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SCS – Steady growth despite the outbreak – Earnings update

Company Note 21/10/2021    152

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  • SCS reported 3Q21 net profit of VND121bn (+5.5% yoy). 9M21 NP rose 20.8% yoy to VND406bn, fulfilling 69.0% of our full-year forecast.
  • We expect 4Q21F NP to increase strongly thanks to growing air freight demand and high volume of imported Covid-19 vaccines.
  • SCS’s NP is expected to increase 26.5%/15.5% in FY21-22F.

Market Price

Target Price

Dividend Yield

Rating

Sector

VND134,100

N/A

6.27%

N/A

INDUSTRIALS

3Q21 NP grew modestly despite the industry headwinds

  • In 3Q21, although total air cargo volume dropped 15.6% yoy mainly due to the sharp decrease in domestic flights, ASP is estimated to increase 22.4% yoy thanks to high imported Covid-19 vaccines volume with high ASP for cold storage requirement, which help SCS’s revenue to slightly increased 2.5% yoy to VND172bn.
  • Gross profit margin expanded 1.4% pts yoy in 3Q21 as higher revenue offsets fixed costs. SG&A expenses also decreased 3.1% yoy thanks to cost-cutting efforts.
  • Consequently, SCS’s 3Q21 net profit still increased 5.5% yoy to VND121bn. 9M21 net profit rose 20.8% yoy to VND406bn, fulfilling 69.0% of our full-year forecast, in line with our expectation.

Bright outlook remains intact

  • From 4Q21F onward, we expect SCS’s business results would strongly improve thanks to (1) the recovery of the economy leading to increasing demand for air freight, (2) huge volume of Covid-19 vaccines to be imported in 4Q21, which will help increase the ASP, and (3) 4th quarter is usually a highly seasonal quarter with higher demand for goods consumption as well as air cargo transportation.
  • We expect SCS’s NP to increase 26.5%/15.5% in FY21-22F.

Ample growth potential in the long run

  • SCS is confident about the ability to expand its operation into Long Thanh International Airport. In our view, SCS has many advantages such as (1) outstanding advantages in management system, state-of-the-art technology, and strong financial health compared to other domestic air cargo terminal, and (2) SCS has a wide customer network and the supports from its founding shareholder ACV – which is also the investor of LTIA. Success in expanding to LTIA will be a positive factor for SCS’s long-term growth prospects.
  • SCS is planning to acquire an air cargo terminal operator at Noi Bai International Airport. In our view, SCS has an advantage in negotiating the deal as the aviation industry has been hit hard by Covid-19.

Investment risks

  • Upside risk includes higher than expected cargo volume coming from the strong air freight market in the post-pandemic era.
  • Downside risk includes uncertainties arising from the pandemic hindering air traffic.

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