SCS – Big leap in 2Q21 results – Update

• In 2Q21, SCS’s net profit (NP) increased 50.9% yoy to VND150bn. 1H21 NP fulfilled 50.8% of our full-year forecast.
• We raise FY21-23F EPS forecasts by 3.8-6.3% to reflect our expectation of higher cargo volume.
• Reiterate Add with a higher DCF-based target price (TP) of VND170,700

2Q21 results: stellar performance despite aviation industry headwind

In 2Q21, SCS’s net revenue increased 46.9% to VND212bn thanks to the sharp increase in total cargo volume (+44.7% yoy) and the increase in ASP (+3.5% yoy) as SCS applied a new fee policy with decent rise in cargo handling charges since May-21. Gross profit margin expanded 3.7% pts yoy thanks to the high operating leverage of SCS. SG&A only increased 19.6% yoy as SCS maintained its cost-cutting efforts in the period. Overall, SCS’s 2Q21 net profit surged 50.9% yoy, which help SCS’s 1H21 net profit surged 30.1% yoy, fulfilling 50.8% of our full-year forecast. The result is higher than our expectation as the first half of the year is the low season for air cargo business.

Air freight to maintain strong performance in the post-pandemic era

In the post-pandemic era, we expect the air cargo market to maintain the strong performance as (1) global trade activities including air freight will strongly recover thanks to global vaccination and (2) air freight capacity will increase thanks to the re-open of global international skies, which will help airfreight rates become more attractive. Given the expected growth of 15% yoy in FY21F and a CAGR of 9.7% in terms of Vietnam’s cargo volume, we believe air cargo terminal companies capable of expanding capacity like SCS will benefit from this steady growth.

Conservative guidance for FY21F

SCS targets a plan with a revenue of VND780bn (+12.6% yoy) and a profit before tax of VND540bn (+8.1% yoy), equivalent to 92.4%/86.0% of our FY21F forecast. The AGM also approved the plan to pay 36% cash dividend for FY21F.

Reiterate Add with higher DCF-based TP of VND170,700

We lift our DCF-based TP to VND170,700 (WACC: 12.1%) as we raise our FY21-23F EPS by 3.8-6.3% on the back of higher domestic and international cargo volume. 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 and annoucements of M&A plans.

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