Equities | Vietnam | Industrials - Transportation

Vietnam Container Shipping (VSC : HSX)

Flashnote 31 July 2020

Buy
Target price: VND35,084
Net profit surged in 2Q20
Up/downside: 13.5%
 VSC announced 2Q20 results with declines of 17.1% y/y and 13.2% y/y
Stock data, as of 30 July 2020 respectively in net sales and profit before tax (PBT).
Price (VND) 30,900
52 week high / low (VND) 30,900 / 19,500  However, thanks to dropping out of one-off tax arrears and penalty in
Px. perf: (3 / 6 / 12 months) (%) 15.1/ 33.5/ 30.0 2Q19, net profit surged 29.9% y/y to VND56.1bn.
Shares outstanding (mn) 55.1
Free float shares (mn) 50
 1H20 net sales came to VND801.3bn (-10.7% y/y) while net profit was
Trading value (5D avg) (VND mn) 13,662
Market Cap (VNDbn) 1,703 reported at VND113.3bn (+35.6% y/y). The results came in-line with our
Market Cap (USDmn) 73.9 expectations.
Total FOL shares room (mn) 27.0
Current FOL shares room (mn) 9.68  We maintain our Buy rating and DCF-derived VND35,084 TP, implying
Foreign owned ratio 31.4%
Foreign ownership limit 49.0%
13.5% potential upside from the current price.

Price chart Event: 2Q20 results announced 30 July 2020

VSC Common (VSC)
Closing price Relative To VNIndex (RHS)
VSC released 2Q20 financial statements with net sales of VND392.8bn, down
57,000 181
52,000 156
17.1% y/y and PBT of VND73.8bn, down 13.2% y/y. Nevertheless, thanks to
47,000 131 an absent of tax arrears and penalty which valued VND26bn in 2Q19, net profit
42,000 106 rose 29.9% y/y in 2Q20 to VND56.1bn.
37,000 81
32,000 56 With this, VSC fulfilled 51.7% and 58.3% FY20 guidance for net sales and PBT
27,000
22,000
31
6
respectively. The company also reached 47.9% our net sales forecast and
17,000
6
19 45.6% our net profit forecast for FY20. The 1H20 results came in-line with our
4 expectations.
Vol mn

Lower sales driven by decrease in throughput volumes

6/16

12/18

10/19
8/15

4/17

2/18

We estimate 2Q20 handling volumes of VSC declined by 15.0% y/y due to the
Key metrics 12-19A 12-20F 12-21F impacts of COVID-19 pandemic, driven by a sharp drop of 17.6% y/y in
Basic financials and growth throughput volumes of Vip Green port (VGR – VSC holds 74.4%), coupling
Net sales (VNDbn) 1,793 1,672 1,745 with a lower decrease of around 10.0% y/y in Green port volumes. Then in
Net sales growth 5.8% (6.7%) 4.3%
EBITDA (VNDbn) 572 575 600
2Q20, Vip Green port reported a significant decline of 17.2% y/y in net sales to
EBITDA growth (9.6%) 0.4% 4.3% VND173.6bn.
EPS (VND) 3,971 4,056 4,365
EPS diluted (VND) 3,971 4,056 4,365 Year to date, we estimate total throughput volumes of VSC came to 525,000
EPS growth (28.8%) 2.1% 7.6% TEUs, down 11.8% y/y. That led to a decrease of 10.7% y/y in 1H20 net sales
DPS (VND) 2,162 2,000 2,500 to VND801.3bn.
BVPS (VND) 31,405 33,360 35,177
Valuation
EV/EBITDA (x) 3.18 2.71 2.14
Better cost management was the highlight
P/E (x) 7.78 7.62 7.08 Despite the lower sales, we saw improvements in gross profit margins (GPM),
P/E diluted (x) 7.78 7.62 7.08
Dividend yield 7.0% 6.5% 8.1%
which rose to 24.2% in 2Q20 (vs. 22.0% in 2Q19) and 24.5% in 1H20 (vs.
Profitability 22.8% in 1H19). We believe these were mainly thanks to sharp reductions in
EBITDA margin 31.9% 34.4% 34.4% VSC’s outsourcing expenses.
Net margin 13.1% 14.9% 15.3%
SG&A/sales 5.4% 5.4% 5.4% (Continued on page 2)
ROAE 13.9% 13.9% 14.2%
BS/leverage Figure 1: 1H20 results (VNDbn)
Current ratio 2.45 3.63 4.82
Quick ratio 2.35 3.53 4.72
2Q19 2Q20 % y/y 1H19 1H20 % y/y
Total debt (VNDbn) 76.0 0.0 0.0 Net sales 473.8 392.8 -17.1% 897.3 801.3 -10.7%
Net debt (VNDbn) (221) (536) (859) Gross Profit 104.3 94.9 -9.1% 204.3 196.6 -3.8%
Total debt/equity 4.4% 0.0% 0.0%
GPM 22.0% 24.2% 22.8% 24.5%
Net debt/equity (10.7%) (24.1%) (36.2%)
EBIT interest coverage ratio 22 105
Net financial income (2.1) 2.5 (5.9) 3.5
SG&A expenses 22.4 25.3 13.0% 44.4 46.8 5.2%
Analysts Profit from associates and JVs 4.6 2.0 -56.9% 4.6 2.0 -56.9%
Operating profit 84.4 74.0 -12.4% 158.6 155.3 -2.1%
Che Thi Mai Trang Net other income 0.6 (0.2) (12.9) (0.2)
trang.ctmai@hsc.com.vn
+84 24 3933 4693 Ext. 4848 PBT 85.1 73.8 -13.2% 145.6 155.1 6.5%
Corporate income tax 30.2 4.4 -85.5% 40.1 13.9 -65.3%
NPAT 54.9 69.4 26.5% 105.5 141.1 33.8%
Net profit 43.2 56.1 29.9% 83.5 113.3 35.6%
Source: VSC, HSC research
Institutional research team

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 Flashnote 31 July 2020

VSC has not released the breakdown of its operational costs. However,
according to VGR’s 2Q20 financial statements, we saw a drop of 31.4% y/y in
its outsourcing expenses, which followed a decline of 16.2% y/y in 1Q20. We
also expect to see same improvements in Green port’s outsourcing expenses
in these periods.
These were resulted from better cost management, coupling with upgraded
facilities since 3Q19. We note that in the beginning of 2H19, VSC restructured
its outsourcing activities to cut costs, then its GPM improved significantly to
26.0% in 2H19 from 22.8% in 1H19. Although handling volumes declined y/y in
1H20 as a result of COVID-19, the GPM still improved to 24.5% when
compared to the same period last year.

Stronger cash flow with lower debts

VSC’s cash and cash equivalents increased to VND377bn from VND296bn,
coupling with a surge in short-term investments to VND69.4bn from just 3.3 bn
as of end-FY19. Meanwhile, total short-term and long-term debts dropped to
VND31.6bn from VND92.7bn, as VSC paid long-term debt for VGR in 2Q20.
We expect the company will pay all its debt in 2H20, then its cash flow will be
very strong in the coming years. According to our models, its cash on hand will
come to VND30,400/share as of end-FY24 from just VND5,400/share as of
end-FY19. This will mainly thanks to the good retained earnings and
depreciation expenses, while the company currently has no large investment
project. We note that its depreciation expenses are around VND220bn/annum,
equivalent to around VND4,000/share on the current outstanding shares.

Major shareholder registered to buy

On 06 July 2020, Sea & Air Freight International (Safi) registered to buy 1
million shares of VSC from 09 July to 09 August to increase its stakes to 9.07%
from 7.25%.
We note that the Chairman of Safi, Mr. Nguyen Hoang Anh, has been elected
to become the new member in VSC’s Board of Directors for the FY20-25
period in the recent Annual General Meeting, which was held on 19 June 2020.
Details were noted in our flash note published on that day (AGM: new Board of
Directors is a highlight – 19 June 2020). We see the ownership increase is very
positive for VSC’s shareholders.

Maintaining Buy rating

As the 1H20 results came in-line with our expectations, we maintain our
forecasts calling for a net sales of VND1,672bn (-6.7% y/y) in net sales and net
profit of VND248bn (+6.2% y/y).
Our current rating is Buy with DCF-derived target price of VND35,084/share,
implying a potential upside of 13.5%.

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 Flashnote 31 July 2020

Financial statements and key data

Income statement (VNDbn) 12-19A 12-20F 12-21F 12-22F Cashflow statement (VNDbn) 12-19A 12-20F 12-21F 12-22F

Net sales 1,793 1,672 1,745 1,712 Operating cashflow 446 507 549 561
COGS (1,356) (1,244) (1,298) (1,290) Investing cashflow (85) (82) (88) (94)
Gross profit 437 428 446 422 Financing cashflow (344) (186) (138) (138)
Net financial income (7) 8 24 39 Net cashflow 17 239 323 329
SG&A (97) (90) (94) (92)
Operating profit 345 353 384 376 Cash & equivalents at period start 279 297 536 859
EBITDA 572 575 600 588 Forex effects 0 0 0 0
PBT 342 354 385 377 Cash & equivalents at period end 297 536 859 1,188
NPAT 286 312 332 326
Net profit 234 248 267 262 Free cash flow 548 589 636 655
Balance sheet (VNDbn) 12-19A 12-20F 12-21F 12-22F Key ratios 12-19A 12-20F 12-21F 12-22F

Assets Basic Financials and Valuation

Current assets 636 876 1,214 1,537 EPS (VND) 3,971 4,056 4,365 4,273
Cash & cash equivalents 297 536 859 1,188 EPS diluted (VND) 3,971 4,056 4,365 4,273
Short-term investments 3 3 3 3 EBITDA (VNDbn) 572 575 600 588
Receivables 211 216 226 221 BVPS (VND) 31,405 33,360 35,177 36,903
Inventories 26 25 26 25 DPS (VND) 2,162 2,000 2,500 2,500
Other current assets 98 96 100 98 P/E (x) 7.78 7.62 7.08 7.23
P/E diluted (x) 7.78 7.62 7.08 7.23
Long-term assets 1,758 1,594 1,414 1,230 EV/EBITDA (x) 3.18 2.71 2.14 1.70
Long-term receivables 0 0 0 0 P/B (x) 0.98 0.93 0.88 0.84
Fixed assets 1,082 927 768 603 Dividend yield 7.0% 6.5% 8.1% 8.1%
Investment properties 0 0 0 0 Profitability
Long-term investments 117 117 117 117 Gross margin 24.4% 25.6% 25.6% 24.7%
Other long-term assets 557 538 518 498 EBITDA margin 31.9% 34.4% 34.4% 34.4%
Goodwill 0 0 0 0 Pretax margin 19.1% 21.2% 22.0% 22.0%
Total assets 2,393 2,470 2,628 2,767 Net margin 13.1% 14.9% 15.3% 15.3%
SG&A/sales 5.4% 5.4% 5.4% 5.4%
Liabilities and equity ROAE 13.9% 13.9% 14.2% 13.2%
Liabilities 323 241 252 247 ROAA 9.6% 10.2% 10.5% 9.7%
Current Liabilities 259 241 252 247 Liquidity
Long-term Liabilities 64 0 0 0 Current ratio 2.45 3.63 4.82 6.22
Quick ratio 2.35 3.53 4.72 6.12
Owners' equity 1,731 1,839 1,939 2,034 Leverage
Share capital 551 551 551 551 Total debt/equity 4.4% 0.0% 0.0% 0.0%
Retained earnings 378 443 496 546 Total debt ratio 13.5% 9.8% 9.6% 8.9%
Funds and other capital 802 845 892 937 EBIT interest coverage ratio 22 105
Minority interest 339 390 437 485 Efficiency
Days sales outstanding 42.0 46.8 46.2 47.7
Total liabilities and equity 2,393 2,470 2,628 2,767 Days in inventories 6.32 7.52 7.08 7.21
Days payables outstanding 24.7 26.3 26.4 26.9
Net debt (221) (536) (859) (1,188) Cash conversion cycle (days) 23.5 28.0 26.9 28.0
Source: Company data, (F): HSC forecasts

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Buy: Expected to rise by more than 20% on an absolute basis in the next 12 months
Add: Expected to rise by between 5% and 20% on an absolute basis in the next 12 months
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 HSC Institutional Research

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