Noibai Cargo Terminal Services JSC (NCT: HOSE)

Transcription

1 Noibai Cargo Terminal Services JSC (NCT: HOSE) BUY 1Y Price Target: VND 129,600 Current price: VND 98,000 Giang Hoang Nguyen ext November 2017 INDUSTRIALS- VIETNAM Back to growth territory 3Q17 business results EARNINGS UPDATE 3Q 2017 marked the time in which NCT started to be in growth territory again, making gains in Key figures Market cap (USD mn) 113 Market cap (VND bn) 2,564 Outstanding shares (mn) 26 52W high/low (VND 1,000) 105/75.6 Average 3M volume (share) 24,990 Average 3M value (USD mn) 0.10 Average 3M value (VND bn) 2.21 Foreign ownership (%) State ownership (%) Management ownership (%) 0.5 both its top and bottom line, after a long time of seeing negative growth due to losing market shares since Oct In contrast, in this year the Company lost only a minor customer (China Airlines, 1% market share) in April 2017 and has exceptional performance in domestic cargo segment. Specifically, revenue in 3Q 2017 went up by 11% YoY to VND 181 bn, translating to a 11% QoQ growth. This is coming from better volume growth in both domestic and international cargo. International volume grew by 20% YoY after having endured a very sluggish period in 1Q 2017 and 2Q 2017 (at -9% and +2% YoY respectively). NCT Price & Trading Volume Company Snapshot Source: Bloomberg Noi Bai Cargo Terminal Services (NCTS) is a subsidiary of Vietnam Airlines, and was founded in 2005 with a charter capital of VND 35bn. After several successful charter capital increases, mostly through stock dividends, NCTS s charter capital totaled VND 95.85bn during In Sept 2014, the company paid stock dividend of 70% and stock bonus of 90% to increase its charter capital to VND bn. Page 1

2 (bn VND) 3Q17 3Q16 YoY 2Q17 QoQ % annual target completed Margin 3Q17 3Q16 2Q Net sales % % 81.4% Gross profit % % 57.4% 54.3% 53.6% 56.9% Operating profit % % 56.2% 48.1% 41.7% 47.3% EBIT % % 56.2% 48.3% 43.4% 49.2% EBITDA % % 60.1% 52.2% 47.6% 52.9% Pretax profit % % 95.2% 56.2% 48.3% 43.4% 49.2% Net income % % 45.9% 38.6% 34.6% 39.2% NI attributable to shareholders % % 45.9% 38.6% 34.6% 39.2% Source: SSI Research NCT volume breakdown and % growth YoY, by quarter, in '000 tons Q Q Q Q Q Q Q 2017 Domestic International Total %yoy domestic %yoy international %yoy total Source: SSI Research, NCT The primary reason international cargo is growing stems from a rising tide lifts all boats dynamic currently occurring in the industry. After being sluggish at the beginning of the year at only 8% YoY, industry growth has popped back to double digits, at about 12% YoY, thanks to good growth in export/import activities. In 11M2017, export/import YTD value increased by 21% YoY, reaching USD 365 bn. In that, Samsung is the main drivers for cargo growth through airways. As of September 2017, Samsung Mobile & IT division sales for the year has reached 82 trillion Korean won, at +10% YoY, thanks to the strong sales of the Galaxy S7, Note 7 and mid-end model J7. As the year rapidly comes to a close, NCT s international cargo is experiencing good growth and a stabilization of market share to about 49%. According to NCT management, besides electronics, other types of products like pharmaceutical, high-end clothes, electronic parts, etc. also show good growth YoY. At the same time, domestic cargo has maintained its growth at a high level, to +15% YoY in 3Q Also benefiting by serving the largest domestic cargo airliner Vietnam Airlines, NCT domestic cargo market share has risen from 65% in 2016 to 75% in Page 2

3 2016 international market share 9M 2017 international market share ACSV, 20% ACSV, 18% NCT, 49% ALS, 25% NCT, 55% ALS, 33% Source: SSI Research Better volume growth has allowed NCT to rehabilitate its gross margin back to 57%, an increase in 3% YoY from better efficiency. Most of the operating expenses and financial income is comparable to last year, with the exception being that in 3Q 2017 there is a cash dividend of VND 9 bn from ALS (NCT has 13% stake here), while there was a stock dividend in 3Q Q pretax profit reached VND 102 bn, at +29% YoY. Excluding cash dividends, pretax profit should be VND 93 bn, +19% YoY. This is the first time in 2 years that we see a positive PBT growth for NCT (except for 4Q 2016 with minor growth of 8%). Net profit reached VND 83 bn, increasing by +32% YoY in 3Q At this point, NCT has completed 81% of its top line target, while 95% of its bottom line target is locked in for revenue as of September is VND 513 bn at +0.2% YoY, while as of September 2017, NPAT is VND 205 bn at +0.2% YoY. EPS up to September reached VND 7, outlook In the first 9 months of the year, NCT international market share came in line with our expectations and dropping to 49% from 55% in 2016, while ALS increased their share to 33% from 25% in However, stronger than expected growth in the industry spurred results through Q1-Q3 to beat our expectations. Specifically, we expected 10% YoY growth for domestic cargo in 2017, while growth in 9M17 comes to about 15% YoY. At the same time, international growth is better at 12% YoY, while we expected 10% instead. In 2017, we expect NCT to maintain its market share at the 49% level for international cargo, and retain its 75% share in domestic cargo at present. Competitor ALS is expected to increase to 33% of international market share (from 25% in 2016), while ACSV might slightly decrease to 18% (from 20% in 2016). Pricing is assumed to go down by -4% YoY due to encroaching competitive pressure. Total industry expansion might increase by 13% YoY to 646K tons, and NCT might have 55% of that pie. In 2018, we expect a bit lower domestic growth of 10% YoY, while international cargo growth might remain the same at 12% YoY. We expect Samsung s repeat business with NCT to be the main driver for growth. LG Display Page 3

4 might also play a major role for NCT in 2018, as the display factory will be completed at the end of However, it is too early to gauge the true impact of this event at the present time. In 2018, ACSV might finish building their new cargo terminal (next to Noi Bai Terminal 1), and will lease that area to NCT. So NCT might have no problem expanding their volume in the next few years. We expect NCT international market share to decrease slightly to 47%, not by way of losing customers, but because we think that ALS might benefit more from Samsung volume growth. ALS is also serving Korean Airlines at the moment, so we think ALS has a real chance to swoop in and snatch market share. ASP is assumed to increase by 3% YoY in 2018 to VND 1,950/kg, as we think that the wave of competition has somewhat ebbed off, resulting in a more stable market share. We provide the below table as our main forecast for 2017 and 2018 volume for the 3 market participants: FY2015 FY2016 +/-%YoY FY2017F +/-%YoY FY2018 +/-%YoY International cargo volume through Noi Bai Airport by players ('000 tons) NCT % 237-1% 254 7% ACS % 92 6% % ALSC % % % Total % % % Domestic cargo volume through Noi Bai Airport by players ('000 tons) NCTS % % % ACS (ACV Subsidiaries) % 41-18% 45 10% Total % % % Source: SSI Research Based on that outlook, we revise up our estimate for 2017 and revenue is estimated at VND 690 bn, +0.2% YoY NPAT is expected to reach VND 261 bn, at 3.2% YoY EPS might come to VND 9,696. Overall, the 2018 outlook is much brighter than Factors such as stabilization of the market share among peers plus encouraging volume growth in the industry gives us good reason to expect growth moving forward. We expect revenue to grow by 11% YoY to reach VND 770 bn. Furthermore, the gross margin is expected to improve by 1% to 56.5% on larger volume, translating to a gross profit of VND 435 bn, growing by +13% YoY. With the assumption that ALS might repeat the same cash dividend in 2018, PBT is expected to reach VND 365 bn, +12% YoY, while NPAT might arrive at VND 292 bn, at +12% YoY EPS might improve to VND 10,843. Valuation and investment recommendation Growth is finally having its welcome back party from 3Q 2017 after about a 2 year hiatus, and we expect volume growth to continue into This market runs on special dynamics with high barriers to entry, so we do not expect new competitors anytime in the near future. Thus NCT might be bound to enjoy the industry growth in the next few years. The stock price has increased by 21% since our last call in September As the NCT bottom line is expected to grow from 2018, we raise our PE target for NCT from 10x to 12x to factor in this growth potential, and arrive at a target price of VND 129,600/share (+32.3% upside). Consequently, we recommend to BUY the stock, with a 1Y investment horizon. Dividends are expected to be VND 9,000/share in 2017 and might be VND 10,000/share in 2018, translating to a dividend yield of 9.2% and 10.2% respectively, which in our view is considered very attractive. Page 4

5 Downside risk might come from the possibility of losing more customers, and the slight possibility of new entrants into this high-barrier industry. However, given the aforementioned, we consider both of these risks to be relatively immaterial in nature. Page 5

6 APPENDIX 1: ANNUAL FINANCIAL STATEMENTS VND Billion F 2018F VND Billion F 2018F Balance Sheet Income Statement + Cash Net Sales Short-term investments COGS Account receivables Gross Profit Inventories Financial Income Other current assets Financial Expense Total Current Assets Income from associates LT Receivables Selling Expense Net Fixed Assets Admin Expense Investment properties Income from business operation LT Assets in progress Net Other Income LT Investments Profit Before Tax Other LT Assets Net Income Total Long-Term Assets NI attributable to shareholders Total Assets Minority interest Current Liabilities In which: ST debt Basic EPS (VND) 11,614 10,016 9,696 10,843 + Non-current Liabilities BVPS (VND) 16,708 16,685 17,381 18,224 In which: LT debt Dividend (VND/share) 11,000 10,000 9,000 10,000 Total Liabilities EBIT Contributed capital EBITDA Share premium Retained earnings Growth + Other capital/fund Sales 17.8% -13.7% 0.2% 11.6% Shareholders' Equity EBITDA 18.6% -13.8% -2.9% 10.9% Total Liabilities & Equity EBIT 17.2% -15.4% -3.5% 11.8% NI 14.3% -13.6% -3.2% 11.8% Cash Flow Equity -4.3% -0.1% 4.2% 4.8% CF from operating activities Chartered Capital 5.0% 0.0% 0.0% 0.0% CF from investing activities Total assets -2.9% -5.7% 4.1% 5.3% CF from financing activities Net increase in cash Valuation Beginning cash P/E Ending cash P/B P/Sales Liquidity Ratios Dividend yield 7.6% 11.2% 9.2% 10.2% Current ratio EV/EBITDA Acid-test ratio EV/Sales Cash ratio Net debt / EBITDA Profitability Ratios Interest coverage N.a N.a N.a N.a Gross Margin 56.7% 56.9% 55.6% 56.5% Days of receivables Operating Margin 48.5% 47.3% 47.2% 46.8% Days of payables Net Margin 39.2% 39.2% 37.9% 38.0% Days of inventory Selling exp./net sales 0.8% 0.7% 0.7% 0.7% Admin exp./net sales 8.0% 8.9% 9.2% 9.0% Capital Structure ROE 70.0% 61.9% 58.7% 62.8% Equity/Total asset ROA 59.3% 53.6% 52.4% 56.0% Liabilities/Total Assets ROIC 70.0% 61.9% 58.7% 62.8% Liabilities/Equity Debt/Equity ST Debt/Equity Source: NCT, SSI Research Page 6

7 APPENDIX 2: QUARTERLY FINANCIAL STATEMENTS VND Billion 4Q16 1Q17 2Q17 3Q17 VND Billion 4Q16 1Q17 2Q17 3Q17 Balance Sheet Income Statement + Cash Net Sales Short-term investments COGS Account receivables Gross Profit Inventories Financial Income Other current assets Financial Expense Total Current Assets Income from associates LT Receivables Selling Expense Net Fixed Assets Admin Expense Investment properties Income from business operation LT Assets in progress Net Other Income LT Investments Profit Before Tax Other LT Assets Net Income Total Long-Term Assets NI attributable to shareholders Total Assets Minority interest Current Liabilities Basic EPS (VND) 4, ,368 0 In which: ST debt BVPS (VND) 16,696 19,213 15,039 14,216 + Non-current Liabilities EBIT In which: LT debt EBITDA Total Liabilities Contributed capital Growth (YoY) + Share premium Sales -11.2% -6.4% -3.2% 11.2% + Retained earnings EBITDA -10.2% -12.3% -13.3% 28.1% + Other capital/fund EBIT 8.3% -13.5% -14.9% 29.4% Owners' Equity NI 11.8% -13.6% -14.3% 32.4% Total Liabilities & Equity Equity 0.4% 31.3% -4.8% -21.9% Chartered Capital 0.0% 0.0% 0.0% 0.0% Cash Flow Total assets -5.2% 25.5% -6.3% -17.0% CF from operating activities CF from investing activities Profitability Ratios CF from financing activities Gross Margin 58.1% 57.2% 53.6% 57.4% Net increase in cash Operating Margin 42.4% 47.4% 41.7% 56.2% Beginning cash Net Margin 36.8% 39.1% 34.6% 45.9% Ending cash Selling exp./net sales 1.1% 1.5% 0.6% 1.4% Admin exp./net sales 12.9% 8.4% 11.4% 6.8% Liquidity Ratios Current ratio Capital Structure Acid-test ratio Equity/Total asset Cash ratio Liabilities/Total Assets Net debt / EBITDA Liabilities/Equity Interest coverage N.a N.a N.a N.a Debt/Equity ST Debt/Equity Source: NCT, SSI Research Page 7

8 1. ANALYST CERTIFICATION The research analyst(s) on this report certifies that (1) the views expressed in this research report accurately reflect his/her/our own personal views about the securities and/or the issuers and (2) no part of the research analyst(s) compensation was, is, or will be directly or indirectly related to the specific recommendation or views contained in this research report. 2. RATING Within 12-month horizon, SSIResearch rates stocks as either BUY, HOLD or SELL determined by the stock s expected return relative to the market required rate of return, which is 18% (*). A BUY rating is given when the security is expected to deliver absolute returns of 18% or greater. A SELL rating is given when the security is expected to deliver returns below or equal to -9%, while a HOLD rating implies returns between -9% and 18%. Besides, SSIResearch also provides Short-term rating where stock price is expected to rise/reduce within three months because of a stock catalyst or event. Short-term rating may be different from 12-month rating. Industry Rating: We provide the analyst industry rating as follows: Overweight: The analyst expects the performance of the industry over the next 6-12 months to be attractive vs. the relevant broad market Neutral: The analyst expects the performance of the industry over the next 6-12 months to be in line with the relevant broad market Underweight: The analyst expects the performance of the industry over the next 6-12 months with caution vs. the relevant broad market. *The market required rate of return is calculated based on 5-year Vietnam government bond yield and market risk premium derived from using Relative Equity Market Standard Deviations method. Our rating bands are subject to changes at the time of any significant changes in the above two constituents. 3. DISCLAIMER The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best information then known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time, and no unpublished price sensitive information would be included in the report. Expressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. This report also does not recommend to U.S. recipients the use of SSI to effect trades in any security and is not supplied with any understanding that U.S. recipients will direct commission business to SSI. SSI and other companies in the SSI and/or their officers, directors and employees may have positions and may affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for these companies. This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its content. The use of any information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user. Page 8

9 4. CONTACT INFORMATION Institutional Research & Investment Advisory Giang Hoang Nguyen Analyst, Transportation & Logistics Tel: (84-24) ext. 676 Phuong Hoang Hung Pham Giang Nguyen, ACCA Deputy Managing Director, Associate Director Associate Director Head of Institutional Research & Investment Advisory SAIGON SECURITIES INC. Member of the Ho Chi Minh Stock Exchange, Regulated by the State Securities Commission HO CHI MINH CITY 72 Nguyen Hue Street, District 1 Ho Chi Minh City Tel: (84-28) Fax: (84-28) info@ssi.com.vn HANOI 1C Ngo Quyen Street, Ha Noi City Tel: (84-24) Fax: (84-24) info@ssi.com.vn Page 9