SCS – Better FY22-24F outlook on service fee hike – Update

• In 4Q21, SCS’s net profit (NP) increased 23.7% yoy to VND159bn. FY21 NP increased 21.6% yoy, fulfilling 96.1% of our full-year forecast.
• We raise FY22-24F EPS by 4.8 – 6.3% to reflect our expectation of higher services fee.
• Reiterate Add with a higher DCF-based target price (TP) of VND200,800.

4Q21 buoyant performance despite industry challenges

After recording negative growth in cargo volumes in 3Q21 due to the severest Covid-19 outbreak, SCS’s cargo volumes bounced back and recorded a decent growth of 8.1% yoy in 4Q21 with main contributions from international cargo volumes (+22.9% yoy). 4Q21 ASP increased 13.7% yoy as SCS applied a new fee policy with decent rise in cargo handling charges since May-2021 and SCS has extended contracts with some airlines and raise services fee up at least 10% compared to previous contracts. As a results, SCS’s revenue increased 33.0% yoy in 4Q21. 4Q21 SG&A expenses significantly increased 64.8% yoy due to incurring cost for pandemic prevention. Consequently, SCS’ 4Q21 net profit increased 23.7% yoy to VND159bn despite aviation difficulties in the period.

For the whole 2021, SCS’s cargo volumes increased 8.5% while the ASP increased 9.9% yoy. SCS’s 2021 revenue increased 21.1% yoy and SCS’s 2021 NP increased 21.6% yoy, fulfilling 96.1% of our full-year forecast.

We expect services fee hikes during FY22-24F

We see Vietnam air cargo terminals now are facing with capacity shortage due to lack of space, especially in Vietnam key airports. In Tan Son Nhat international airport (TIA), SCS is the only air cargo terminal having room for capacity expansion (capable of expanding 75% of current capacity). SCS will continue to extend its contract with the airlines, and we believe the company has the bargaining power giving its unique ability to expand capacity in TIA, thus we expect SCS’s services fee may increase 3.5% yoy per annum in FY22-24F from the high base in FY21.

Reiterate Add with higher DCF-based TP of VND200,800

We revise our TP for SCS up 17.6% yoy as (1) we roll forward our DCF valuation to FY22F and (2) we revise up FY22-24F EPS by 4.8 – 6.3% higher than previous estimates mainly due to the high possibility of services fee hikes. Upside risk includes higher-than-expected cargo volume coming from the strong cargo transportation market. Downside risk includes uncertainties arising from the pandemic hindering air traffic. Rerating catalysts include: (1) the approval of air cargo terminal investment at Long Thanh International Airport and (2) the approval of M&A plans.

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