SCS – On track for buoyant growth – Update

• SCS reported 1Q22 net profit (NP) of VND188bn (+36.6% yoy), in line at 26.4% of our full-year forecast.
• We expect FY22F NP to increase 25.9% yoy. In addition, capacity expansion plan and share dividend plan are strong catalysts in near-term.
• Maintain Add with a DCF-based target price (TP) of VND200,800.

1Q22 NP grew strongly thanks to vibrant air freight market
In 1Q22, total cargo volume increased 18.5% yoy with mainly contribution from international cargo volume (+40.8% yoy) thanks to vibrant import-export activities while domestic cargo volume dropped 34.6% yoy as the terminal capacity has reached its maximum and SCS had to limit room for domestic cargo. Average selling price (ASP) increased 6.9% yoy as SCS applied a new fee scheme since May 21. As a result, 1Q22 net revenue increased 25.4% yoy to VND246bn. 1Q22 gross margin expanded 4.2% pts to 83.5% to bringing gross profit up 32.0% yoy. In addition, financial income increased 75.3% yoy on widening cash & short-term investment. Consequently, 1Q22 net profit rose 36.6% yoy to VND188bn. 1Q22 revenue/NP were largely in-line at 25.1%/26.4% of our full-year forecast.
Capacity expansion for near-term growth
SCS is operating at 133% of current designed capacity, thus, the company will begin to expand the terminal capacity from 200,000 tonnes p.a to 350,000 tonnes p.a in 2022. SCS may invest US$10m in the capacity expansion plan and fully finance the project with internally generated funds. SCS also plans to construct a second office building for rent with a total investment of US$10m when the building license is approved in 2022. In order to finance the capacity expansion and the second building, SCS will retain its undistributed earnings for reinvestment and plans to pay stock dividend of 85% in 2022. We believe this is a strong catalyst in near-term.
SCS targets a conservative pre-tax profit plan of VND640bn (+5.7% yoy), however, we expect FY22F NP may increase 25.9% yoy to VND711bn mainly thanks to increasing demand for air freight.
Maintain Add with DCF-based TP of VND200,800
We maintain our Add rating on SCS with a DCF-based (WACC: 12.1%) TP of VND200,800. Upside risk is higher-than-expected cargo volume coming from the strong air freight market. Downside risk includes uncertainties arising from the pandemic hindering air traffic . Re-rating 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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