Noibai Cargo Terminal Services JSC (NCT: HOSE)

Noibai Cargo Terminal Services JSC (NCT: HOSE) BUY 1Y Price Target: VND 129,600 Current price: VND 98,000 Giang Hoang Nguyen giangnh@ssi.com.vn +84-24 3936 6321 ext. 676 30 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 (%) 16.46 State ownership (%) 65.07 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 2015. 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 2008-2013. In Sept 2014, the company paid stock dividend of 70% and stock bonus of 90% to increase its charter capital to VND 249.21bn. Page 1

(bn VND) 3Q17 3Q16 YoY 2Q17 QoQ % annual target completed Margin 3Q17 3Q16 2Q17 2016 Net sales 181.0 162.8 11.2% 162.9 11.1% 81.4% Gross profit 104.0 88.4 17.6% 87.4 18.9% 57.4% 54.3% 53.6% 56.9% Operating profit 101.7 78.2 30.0% 67.9 49.7% 56.2% 48.1% 41.7% 47.3% EBIT 101.7 78.6 29.4% 70.6 43.9% 56.2% 48.3% 43.4% 49.2% EBITDA 108.9 85.0 28.1% 77.6 40.4% 60.1% 52.2% 47.6% 52.9% Pretax profit 101.7 78.6 29.4% 70.6 43.9% 95.2% 56.2% 48.3% 43.4% 49.2% Net income 83.1 62.8 32.4% 56.4 47.5% 45.9% 38.6% 34.6% 39.2% NI attributable to shareholders 83.1 62.8 32.4% 56.4 47.5% 45.9% 38.6% 34.6% 39.2% Source: SSI Research NCT volume breakdown and % growth YoY, by quarter, in '000 tons 120 100 80 60 40 20 0 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 3Q 2017 Domestic International Total %yoy domestic %yoy international %yoy total 0.25 0.2 0.15 0.1 0.05 0-0.05-0.1-0.15 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 2017. 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 2017. Page 2

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 2016. 3Q 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 2017. At this point, NCT has completed 81% of its top line target, while 95% of its bottom line target is locked in for 2017. 2017 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 7,850. 2017-2018 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 2016. 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

might also play a major role for NCT in 2018, as the display factory will be completed at the end of 2017. 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 298 238-20% 237-1% 254 7% ACS 55 86 57% 92 6% 103 12% ALSC 29 108 268% 154 43% 184 19% Total 366 431 18% 483 12% 541 12% Domestic cargo volume through Noi Bai Airport by players ('000 tons) NCTS 81 92 15% 122 33% 135 10% ACS (ACV Subsidiaries) 35 50 44% 41-18% 45 10% Total 115 142 23% 163 15% 180 10% Source: SSI Research Based on that outlook, we revise up our estimate for 2017 and 2018. 2017 revenue is estimated at VND 690 bn, +0.2% YoY. 2017 NPAT is expected to reach VND 261 bn, at 3.2% YoY. 2017 EPS might come to VND 9,696. Overall, the 2018 outlook is much brighter than 2017. 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. 2018 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 2018. 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 2017. 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

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

APPENDIX 1: ANNUAL FINANCIAL STATEMENTS VND Billion 2015 2016 2017F 2018F VND Billion 2015 2016 2017F 2018F Balance Sheet Income Statement + Cash 21 17 88 133 Net Sales 799 689 690 770 + Short-term investments 272 275 275 275 COGS -346-297 -306-335 + Account receivables 53 53 54 59 Gross Profit 453 392 384 435 + Inventories 5 3 4 4 Financial Income 14 13 11 5 + Other current assets 0 1 1 1 Financial Expense 0 0 0 0 Total Current Assets 351 350 421 473 Income from associates 0 0 0 0 + LT Receivables 3 2 2 3 Selling Expense -6-5 -5-6 + Net Fixed Assets 97 97 70 43 Admin Expense -63-61 -63-69 + Investment properties 0 0 0 0 Income from business operation 397 338 327 366 + LT Assets in progress 1 0 0 0 Net Other Income 3 1 0 0 + LT Investments 24 24 0 0 Profit Before Tax 401 339 327 366 + Other LT Assets 43 15 16 17 Net Income 313 270 262 292 Total Long-Term Assets 168 139 88 64 NI attributable to shareholders 313 270 262 292 Total Assets 519 489 509 536 Minority interest 0 0 0 0 + Current Liabilities 80 50 52 56 In which: ST debt 0 0 0 0 Basic EPS (VND) 11,614 10,016 9,696 10,843 + Non-current Liabilities 2 3 3 3 BVPS (VND) 16,708 16,685 17,381 18,224 In which: LT debt 0 0 0 0 Dividend (VND/share) 11,000 10,000 9,000 10,000 Total Liabilities 82 53 55 59 EBIT 401 339 327 366 + Contributed capital 262 262 262 262 EBITDA 423 365 354 392 + Share premium 0 0 0 0 + Retained earnings 175 175 193 215 Growth + Other capital/fund 0 0 0 0 Sales 17.8% -13.7% 0.2% 11.6% Shareholders' Equity 437 437 455 477 EBITDA 18.6% -13.8% -2.9% 10.9% Total Liabilities & Equity 519 489 509 536 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 369 271 282 307 Chartered Capital 5.0% 0.0% 0.0% 0.0% CF from investing activities -166-14 24 0 Total assets -2.9% -5.7% 4.1% 5.3% CF from financing activities -320-262 -235-262 Net increase in cash -117-4 71 45 Valuation Beginning cash 138 21 17 88 P/E 12.5 8.9 10.1 9.0 Ending cash 21 17 88 133 P/B 8.7 5.3 5.6 5.4 P/Sales 4.6 3.4 3.7 3.3 Liquidity Ratios Dividend yield 7.6% 11.2% 9.2% 10.2% Current ratio 4.39 7.01 8.16 8.43 EV/EBITDA 8.3 5.6 6.4 5.8 Acid-test ratio 4.33 6.92 8.07 8.34 EV/Sales 4.4 3.0 3.3 3.0 Cash ratio 3.67 5.85 7.03 7.28 Net debt / EBITDA -0.19-0.05-0.15-0.28 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 25.3 24.2 25.0 23.7 Operating Margin 48.5% 47.3% 47.2% 46.8% Days of payables 18.2 15.8 8.2 8.0 Net Margin 39.2% 39.2% 37.9% 38.0% Days of inventory 6.6 5.2 4.1 4.0 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 0.84 0.89 0.89 0.89 ROA 59.3% 53.6% 52.4% 56.0% Liabilities/Total Assets 0.16 0.11 0.11 0.11 ROIC 70.0% 61.9% 58.7% 62.8% Liabilities/Equity 0.19 0.12 0.12 0.12 Debt/Equity 0.00 0.00 0.00 0.00 ST Debt/Equity 0.00 0.00 0.00 0.00 Source: NCT, SSI Research Page 6

APPENDIX 2: QUARTERLY FINANCIAL STATEMENTS VND Billion 4Q16 1Q17 2Q17 3Q17 VND Billion 4Q16 1Q17 2Q17 3Q17 Balance Sheet Income Statement + Cash 17 280 35 39 Net Sales 177 169 163 181 + Short-term investments 275 80 250 186 COGS -74-72 -76-77 + Account receivables 53 67 40 50 Gross Profit 103 97 87 104 + Inventories 3 4 4 4 Financial Income 3 3 3 13 + Other current assets 1 2 3 4 Financial Expense 0 0 0 0 Total Current Assets 350 433 332 282 Income from associates 0 0 0 0 + LT Receivables 3 2 2 2 Selling Expense -2-2 -1-3 + Net Fixed Assets 97 91 91 86 Admin Expense -23-14 -19-12 + Investment properties 0 0 0 0 Income from business operation 81 83 71 102 + LT Assets in progress 0 0 0 0 Net Other Income 0 0 0 0 + LT Investments 24 24 24 45 Profit Before Tax 81 83 71 102 + Other LT Assets 15 9 1 40 Net Income 65 66 56 83 Total Long-Term Assets 139 127 119 173 NI attributable to shareholders 65 66 56 83 Total Assets 489 560 450 455 Minority interest 0 0 0 0 + Current Liabilities 50 54 54 79 Basic EPS (VND) 4,875 0 4,368 0 In which: ST debt 0 0 0 0 BVPS (VND) 16,696 19,213 15,039 14,216 + Non-current Liabilities 3 3 3 5 EBIT 81 83 71 102 In which: LT debt 0 0 0 0 EBITDA 88 90 78 109 Total Liabilities 52 57 57 83 + Contributed capital 0 0 0 0 Growth (YoY) + Share premium 0 0 0 0 Sales -11.2% -6.4% -3.2% 11.2% + Retained earnings 17 175 18 0 EBITDA -10.2% -12.3% -13.3% 28.1% + Other capital/fund 420 328 376 372 EBIT 8.3% -13.5% -14.9% 29.4% Owners' Equity 437 503 394 372 NI 11.8% -13.6% -14.3% 32.4% Total Liabilities & Equity 489 560 450 455 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 10 457-301 54 CF from investing activities -35-194 215 54 Profitability Ratios CF from financing activities -105 0-157 -105 Gross Margin 58.1% 57.2% 53.6% 57.4% Net increase in cash -129 263-242 4 Operating Margin 42.4% 47.4% 41.7% 56.2% Beginning cash 146 17 277 35 Net Margin 36.8% 39.1% 34.6% 45.9% Ending cash 17 280 35 39 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 7.05 8.05 6.14 3.58 Capital Structure Acid-test ratio 6.95 7.95 6.02 3.48 Equity/Total asset 0.89 0.90 0.87 0.82 Cash ratio 5.88 6.71 5.29 2.85 Liabilities/Total Assets 0.11 0.10 0.13 0.18 Net debt / EBITDA -0.19-3.12-0.45-0.36 Liabilities/Equity 0.12 0.11 0.14 0.22 Interest coverage N.a N.a N.a N.a Debt/Equity 0.00 0.00 0.00 0.00 ST Debt/Equity 0.00 0.00 0.00 0.00 Source: NCT, SSI Research Page 7

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

4. CONTACT INFORMATION Institutional Research & Investment Advisory Giang Hoang Nguyen Analyst, Transportation & Logistics Tel: (84-24) 3936 6321 ext. 676 giangnh@ssi.com.vn Phuong Hoang Hung Pham Giang Nguyen, ACCA Deputy Managing Director, Associate Director Associate Director Head of Institutional Research & Investment Advisory hungpl@ssi.com.vn giangntt@ssi.com.vn phuonghv@ssi.com.vn WWW.SSI.COM.VN 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) 3824 2897 Fax: (84-28) 3824 2997 Email: info@ssi.com.vn HANOI 1C Ngo Quyen Street, Ha Noi City Tel: (84-24) 3936 6321 Fax: (84-24) 3936 6311 Email: info@ssi.com.vn Page 9