Q2022, thus we forecast a 7.0% blended cargo volume growth for SCS in 2022 (243,884 tonnes), 3.1% lower than our previous forecast. With flat outlook for other segments, we expect SCS to deliver VND931.8bn of revenue in 2022 (+11% YoY) and VND591.5bn of net profit (+11.8% YoY), a revise up by 8.1% and 6.2% vs. our previous forecasts respectively thanks to a higher ASP. 

Valuation: We continue to value SCS based on DCF methodology and derive a new TP of VND201,400/sh (+20.6% TSR) for SCS stock while rolling our valuation to FY2022. We maintain our BUY recommendation. We like SCS as a debt free company and its strong positioning in HCMC air cargo business. We also like SCS for its high cash position, ready to expand capacity to meet increasing demand and to participate into the new Long Thanh airport project when needed. 

View details in full report below.