Gemadept - Outperform

(GMD : HSX - Transportation Services)

Company Update Monday, 05 August 2019

Price chart Financial summary 12-17A 12-18A 12-19F 12-20F

GMD Common (GMD) Net sales (VNDbn) 3,984 2,708 2,887 3,184
Closing price Relative To VNIndex (RHS)
40,000 210
Net sales growth 6.5% (32.0%) 6.6% 10.3%
35,000 187
Gross profit (VNDbn) 1,029 968 1,152 1,291
30,000 163
Gross profit growth 1.1% (5.9%) 18.9% 12.1%
25,000 140
EBITDA (VNDbn) 1,017 1,013 1,302 1,303
20,000 117
EBITDA growth 2.9% (0.4%) 28.5% 0.0%

15,000 93
NPAT (VNDbn) 581 1,900 662 635

10,000 70
NPAT growth 31.0% 226.8% (65.1%) (4.1%)
30
20 NPATMI (VNDbn) 508 1,848 577 553
Vol m

10
NPATMI growth 30.3% 263.8% (68.8%) (4.1%)
8/14

6/15

4/16

2/17

12/17

10/18

EPS (VND) 1,962 6,207 1,788 1,714

EPS diluted (VND) 1,636 6,093 1,788 1,714
EPS growth (2.3%) 216.4% (71.2%) (4.1%)
P/E (x) 13.3 4.2 14.5 15.2
Stock Data as of 5 August 2019 P/E diluted (x) 15.9 4.3 14.5 15.2
Price (VND) 26,000 EV/EBITDA (x) 9.5 10.3 7.5 7.5
Listed shares (mn) 297 P/B (x) 1.18 1.31 1.23 1.21

Outstanding shares (mn) 297 Source: Company data, (F): HSC forecasts

52 week high (VND) 29,800

52 week low VND 23,707
Long-term prospects remain intact despite an increase in
Price change (3 months) -0.7%
competition coupling with a higher-than-expected
Price change (6 months) -5.7%
negative impact from the trade war in the short-term
Price change (12 months) 5.7%
• GMD announced 1H 2019 with net sales of VND 1,297 billion (-0.13%
Free floating shares (mn) 292.9 y/y) and NPAT of VND 347.8 billion (-77.6% y/y).
Trading value
14,910
(5 days average – VNDmn)
• Excluding the profit from one-off incomes, 1H core PBT increased by
Market Cap (VNDmn) 7,720,049
27.4% y/y mainly thanks to: (1) a higher GPM from a higher
Market Cap (US$mn) 333 contribution from port operation, (2) increased floor prices for
Total room (mn) 145 international cargo handling services in Hai Phong area, (3) solid
Current room (mn) 0.000 throughput growth at Nam Hai ICD and Phuoc Long ports and (4) a
Foreign owned ratio (%) 49.0% higher contribution from affiliates.
Foreign ownership limit (%) 49.0%
• HSC forecasts FY2019 net sales of VND 2,887 billion (+6.6% y/y) and
PBT of VND 769.3 billion (-64.7% y/y) with core PBT growth of 10.6%
y/y to VND 717.4 billion.

• The trade war has negatively impacted on Vietnamese export values,

Rolling P/E Chart as well as container throughput volumes in the Hai Phong area.
18.9 Moreover, a competitive threat from the Lach Huyen international
16.9
gateway port is greater than previously expectation.
14.9
12.9
10.9 • However, for a longer-term, we are still optimistic about GMD’s
8.9
prospects given the good locations of the Nam Dinh Vu and Nam Hai
6.9
4.9 Dinh Vu ports, as well as the contribution from Gemalink.
2.9
01-19F
01-16A

07-19F
07-16A

01-17A

07-17A

01-18A

07-18A

• We estimate that Gemalink will make minor loss in FY2020 and

FY2021 of VND 88.65 billion and VND 75.0 billion respectively, but
will start generating profit from FY2022 of VND 167.3 billion. Gemalink
will be the key driver for long-term growth at GMD thanks to its ideal
location, competitive tariffs and commitments from CMA-CGM.
Director
Vo Thi Ngoc Han, CFA • Our fair value for GMD is VND 30,993 per share, translating to a
han.vtn@hsc.com.vn forward FY2019 EV/EBITDA of 8.8x and P/E of 17.3x.
Senior Analyst
Che Thi Mai Trang
trang.ctmai@hsc.com.vn • Reiterate Outperform.

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 Company Update Monday, 05 August 2019

Gemadept Corporation (GMD - HSX) announced strong 1H results, showing 27.4% growth
in core earnings despite flat sales – The Company released results showing net sales of VND
1,297 billion (-0.13% y/y), an EBT of VND 397.9 billion (-77.8% y/y) and NPAT of VND 347.8
billion (-77.6% y/y). This enabled GMD to fulfill 46.3% of its full-year sales target and 57.2% of its
EBT target. If we exclude profit from asset sales, provision reversals, investment provisions and
forex changes, GMD’s core PBT increased 27.4% y/y in 1H FY2019 thanks to: (1) a higher GPM
from a higher contribution from port operation, (2) increased floor prices for international cargo
handling services in Hai Phong area, (3) solid throughput growth at Nam Hai ICD and Phuoc
Long ports and (4) a higher contribution from affiliates.

Quick conclusion: Reiterate Outperform. We see fair value for the stock at VND 30,993 per
share, which values the Company at a forward FY2019 EV/EBITDA of 8.8x. For FY2019, we
forecast core earnings will increase 10.6% y/y to VND 717.4 in NPAT. GMD is the largest
private port operator in Vietnam, with a nationwide port system from the North to the
South, handling over 1.8 million TEUs per year for a 12% market share. They also have an
integrated logistics systems, including DCs of 300,000 sqm, shares in an air cargo
terminal and a joint venture in a logistics company. Despite increasing competition in the
Hai Phong area, with the operation of Lach Huyen International Gateway Port, GMD’s Nam
Dinh Vu, with advanced technology and convenient location, will sustain growth in GMD’s
port system in this area. Moreover, Gemalink will be the key driver for future growth
thanks to its strategic location, competitive tariffs and commitment from CMA-CGM.

1H FY2019 results Port operation revenues rose by 10.8% y/y to VND 1,133 billion – Growth of 10.8% y/y in this
segment mainly came from an increase in handling output at the Nam Hai ICD and Phuoc Long
Port, along with slight increases in handling prices at Nam Hai Dinh Vu and Nam Dinh Vu ports.

• Throughput volume went up significantly at the Nam Hai ICD and Phuoc Long ports
but decreased slightly at GMD ’s container ports in the Hai Phong area

- Volumes at the Nam Hai ICD and Phuoc Long ports grew by 16.2% y/y to 380,000 TEUs and
58.1% y/y to 182,000 TEUs respectively in 1H FY2019.

- However, throughput volumes for the three ports in the Hai Phong area, including Nam Hai,
Nam Hai Dinh Vu and Nam Dinh Vu ports, decreased slightly by 1.4% y/y to 445,640 TEUs.
Within this, volumes at the Nam Hai and Nam Hai Dinh Vu ports dropped strongly by 23.8%
y/y and 30.1% y/y respectively, but thanks to a dramatic increase in Nam Dinh Vu’s volume
throughput of 189% y/y, total handling output from these ports reduced by only 1.4% y/y.

- Nam Dinh Vu port volumes grew impressively because it started operating from May 2018,
with a volume of only 56,655 TEUs in the first half of last year. Moreover, GMD moved a
portion of overall volumes from Nam Hai Dinh Vu and Nam Hai ports to Nam Dinh Vu port in
order to raise its utilization quickly, and support customers with better facilities at the new
port. This also contributed to the poorer performance at the older facilities.

Figure 1: Throughput volumes of GMD's ports

1H2019 1H2018 % yoy
Hai Phong area (TEUs) 627,640 566,984 10.70%
Nam Hai 68,108 89,414 -23.83%
Nam Hai Dinh Vu 213,819 305,848 -30.09%
Nam Dinh Vu 163,713 56,622 189.13%
Nam Hai ICD 182,000 115100 58.12%
Other provinces
Phuong Long (TEUs) 380,000 327,000 16.21%
Dung Quat (tonnes) 1,130,000 n/a n/a

Sources: GMD, Maritime Administration of Hai Phong, as summarized by HSC

• Floor prices for international cargo handling services in Hai Phong area increased by
10%. According to Circular No. 54/2018/TT-BGTVT dated December 9, 2018, floor prices for
international container loading and unloading services in Hai Phong city (except for Lach

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 Company Update Monday, 05 August 2019

Huyen port) were increased by 10% from US$ 30 to US$ 33 for a 20-foot container and US$
45 to US$ 55 for a 40-foot container. Due to current fierce competition in this area, GMD
could not gain all the benefit from these increases, as they had to decrease fees on other
services to keep customers from changing to other ports. However, the increase in floor
prices still had a good effect on overall revenue from port operations.

Figure 2: Floor prices of handling services for export and import of containers ≤ 20 feet
(USD/TEU)
Old New
Region I
Excluding Lach Huyen international port
Non-empty 30 33
Empty 18 20
Lach Huyen international port
Non-empty 46 46
Empty 29 29
Region II
Non-empty 45 45
Empty 27 27
Region III
Excluding ports in Cai Mep, Thi Vai
Non-empty 41 41
Empty 22 22
Ports in Cai mep, Thi Vai
Non-empty 46 52
Empty 29 32
Ports in the Mekong Delta
Non-empty not regulated 21
Empty not regulated 11
(Region I: Quang Ninh, Hai Phong, Thai Binh, Nam Dinh
Region II: Thanh Hoa, Nghe An, Ha Tinh, Quang Binh, Quang Tri, Hue, Da Nang, Quang Nam, Binh Dinh, Phu Yen, Khach
Hoa, Ninh Thuan, Binh Thuan
Region III: Ho Chi Minh, Ba Ria-Vung Tau, Dong Nai, Binh Duong, Tien Giang, Ben Tre, Dong Thai, Can Tho, An Giang,
Vinh Long, Ca Mau, Kien Giang, Long An, Soc Trang, Tra Vinh).

Sources: Circular No. 54/2018/TT-BGTVT, No. 3863/QĐ-BGTVT

Logistics and office rental sales decreased by 40.6% y/y to VND 163.9 billion - This was
because in February 2018, GMD sold a 51% stake in Gemadept Holding Logistics Limited
Company (operating in its logistics segment) and a 49% stake in Gemadept Shipping Holding
Limited Company to CJ Logistics. These companies will be recorded as non-consolidated, joint-
controlled GMD entities. Therefore, revenue from Gemadept Holding Logistics Limited Company
and Gemadept Shipping Holding Limited Company are no longer recorded in GMD’s
consolidated sales.

Gross profit expanded by 6.2% y/y to VND 515.3 billion, with GPM expansion from 37.3%
in the same period last year to 40.2%.

• Gross profit from port operations increased by 12.8% y/y to VND 482.1 billion, translating to
a GPM of 42.5% from 41.8% in the same period last year. This was mainly due to higher
service fees in the Hai Phong port area as mentioned above.

• Gross profit from logistics decreased by 42.3% y/y to VND 33.2 billion given the sharp
reduction in revenue. GPM was 20.2%, slightly declined compared to 20.8% in the same
period last year.

• Thanks to a higher contribution by port operation to net sales of 87% from 79% in 1H
FY2018, along with higher a GPM in this segment compared to the logistics segment, the
overall GPM widened in 1H FY2019 to 40.2% from 37.3% in the same period last year.

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 Company Update Monday, 05 August 2019

Net financial income in 1H FY2019 came to VND 23.6 billion (-98.5% y/y) from VND 1,570
billion in 1H FY2018, with a one-off gain from selling assets of VND 97.7 billion.

• We note that in 1H last year, GMD recorded a gain of VND 1,519.9 billion from sales of
majority stakes in three subsidiaries.

• In 1H this year, the Company also recorded a gain of VND 97.7 billion from the sale of an
asset, which we have learnt mainly came from selling its SCS stake. GMD’s ownership in
SCS was reduced by 1.22% in Q2 FY2019 from 36.43% to 35.21% currently. We estimate
that GMD sold about 609,800 SCS shares, with selling price of around VND 160,000 per
share.

• Furthermore, in 1H FY2019, financial expenses increased significantly to VND 81.7 billion

from VND (24.2) billion. This was mainly due to a 38.0% jump in interest expense to VND
74.0 billion, along with a dropping out of provision reversals against financial investments
which totalled VND 114.0 billion in the same period last year.

Profit from affiliates and JVs increased by 118% y/y to VND 117.7 billion from VND 53.9
billion in 1H FY2018 – This mainly came from growth of 20.5% y/y in NPAT at SCS in 1H
FY2019, as SCS contributed the largest proportion in GMD’s gains from affiliates and JVs.
Moreover, we also have learnt that the business results of Gemadept Shipping Holding Limited
Company also improved impressively in 1H this year, with PBT of VND 35 billion, completing
318% of its PBT target for FY2019, in contrast to a loss of VND 16 billion in FY2018.

Net other expenses decreased 51.0% y/y to VND 44.7 billion from VND 91.3 billion last
year – These expenses were mainly due to provisions made against some investments by the
Company with values of VND 50.2 billion and VND 100.6 billion in 1H FY2019 and 1H FY2018
respectively.

All in all, PBT came to VND 397.9 billion (-77.8% y/y) with NPAT of VND347.8 billion (-
77.8% y/y)– However, if we exclude one-off income from asset sales, provision reversals,
investment provisions and forex changes, GMD’s core PBT increased by 27.4% y/y in 1H
FY2019 to VND 347.8 billion from VND 270.0 billion in the same period last year.

Figure 3: 1H2019 financial results of GMD

1H2018 1H2019 % y/y FY2019 target % fulfilling
Net sales 1,299 1,297 -0.1% 2,800 46.3%
PBT 1,790 398 -77.8% 695 57.2%

Source: GMD

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 Company Update Monday, 05 August 2019

Figure 4: GMD's 1H2019 financial results (VND bil.)

1H2019 1H2018 %yoy
Revenue 1,297.2 1,299.0 -0.1%
Port 1,133.4 1,023.0 10.8%
Logistic & office rents 163.9 276.1 -40.6%
Gross profit 515.3 485.1 6.2%
Port 482.1 427.6 12.8%
Logistic & office rents 33.2 57.5 -42.3%
GPM
Port 43% 42%
Logistic & office rents 20% 21%
Financial income 105.4 1,546.1 -93.2%
Asset sales 97.7 1,519.9 -93.6%
Others 7.7 26.2 -70.6%
Financial expense 81.8 (24.4) -435.2%
Provision reversal 4.3 (114.1) -103.7%
Interest expense 74.0 53.6 38.1%
Others 3.5 36.1 -90.2%
SG&A 213.9 228.8 -6.5%
Other incomes 7.9 11.8
Other expenses 52.6 103.2
Expenses from ineffective investments 50.2 100.6
Others 2.4 2.6
PBT 397.9 1789.5 -77.8%
Income from asset sales 97.8 1519.9 -93.6%
Income from provision reversal 4.3 114 -96.2%
Income from forex changes -1.8 -16.8 -89.5%
Investment provisions -50.2 -100.6
PBT from core business 347.8 273.0 27.4%
NPAT 347.8 1554.2 -77.6%

Sources: GMD as summarized by HSC

Updates on GMD projects

• Gemalink Port’s construction schedule progressing. The project includes two phases
with total capacity of 3.9 million TEUs, with the first phase having a capacity of 1.5 million
TEUs. P1 already kicked-off in Q4 last year, and is expected to commence operations in the
end of Q3 FY2020.

• Nam Dinh Vu Phase 2 might be delayed compared to its initial plan. The initial
construction plan for Nam Dinh Vu Phase 2 was set to start at the end of FY2019, with a
construction period of around 12 months. However, we have learnt that the project may be
delayed for a while, given higher-than-expected competition from Lach Huyen deep seaport,
coupled with lower growth than expected in throughput at Hai Phong ports.

• Rubber planting project: GMD planted 10,000ha of rubber trees on a total granted area of
30,000ha in Cambodia. The total investment, including land costs for this rubber business,
was US$ 90 million at book value. The Company stopped planting new rubber trees and has
also has not tapped latex as planned this year because of unfavorable rubber prices. GMD is
looking for investors to divest this project in order to concentrate on its core business of port
operation and logistics.

• Sai Gon Gem real estate project: This project covers 3.640 sqm and has a strategic
location at the corner of Le Loi and Nam Ky Khoi Nghia streets in Ho Chi Minh City. GMD
has a 31.5% stake in this project and the Company expects to have an investment license by
the end of 2019. The complex will offer high class office and shopping mall services, with an
estimated total capex of USD 90 million, down from the previous estimate of US$ 140 million
due to changes in the construction plan. However, GMD can sell this project if the selling
price is attractive. Currently, according to the Company, there are some investors willing to
buy at a price of US$ 38,000 – US$ 40,000 per sqm. This could generate some potential
one-off extraordinary profits if GMD decides to divest it.

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 Company Update Monday, 05 August 2019

• Vientian Lao real estate project: This project covers 6,715 sqm located in the center of the
capital of Laos. GMD has a 40% stake in this project. This project will have 6 floors, including
a 5-star hotel and trading center. GMD broke ground in Q1 FY2019. Estimated completion of
this project is in FY2021. We understand that the Company is also looking for an investor to
sell its stake in this project.

FY2019 forecasts For FY2019, HSC now calls for growth of 6.6% y/y in net sales and a fall of 64.7% y/y in
PBT – We have revised up our PBT forecast by 14.7%, which is mainly due to gains from asset
sales in Q2 this year. We now forecast net sales of VND 2,886 billion (+6.6% y/y) and PBT of
VND 769.3 billion (-64.7% y/y) versus our previous forecast for net sales of VND 2,976 billion
(+9.9% y/y) and PBT of VND 670.3 billion (-69.3% y/y). If we exclude extraordinary profit from
asset sales and provision reversals, FY2019 core PBT will grow by 10.6% y/y, with our key
assumptions as set out below.

• Port operation revenues will increase by 12.7% y/y to VND 2,567 billion given several
factors.

- Throughput volumes at Nam Hai port and Nam Hai Dinh Vu port will decrease at the same
pace as in 1H of 23.8% and 30.1% respectively to 140,765 TEUs and 462,378 TEUs.

- Throughput volumes at Nam Dinh Vu port will reach 340,000 TEUs (+85.8% y/y) with
utilization of 68%.

- Volumes handled at the Phuoc Long ICD will increase by 16.0% y/y to 869,235 TEUs and
throughput volumes at Dung Quat port will increase 10.0% y/y to 2,327,600 tonnes.

- GPMs for port operations will improve slightly to 40.1% from 37.9% the previous year, mainly
thanks to higher utilization rates at Nam Dinh Vu port.

• Regarding the logistics segment, we forecast revenues will decrease by 25.0% y/y to VND
319.7 billion. We further forecast the GPM of the logistics segment will decrease to 20.0%
from 24.1% last year.

• All in all, overall gross profit is expected to come to VND 1,152 billion (+18.9% y/y),
generating an overall GPM of 39.9%, an increase from the 35.8% last year, thanks to a
higher contribution from port operations with higher margins.

• Financial income will come to VND 123.7 billion (-92.4% y/y), including VND 97.7 billion
from asset sales.

• Financial expenses are expected to come to VND 164.4 billion (-92.4% y/y) due to the
dropping out of provision reversals as mentioned above.

• We also expect a higher contribution from affiliates – We forecast GMD’s affiliates will
contribute VND 199.0 billion (+50.2% y/y), of which SCS will contribute VND 168.3 billion
(+20.5% y/y). In addition, CJ Gemadept Logistics Holdings Limited Company and CJ
Gemadept Shipping Holdings Limited Company will contribute VND 44.1 billion (+597.8%
y/y) versus VND 6.3 billion to GMD’s PBT.

• HSC forecasts SG&A expenses will come to VND 450.5 billion (+6.6% y/y), accounting
for 15.6% of net sales.

• All in all, HSC expects the Company will deliver 10.6% growth in core earnings – We
forecast FY2019 PBT and NPAT will come to VND 769.3 billion (-64.7% y/y) and VND 662.5
billion (+65.1% y/y). If we exclude one-off income, PBT will increase 10.6% y/y to VND 717.4
billion. Assuming no change in AOS, FY2019 EPS will come to VND 1,788 which translates
to a forward P/E of 14.5x. HSC further forecasts EBITDA of VND 1,302.3 billion (+28.5%
y/y), generating a forward FY2019 EV/EBITDA of 7.5x.

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 Company Update Monday, 05 August 2019

FY2020 forecasts For FY2020, HSC forecasts that net sales will come to VND 3,184 billion (+10.3% y/y) while
PBT will come to VND 729.3 billion (-5.2% y/y). The increase in net sales will mainly come
from higher throughput volumes at Nam Dinh Vu port, but a slight decrease in profit will come
from the low utilization rates at Gemalink in the first year of operations, further assuming no other
asset sales in FY2020. Our main assumptions are set out as below.

- We assume that Nam Dinh Vu port will reach 84% capacity in FY2020, with a totl throughput
volume of 420,000 TEUs (+23.5% y/y).

- The throughput volume at Nam Hai port will decrease 5% y/y to 133,737 TEUs due to cargo
vessel movement trends of from upstream to downstream of the Cam river. The throughput
volume of Nam Hai Dinh Vu port will see no growth compared to FY2019, due to the
competition of Lach Huyen international port.

- Throughput volume of Nam Hai ICD, Dung Quat and Phuoc Long ports will increase by
10.0% y/y.

- Gemalink will commence its operation in Q3 FY2020. HSC expects its handling output of
195,000 TEUs in FY2020 with utilization of 13% in the first year of operation. With low
utilization, we estimate that Gemalink will make a minor loss in FY2020 valuing at VND
(88.65) billion and contribution a loss of VND (66.5) billion to GMD’s profit from associates
and JVs. We also estimate that Gemalink will accommodate 825,000 TEUs in FY2021 and
1,100,000 TEUs in FY2022 respectively. Accordingly, HSC expects the see an additional
loss in FY2021 at VND (75.0) billion and start generating profit from FY2022 at VND 167.3
billion. This is a common situation of deep-sea ports in the first time of operation with the low
utilization rate at first. However, in the long-term Gemalink will generate a higher potential
growth thanks to its ideal location, low investment capex per TEUs in comparison with
competitors, and opportunities for capturing growth of Cai Mep transportation hub.

- At this stage, we assume no more contribution from asset sales in FY2020. We estimate
financial income will decrease to VND 35.5 billion (-71.9% y/y) in the next year from VND
123.7 billion in FY2019.

- Assuming no change in AOS, FY2020 EPS will come to VND 1,714 (-4.1% y/y) which
translates to a forward P/E of 15.2. HSC further forecasts EBITDA for FY2020 of VND 1,302
billion (-0.03% y/y), and generating a forward FY2020 EV/EBITDA of 7.5x.

Our main concern is negative impact of the trade war on Vietnamese exports and
container throughput volumes in the Hai Phong area.

- In the first 7 months of FY2019, total export value growth in Vietnam was only 7.5% –
This was much lower than the 15.3% in the same period last year. Although export value to
the US increased significantly by 25.4% y/y, two main traditional markets, including China
and the EU, experienced depressed growth of 0.1% y/y and 0.4% y/y respectively. This was
much lower than a growth of 24.7% and 12.9% in 1H last year.

- Throughput volumes in the Hai Phong area were also affected badly in 1H FY2019 – A
slight decline of 0.8% y/y to 2,389,317 TEUs was seen, compared to the 2,408,768 TEUs in
the same period last year. This displayed bad performance in contrast to growth of 5% in
FY2018 and 5-year CAGR of 7% in the FY2014-FY2018 period. We believe that it was partly
due to the trade war, which resulted in global uncertainty and lower growth in Vietnam’s
export value.

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 Company Update Monday, 05 August 2019

Figure 5: Growth of total throughput volumes in Hai Figure 6: Growth of Vietnam's export value
Phong's container ports
6,000 18.0% 300.0 Title: 25.0%
16.0% Source:
4,885 243.5
5,000 4,637 250.0
14.0% 20.0%
4,163 215.1
3,887 12.0%
4,000 200.0 176.6
3,470
3,100
10.0% Please fill in the values
162.0 above to have them entered in your report 15.0%
150.2
3,000 8.0% 150.0 132.0 127.7
2,389
6.0% 10.0%
2,000 100.0
4.0%
2.0% 5.0%
1,000 50.0
0.0%
0 -2.0% - 0.0%
2013 2014 2015 2016 2017 2018 1H2019 2013 2014 2015 2016 2017 2018 1H2019

Throughput volume ('000 TEUs) Growth Value (US$ bil.) Growth

Source: Maritime Administration of Hai Phong Source: GSO

Higher competitive threats from deep seaports in the Lach Huyen area.

- Lach Huyen deep seaport is the largest port investment project in the North of Vietnam, with
plans to construct 23 berths by FY2030. The first two berths were in operation under the
Lach Huyen international gateway port company (HICT) in May 2018. The Port of Hai Phong
joint stock company (PHP - HNX) was given approval by Prime Minister Nguyen Xuan Phuc
on September 22, 2018 to construct the next two container berths (number 3 and 4) in this
area. The expected operation of the third berth is Q2 FY2021. We have learnt that there are
many investors applying to investment in the remaining berths, including GMD, Vingroup,
Saigon New Port and VSC. However, there has been no investor investment approval apart
from that for PHP currently.

- HICT started operating at the same time as GMD’s Nam Dinh Vu port (May 2018). It has the
ability to accommodate cargo vessels up to 100,000 DWT. Although its handling output was
only 4,412 TEUs in 1H FY2018 and 65,387 TEUs in FY2018, in the 1H FY2019 it increased
impressively to 117,711 TEUs (+2568% y/y), especially against unfavorable conditions of
negative growth in the Hai Phong area (-0.8% y/y).

Figure 7: Throughput volumes of container ports in Hai Phong city ('000 TEUs)

600 3000%
500 2500%
2000%
400
1500%
300
1000%
200
500%
100 0%
- -500%
Lach Huyen

PTSC Dinh Vu
Hai An
128 port

Chua Ve

Doan Xa

Transvina

Tan Cang 189

Green port

Vip Green Port

Nam Dinh Vu

Nam Hai Dinh Vu

Nam Hai

Dinh Vu

Tan Vu

1H2018 1H2019 Growth

Source: Maritime Administration of Hai Phong

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 Company Update Monday, 05 August 2019

- We also see that global carriers have increased cargo vessel sizes to reach HICT, thus
reducing handling volumes at other ports in Hai Phong City. Despite its higher charges of
US$ 46 per TEU for handling international goods, versus US$ 33 at other ports in Hai Phong
City, using large vessels can save costs for carriers. This is because they do not have to use
feeder ships when the water level depths are incapable of accommodating large vessels.

- Moreover, goods exported from the North of Vietnam to North America via Lach Huyen deep
seaports can save 6 days in transportation times to 19 days from 25 days of old rotations at
overseas transshipment hubs, thus reducing logistics costs for global carriers.

- Therefore, in the long-run, deep seaports in the Lach Huyen area will create a considerable
threat to other ports in the Hai Phong area.

However, for the long-term, we are still optimistic about GMD’s prospects given good
locations for the Nam Dinh Vu and Nam Hai Dinh Vu ports, as well as Gemalink’s high
growth prospects.

- Ports upstream of Hai Phong will be impacted negatively by the Lach Huyen deep
seaports while ports downstream will see fewer negative impacts. Upstream terminal
ports in the Cam river experienced negative growth in the past few years, as they are
incapable of accommodating cargo vessels with sizes of over 20,000 DWT. However,
terminal ports downstream still enjoyed positive growth in throughput volumes. In 1H
FY2019, despite a slight decrease in total handling output from Hai Phong City, ports in the
downstream area still had growth of 6.4% y/y while the ones in upstream decreased
significantly by 17.8% y/y. GMD has two container ports in the downstream area, including
the Nam Hai Dinh Vu and Nam Dinh Vu ports, while Nam Hai port is located upstream. We
estimate that throughput volumes from the Nam Hai port will decrease about 5%/year in
coming years, Nam Hai Dinh Vu port will be flat while Nam Dinh Vu will still grow thanks to its
particular advantages.

Figure 8: Growth of throughput volumes in upstream & Figure 9: Market share of Hai Phong's ports by region
downstream ports of Hai Phong city
30% 120.0% Title:
24% Source:
25%
20% 100.0%
20% 18%

15% 80.0%
10% 46.1%
10%
Please52.0% 54.8%
fill in the values above to have them entered in your report
63.2%
6% 6% 68.1% 71.3%
60.0% 75.4%
5%
0% 40.0%
2015 2016 2017 2018 1H/2019
-5% 53.9%
-4% -5% 48.0% 45.2%
20.0% 36.8%
-10% -13% 31.9% 28.7% 24.6%
-15% -18% 0.0%
-20% 2013 2014 2015 2016 2017 2018 1H/2019

Downstream Upstream Upstream Downstream

Source: Maritime Administration of Hai Phong Source: Maritime Administration of Hai Phong

- Nam Dinh Vu port is currently the second most sophisticated port following HICT in
Hai Phong City. With smaller large cargo vessels, other ports in Hai Phong City will still
have competitive advantages due to lower handling charges of US$ 33 per TEU versus US$
46 per TEU at HITC. Excluding HITC, Nam Dinh Vu port has the most strategic location, with
an ability to accommodate cargo vessels up to 40,000 DWT. Moreover, for imported goods,
the distance from Lach Huyen to industrial zones is 15km farther than that for Nam Dinh Vu,
resulting in higher transportation costs of US$ 20 per TEU for forwarders. Therefore, in the
long-term Nam Dinh Vu still has some competitive advantages over HITC in terms of
imported goods and smaller cargo vessels.

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 Company Update Monday, 05 August 2019

Figure 10: Capacity of container ports in Hai Phong city

Largest cargo size
Port Company operates Capacity (TEUs/year) Number of berths
(DWT)
Downstream
1 Tan Vu PHP - HNX 1,000,000 40,000 5
2 Dinh Vu PHP - HNX 600,000 20,000 2
3 Nam Hai Dinh Vu GMD - HSX 500,000 30,000 2
4 Vip Greenport VSC - HSX 500,000 30,000 1
5 Saigon Newport 289 Saigon Newport 200,000 10,000 1
6 PTSC PVS - HNX 300,000 20,000 1
7 Nam Dinh Vu GMD - HSX 600,000 40,000 2
8 Lach Huyen Saigon Newport 1,100,000 100,000 2
Upstream
9 Green port VSC - HSX 350,000 20,000 2
10 Chua Ve PHP - HNX 500,000 20,000 5
11 Hai An HAH - HSX 250,000 20,000 1
12 Doan Xa PHP - HNX 250,000 40,000 1
13 Nam Hai GMD - HSX 150,000 10,000 1
14 Saigon Newport 128 Saigon Newport 200,000 15,000 1
15 Transvina Transvina 80,000 10,000 1

Source: Maritime Administration of Hai Phong as summarized by HSC

- Gemanlink will be the key driver for long-term growth for GMD. This is mainly because
of main reasons as set out below:

o Strategic location of Gemalink in the Cai Mep – Thi Vai area. Currently, there are total of
6 deep-sea ports in the Cai Mep area with a total capacity of 7.55 million TEUs per year,
not including Gemalink. Only 3 of the 6 ports operating in this area (with useable
capacity of 3.26 million TEUs per year) are competitors for Gemalink, as the others have
very low utilization rates, inconvenient locations, outdated designs and can’t
accommodate large modern vessels.

In fact, actual throughput at Cai Mep ports was 2.44 million TEUs and 2.95 million TEUs,
(+20.9% y/y) in FY2017 and FY2018 respectively. Based on the useable capacity in this
Cai Mep area, the effective utilization rates are estimated at 74.8% and 90.5%
respectively in the same period. Once Gemalink comes on stream, the port will capture
potential growth in throughput volumes in the area as other competitors are running at
almost full capacity.
Furthermore, Gemalink is the only deep-sea container port in the Cai Mep - Thi Vai area
designed with two dedicated berths for feeder vessels and deep drafts for convenient
calls for mother vessels. Gemalink is one of a few deep sea ports with the capability to
accommodate 200,000DWT vessels in Vietnam, and has a strategic location at the Cai
Mep river mouth with the longest main berths in Cai Mep.

o Better cost structure of Gemalink thanks to lower capex per TEU compares favorably to
HICT. HICT has capacity of 1 million TEUs per year with capex of US$ 360 million, while
Gemalink in its first phase will have a capacity of 1.5 million TUEs per annum from capex
of US$ 330 million. Therefore, the capex per TEU at Gemalink is just US$ 200 compared
with US$ 360 for the Lach Huyen port. The lower cost enhances Gemalink’s competitive
advantages.

o Lower tariffs compared to other regional deep sea ports. The current handling tariffs for
international goods of ports in the Cai Mep area are only US$ 52 per TEU, which are
much lower than many deep sea ports in Southeast Asia. This attractive tariff regime will
increase Gemalink’s advantage over regional ports.

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 Company Update Monday, 05 August 2019

Figure 11: Handling charges per 20-foot container in regional countries (US$/TEU)

180
167
160

140 130

120 111
97 97
100
81 80
80 75
58
60

40

20

0
Thailand Malaysia Brunei Indonesia Philippines Singapore China Hongkong Myanmar

Source: Vinamarine

o Gemalink’s other investor, CMA-CGM, will contribute greatly to throughput volumes at

this port in the first years of operation. Gemalink has a cargo commitment from CMA-
CGM, which is the fourth largest shipping group worldwide. CMA-CGM and shipping
groups in Ocean Alliance, which is one of three largest maritime alliances, may provide
up to 0.8 million TEUs to Gemalink in its first full year of operations. The throughput
volumes of the Ocean Alliance in the Cai Mep area are estimated to reach 1 million
TEUs in this year. They are using other ports in the Cai Mep area, but will move to
Gemalink after it starts operations. Gemalink’s handling charges will be set at the floor
prices for deep seaports in the Cai Mep area, which will be equivalent to other ports in
this area.

Valuation We applied a comparative EV/EBITDA method as our primary methodology. We revise down our
target price by 10.1% to VND 30,993 per share from VND 34,500 per share as the multiple of
peers has decreased from 9.9x to 8.8x. Based on our revised fair value, GMD is trading at a
FY2019 forward P/E of 17.3x and P/B of 1.4x.

Figure 12: Ticker

Mkt Cap (VND P/B EV/EBITDA EV/EBITDA
Ticker Name Cntry P/E FY19
mil.) FY19 FY2019 T12M
HHFA GR Equity HAMBURGER HAFEN UND LOGISTIK 42,942,358 GERMANY 15.0 2.5 6.0 5.5
GLPR LI Equity GLOBAL PORTS INV-GDR REG S 12,421,756 CYPRUS 5.9 1.0 5.9 11.0
GPH LN Equity GLOBAL PORTS HOLDING PLC 6,659,432 TURKEY 10.2 0.9 6.6 8.5
144 HK Equity CHINA MERCHANTS PORT HOLDING 132,030,602 HONG KONG 8.0 0.5 16.9 19.5
Average 9.8 1.2 8.8 11.1
GMD VN Equity (at current price) GEMADEPT CORP 7,749,741 VIETNAM 14.4 1.2 7.4
GMD VN Equity (at fair price) 17.3 1.4 8.8

Source: Bloomberg, HSC

Investment conclusion
Reiterate Outperform. We have a fair value of VND 30,993 per share, which values the
Company at a forward FY2019 EV/EBITDA of 8.8x. GMD is the largest private port operator in
Vietnam, with a nationwide port system, handling over 1.8 million TEUs per year for a 12%
market share. They also have integrated logistics systems including DCs, shares in an air cargo
terminal and joint venture in a logistics company. Despite increasing competition in the Hai
Phong area, with the operation of the Lach Huyen port, GMD’s Nam Dinh Vu, with sophisticated
technology and a convenient location, will sustain growth in its ports in this area. Moreover,
Gemalink will create good profit growth in the future thanks to its ideal location, competitive tariffs
and commitments from CMA-CGM. Therefore, we maintain a positive outlook on the Company,
although the FOL is full.

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 FINANCIAL RATIOS

Company Update Monday, 05 August 2019

Income statement (VNDbn) 12-18A 12-19F 12-20F Cashflow statement (VNDbn) 12-18A 12-19F 12-20F
Net sales 2,708 2,887 3,184 Operating cashflow 545 978 834
COGS (1,739) (1,735) (1,893) Investing cashflow 1,008 (9) (16)
Gross profit 968 1,152 1,291 Financing cashflow (2,160) (753) (374)
Net financial income 1,582 (41) (117) Net cashflow (607) 216 444
SGA expenses (423) (450) (497) Cash & equivalents at period start 780 173 388
Operating profit 2,260 859 829 Forex effects (1) (1) 0
EBITDA 1,013 1,302 1,303 Cash & equivalents at period end 173 388 832
PBT 2,182 769 729
NPAT 1,900 662 635 Key ratios 12-18A 12-19F 12-20F
NPATMI 1,848 577 553
Valuation
EPS (VND) 6,207 1,788 1,714
Balance sheet (VNDbn) 12-18A 12-19F 12-20F EPS diluted (VND) 6,093 1,788 1,714
Assets EBITDA (VNDbn) 1,013 1,302 1,303
Current assets 1,391 1,845 2,458 BVPS (VND) 19,804 21,151 21,421
Cash & cash equivalents 173 388 832 DPS (VND) 9,567 1,500 1,500
Short-term investments 112 105 105 P/E (x) 4.2 14.5 15.2
Short-term receivables 949 1,179 1,341 P/E diluted (x) 4.3 14.5 15.2
Inventories 66 74 82 EV/EBITDA (x) 10.3 7.5 7.5
Other current assets 92 98 98 P/B (x) 1.31 1.23 1.21
Long-term assets 8,593 8,281 8,028 Dividend yield 36.8% 5.8% 5.8%
Long-term receivables 55 75 83 Profitability
Fixed assets 3,404 3,092 2,735 Gross margin 35.8% 39.9% 40.6%
Investment properties 0 0 0 EBITDA margin 37.4% 45.1% 40.9%
Long-term investments 2,632 2,632 2,632 Pretax margin 80.6% 26.7% 22.9%
Other long-term assets 795 773 853 Net margin 68.2% 20.0% 17.4%
Goodwill 0 0 0 SG&A/sales 15.6% 15.6% 15.6%
Total assets 9,984 10,126 10,486 ROAE 30.2% 9.5% 8.8%
Resources ROAA 17.4% 5.7% 5.4%
Liabilities 3,455 3,112 3,292 Liquidity
Current Liabilities 1,564 1,402 1,536 Current ratio 0.89 1.32 1.60
Long-term Liabilities 1,891 1,710 1,756 Quick ratio 0.85 1.26 1.55
Owners' equity 5,880 6,280 6,360 Leverage

Share capital 2,969 2,969 2,969 Debt/Equity 38.6% 31.2% 31.9%

Retained earnings 542 895 931 Total debt ratio 34.6% 30.7% 31.4%

Funds and other capital 2,369 2,416 2,460 EBIT interest coverage ratio 4.24 5.10 6.12

Minority interest 649 734 834 Efficiency

Liabilities & Equities 9,984 10,126 10,486 Days sales outstanding 140 135 145
Days in inventories 18.2 14.7 15.0
Days payables outstanding 122 88 87
Source: Company data, (F): HSC forecasts
Cash conversion cycle (days) 35.9 61.5 72.4

Source: Company data, (F): HSC forecasts

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