SCS – Higher international volume fuels revenue growth – Update

• We maintain our Add rating with 21.8% upside and an 6.4% dividend yield. We lower our TP by 7.4% while the share price has increased 8.8% since our last report.
• Our TP edged down 7.4% due to lower net profit forecasts which offset our lower WACC assumption compared to our previous report.
• FY24E P/E of 11.5x is above peer average of 9.2x with FY24-25F EPS growth of 24.8%/9.6%.

Financial Highlights

• We forecast FY24-25 revenue to rise by 31.8%/9.6% driven by growth of 26.2%/7.2% yoy in terms of total air cargo volume.
• Net profit will reach VND622.3bn/VND681.7bn (US$25.2m/US$27.6m), up 24.8%/9.6% yoy.
• We expect SCS to pay 2023 cash dividends at VND5,000 per share, with an attractive dividend yield of 6.4%.

Investment Thesis

Global air cargo should recover in line with export activities

IATA forecasts air cargo volumes will rise approximately 4-5% yoy in 2024 thanks to a recovery of global export demand. Vietnam’s PMI has been above 50 in January and February, with new export orders maintaining recovery momentum. We expect export value to grow 6% yoy in 2024, which will favor air cargo services.

New collaboration with Qatar Airways will drive higher international cargo

The company’s BoD announced in February that Qatar Airways will collaborate with SCS, which we estimate will bring approximately 30,000 tonnes of cargo in 2024, accounting for 12.5% of our forecasted total air cargo volume. Thus, we expect SCS international cargo to grow 34.4%/8.6% yoy in FY24/25 and SCS will handle 239,617/256,842 tonnes, rising by 26.2%/7.2% yoy in total.

LTA projects could add upside to our TP

The Airports Corporation of Vietnam (ACV) is set to open bids for key components of Long Thanh International Airport’s (LTIA) third project in early to mid-2024, with Package No. 7.8 for Cargo Terminal No. 1’s construction and equipment installation highlighted. The terminal is expected to handle 1.2 million tonnes of cargo, and SCS is expected to win a share of the bid. However, this potential development has not been factored into our current model due to limited information.

Strong earnings growth and attractive dividend yield justify high P/E

The current TTM P/E ratio of 14.2x is higher than the peer average of 11.6x. However, this is justified by our forecasted 24.8% FY24 EPS growth. The 6.4% dividend also makes the shares attractive.

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