Vegetexco Port (VGP) Investment themes. Port sector

Transcription

1 Vegetexco Port (VGP) Investment themes Port sector 10/June/2014 No growth prospect: VGP s profitable business is the port/warehousing segment but it was running at Steel sector full capacity since Sales growth largely comes from trading activity which is not profitable. VGP s financial strength derives mainly from interest income which is sliding down the hill over years. Although recent switch to housing investment may yield surprised earnings in the long term, it may impose pressures on short-term profit as the company used up cash to invest in the future. At the moment, there is little visibility over the development of VGP s real estate projects. Cash dividend, though consistent, gets smaller over years (VND2,000/share in 2010, ~VND1,600/share in 2014). With the huge capex needed for real estate project, there s a risk of further cut in future dividends. Current price of VND25,200/share is unattractive at dividend yield of 6.3%. With diminishing earning growth, current price looks expensive at PE 2014 of 12.6x, PEG of -0.9x, PB 2014 of 1.3x Target price of VND18,000 (-28% downside) backed by target PE of 10.x. SELL Sell range ( 000 VND) Target price ( 000 VND) Target PE (x) 10x Downside(%) -20 Dividend yield (%) EPS growth (%) ROE (%) Debt/Asset (%) 40 Key metrics Market cap (USD mn) 10 Outstanding shares (mn) 8 70% Price 60% 50% VGP VNINDEX 40% 30% 20% 10% 0% -10% May-13 Aug-13 Nov-13 Feb-14 May-14-20% PE (x) VGP VNINDEX May-09 May-10 May-11 May-12 May day trading vol 120 Foreign ownership (%) 6.7 BOD s ownership (%) 10.0 Major shareholders A.N.P.H.A 8.4% Dang Nhu Binh 6.7% Nguyen Do Thanh Phuong 2.3% Huynh Kim Sat 1.6% 1

2 FINANCIAL METRICS (VND bn) Income statement F Revenue Gross profit Operating profit Non-operating profit Profit to shareholders Balance sheet F Cash & equivalent Accounts receivable Inventories Net fixed assets Total Assets Short-term debt Long-term debt Total equity Cash flows F Beginning cash Operating cash (61) 28 Investing cash (9) (7) 8 (58) (10) Financing cash 3 7 (35) 70 (13) Cash generate (4) 2 54 (49) 5 Ending cash Ratio F Margin GM 15% 7% 6% 6% 7% OM 4% 3% 2% 2% 3% NM 15% 6% 5% 4% 4% Growth Sales 18% 106% 9% 27% -19% EPS -12% -15% -14% -2% -14% Profitability ROA 14% 10% 9% 8% 5% ROE 17% 14% 12% 12% 10% Liquitity/solvency Current ratio (x) Debt-to-asset 12% 24% 18% 40% 40% Debt-to-equity 15% 37% 25% 75% 74% Valuation metric EPS (VND) 3,245 2,772 2,372 2,332 2,000 BVPS (VND) 19,753 19,009 18,951 19,545 19,944 Source: VGP, TVS *2014 forecast: Negative net profit growth stemmed from (i) Reduction in interest income from lower cash balance and lower interest rate, (ii) Increase in interest expense from higher debt (page 9) 2

3 INVESTMENT THEMES 1. SALE GROWTH NOT TRANSLATE TO PROFIT GROWTH 2. PROFIT GROWTH MAINLY FROM FINANCIAL ACTIVITY 3. RECENT SWITCH TO REAL ESTATE INVESTMENT 4. NEGATIVE EARNING GROWTH FORECAST 5. CURRENT STOCK PRICE NOT ATTRACTIVE 3

4 1. SALE GROWTH NOT TRANSLATE TO PROFIT GROWTH 4

5 PORTS IN SAIGON RIVER No geographic advantage: VGP port next to other ports 5

6 COMPANY OVERVIEW MARINE OPERATOR AT BEN NGHE, SAIGON PORT VGP engages in port-related services, mainly: Port/warehousing services: cargo loading/unloading, freight and shipping operations, marine construction and maintenance. Trading activities: import & export of wood (wood accounts for a majority of VGP s sale in 2013), fruits, plants, seeds, spices, seafood, agrifood, handcrafted products, steel, consumer products, etc. Source: VGP, TVS Trading activity has grown rapidly over the past 5 years with a 5-year CAGR of 20% due to high import-export demand in Ho Chi Minh city. However, trading activity is the lowest margin business (about 3-4% gross margin) which means that high sales growth isn t translating into substantial profit. As seen in the next table, the rapid rise and fall in VGP s sale over the past 5 years carries little weight to actual gross profit. SALES GROWTH MAINLY FROM TRADING ACTIVITY VND bn (100) Source: VGP, TVS Sales breakdown Trading activity Port/wharehousing Others F VGPS s profitable segment is port/warehousing service (~50-60 gross margin). But port operation was running at full capacity since VGP s profit growth has been sealed since then. To grow beyond current capacity, BOD decided to expand to logistics instead of just port management. They already bought a couple of containers to test domestic market in VND bn Sales Gross profit Gross margin % 21.8% 14.6% 7.5% 6.5% 5.8% 6

7 2. PROFIT GROWTH MAINLY FROM FINANCIAL ACTIVITY 7

8 PROFIT GROWTH MAINLY FROM FINANCIAL ACTIVITY NON-OPERATING PROFIT QUITE SIGNIFICANT VND bn Source: TVS, VGP Operating profit Non-operating profit Even though VGP has stable profit from port/warehousing operation, its operating profit is barely enough to cover interest and tax expense. It is also small compared to nonoperating income as it only accounts for one-third of nonoperating income in 2013 (seen in the above graph). VND bn Operating profit Interest expense (2) (5) (3) (4) Tax expense (7) (7) (6) (6) MOSTLY INTEREST INCOME AND LATE PAYMENT INCOME VND bn Non-operating profit Interest income Late payment income Others Net profit In essence, VGP s net profit comes mostly from non-operating profit (They nearly net out for ). Meanwhile, VGP s non-operating profit are mainly interest income and late payment fee which purely depends on deposit rate. As the interest rate on deposits has been cut consistently since 2011, VGP s net profit growth also came out negative as well EPS growth -12.0% -14.6% -14.4% -1.7% Net (1) (3) 1 (1) 8

9 3. RECENT SWITCH TO REAL ESTATE INVESTMENT 9

10 RECENT SWITCH TO REAL ESTATE INVESTMENT IN 2013 MAJOR CAPEX IN 2013 MAINLY REAL ESTATE 2013 Amount (VND bn) Process Da Lat project 17 -Waiting for land use right certificate from Lam Dong province. After receiving land user right certificate, VGP will start developing the project or transferring the project to another party. Kim Thanh Lao Cai trade center 18 - Finish 1 st phase. Working on the 2 nd phase. The trade center, once finished, aims to foster import-export activity between Vietnam and China Huyen Doi Warehouse 74 -Waiting for land use right certificate Total 109 Source: TVS, VGP AGM 2014 We notice that VGP s short term debt has increased four-fold from 2012 to 2013 and cash has reduced by 80% in 2013 as the company spent VND109 bn on real estate s development (Details are displayed in the above table) VGP has not spent any capex before 2012 (capex ~ 0) but they invested up to VND109 bn in housing market in 2013 VND bn Though investment in the housing market may yield long-term profit in the long run, it may create short-term pressure as cash dries up and debt returns. In other words, interest income will fall and interest expense will rise. For a business depending mostly on interest income to grow on profit, we think the current capex may hit its profitability. Cash & ST investments Total debt Capex (0) (1) - (108) 10

11 4. NEGATIVE EARNING GROWTH FORECAST 11

12 VGP S 2014 VALUATION E % yoy Explanation Revenue (VND bn) % We forecast lower 2014 sales from : - Trading activity % - Reduction in import-export of wood products (VGP s AGM 2014) - Port/warehousing % -Stable revenue/profit mechanism from port/warehousing activity -Others 3 2 Assume no growth in other segment (loading/unloading service, etc) GM % We forecast a slight increase in blended GM as the drop in trading activity s revenue has little affect on VGP s overall gross profit. VGP s gross profit was quite stable at ~VND30bn/year OM % NP (VND bn) % Negative net profit growth stemmed from (i) Reduction in interest income from lower cash balance and lower interest rate, (ii) Increase in interest expense from higher debt (page 9) EPS (VND) 2,332 2, % 12

13 5. CURRENT STOCK PRICE NOT ATTRACTIVE 13

14 CURRENT PRICE OF VND25,200 NOT ATTRACTIVE USED TO PAY HIGH CASH DIVIDENDS BEFORE 2013, BUT VGP s dividend payout is quite high at 60-80% per year, but cash dividend gets smaller with negative profit growth DIVIDEND YIELD AT CURRENT PRICE (~6%) NOT ATTRACTIVE VGP s peers( DVP, VSX, DXP) also offers similar dividend yield at 6% without the risk of shrinking dividend payment E E Cash dividend (VND bn) 2,000 2,000 1,800 1,600 1,600 Cash dividend (VND bn) 2,000 2,000 1,800 1,600 1,600 EPS (VND) 3,245 2,772 2,372 2,332 2,000 Dividend payout 62% 72% 76% 69% 80% Current price 25,200 Dividend yield 8% 8% 7% 6% 6% Source: VGP, TVS Source: VGP, TVS data as of 06/10/2014 CURRENT STOCK PRICE NOT ATTRACTIVE IN TERMS OFPE,PB E Dividend/share 1,600 1,600 Dividend yield (%) PE (x) at current price PB (x) at current price Debt/Asset (%) ROE (%) VGP used to generate sustainable and attractive dividends on the basis of its solid business model (high cash, low debt, competitive position at Saigon Port). However, its recent strategy to invest in the real estate market in 2013 might impose pressure on short-term profit and cash drain. Meanwhile, there is little visibility over the development of its real estate project on the long run. We recommend not to invest in the stock at the moment. 14

15 DISCLAIMER ANALYST CERTIFICATION We, Research Department of Thien Viet Securities Company (TVS), hereby certify that the views expressed in this research report accurately reflect our personal views about the subject securities or issuers. We will not compensate, directly or indirectly, for any specific recommendations or views expressed in this report. by Thien Viet Securities Company. All rights reserved. This publication may not be redistributed, retransmitted or disclosed as a whole or partially in any form or manner without the prior written consent of Thien Viet Securities Company (TVS). The information herein is obtained from various sources and TVS does not guarantee its accuracy. Neither the information nor any opinions expressed in this publication constitutes a buy or sell recommendation on any securities or investment. TVS therefore does not take any responsibilities for any investor s decisions. HO CHI MINH 63A Vo Van Tan St, District 3 Floor 9, Bitexco Nam Long Building Tel: +84 (8) Fax: +84 (8) HA NOI 22 Lang Ha, Dong Da TDL Building Tel: +84 (4) Fax: +84 (4) RESEARCH DEPARTMENT research.hcm@tvs.vn INVESTMENT BANKING ib.hcm@tvs.vn BROKERAGE DEPARTMENT Ho Chi Minh brokerage.hcm@tvs.vn Ha Noi brokerage.hn@tvs.vn 15