I. VIETNAM SEA PORTS OVERVIEW
Thanks to strong economic growth and export-import , sea ports and their services enjoy good performance in recent years. Yet at some areas where facing lacks of efficient infrastructure and week connectivity with finance services, industrial parks…., some wharf operators have not worked well and burdened with huge debts.
Sea ports are classified into 6 groups from north to southern area, but only operators of Group I (Hai Phong and surrounding), and Group V (Ho Chi Minh and surrounding) enjoy bright results, thanks to closeness to big cities, industries parks, big customers…
Group V, including Cat Lai, Saigon Port, Hiep phuoc Port, Cai Mep-Thi Vai…currently account for more or less 60% in term of TEUs. But Group I may catch up and outpace the Group V thanks to big infrastructure investment in years.
Vietnam economic growth looks strong when it got 6.81% in 2017, inflation is under controlled at 2.6%. The high growth and mild inflation and expected by economists in coming years, thanks to strong FDI and the more cautious policies from government. In addition, Vietnam is preparing to join FTAs, such as EU- Vietnam FTAs or CP TPP (news name of TPP afer US’s exit) already signed and ready to take effective in 2019. ASEAN economic community also bring benefits to trading and logistics market…
Goods was processed at sea ports increased 17% in 2017 , ~ 536 million tons and fore cast to continue keep up the sustainable growth in the near future.
However, competitions is very fierce thanks to a lot of ports scattering. That lead to big pressure for operators to keep fee at the suitable to attract clients. According to Vietnam state’s statistics, price index of warehouse, transportation is decrease in 2 consecutive years 2015- 2016 and just slightly up in 2017. In coming years, some big seaports are entering market in Ho Chi Minh city (like Hiep Phuoc, Long An…) also increase pressure and maybe, some of ports would be closed and quit, especially for high debt companies.
Genuine figures and forecast for Vietnam sea port market is below:
II. CAT LAI PORT (HOSE: CLL): PERFORMANCE & VALUATION
Cat Lai is an international port, located in district 2, Ho Chi Minh and surrounded by many industrial parks in Ho Chi Minh, Dong Nai, Binh Duong, Vung Tau – the area that has the highest growth in Vietnam. Goods from the the Mekong Delta also moved to Cat Lai to easily access the international largest shipping companies stay there.
Modern equipment, good connections via big road and rivers (Dong Nai and Saigon River) are also key factors for this operator in the eyes of logistic companies.
But Cat Lai has some weakness. The river depth of Cat Lai is medium ( 7 m ) and so the maximum weight of container carriers Cat Lat can handle is 30.000 tons. It is hard to improve in near future and fff course, would confine the stronger growth for this operator.
Meanwhile, Cai Mep Thi Vai (in Vung Tau) – the main competitor of Cai Lai has bigger depth (12 met). So if Cai Mep is invested more seriously, especially in roads connection, it can handle more goods than Cai Lai and may attracts shipping companies. In addition, some ports at Hiep Phuoc (Nha be district) also bring new challenge for Cat Lai thanks to better depth, yet construction progress there is still slow.
But in Ho Chi Minh, Cai Lai is still stellar thanks to modern and good service, strong brand and well-connected with surrounding provinces in the south. Strong growth and FDI investment as well as big infrastructures (such as express ways, Long Thanh international airport) are expected to help Cai Lai operate at full capacity in coming years (95% or 4.37 million TEUs processed per year).
Since inception, Cat Lai has very good in usage rate, the capacity utility is always improved and stand nearly full capacity in 2017. Market share of Cai Lai is 36% in 2015 but we expect going down in years due to new competitors emerges, especially in Hai Phong.
Past figures and forecast for market share of Cai Lai is displayed below:
Cat Lai has strong financial position. It clear all debts at the end of 2017. ROIC and ROE are lucrative, 17.1% and 14,2% respectively. This operator does not have significant fixed investment, so CAPEX would be small in coming years and may stand at 1.23% to revenue.
Income statement forecast in next 5 years (base case):
In the base case and WACC of 13.32%, the share value according to 3-stage FCFF method is 43,000 dong, and 36,700 dong, according to FCFE method. With the current price is 27.400 dong, we think Cai Lai is a interesting choice for investors who interest sustainable growth of Vietnam logistics.
In sensitive analysis, with totally 31 assumptions about the the revenue growth, gross margin, working capital, growth in the second stage, debt cost and WACC and running totally 10.000 cases, the share value range is from 31,657 to 54,400 dong – seem very attractive and safe!
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