In 10M21, container throughput in Vietnamese ports reached 20 million TEUs (10% YoY).

In 10M21, container throughput in Vietnamese ports reached 20 million TEUs (10% YoY). This was 22% lower than that of 1H21 because the southern port clusters posted negative growth in 3Q given social distancing. Total tonnage of ships docked in the Hai Phong port system hit 115 million tons (1.3% YoY), of which tonnage in upstream port clusters and Lach Huyen port witnessed decreases of 2.4% YoY and 21.7% YoY, respectively, in contrast to an increase of 10.3% in downstream port clusters.

The downstream ports (Nam Hai Dinh Vu, Green Vip, Nam Dinh Vu, Dinh Vu) experienced positive growth because: (1) the Lach Huyen area is being deposited by alluvium, which cannot accommodate large ships; (2) the upstream ports have short berths and shallow drafts, limit ing ships to the upstream; and (3) the demand for river ports is increasing because the majority of ships passing through Hai Phong are small- and medium-sized containerIn the 10 months of 2021, the throughput in the Ba Ria-Vung Tau region reached 6.5 million TEUs (22% YoY). Cai Mep - Thi Vai area is consolidating its position as a transshipment hub in the southern region of Vietnam to the US and EU markets.

"We are positive about the growth potential of the container port industry in the coming years due to the following reasons: (1) Throughput in Vietnamese ports is expected to maintain a growth rate of over 10% per year thanks to infrastructure improvement and supply chain shift to Vietnam, especially to the South with typical projects such as 991B Road, Phuoc Hoa - Cai Mep Road, Bien Hoa - Vung Tau Expressway, Phuoc An Bridge ; (2) freight rates will continue to increase by 10%/year until 2023 in Hai Phong port system (excluding Lach Huyen) and Cai Mep - Thi Vai; (3) effective FTAs (CPTPP, EVFTA, RCEP) will promote trade with Vietnam; (4) the supply chain has been shifted to Vietnam given its adjacency to China and low-cost labor", KB Securities.

However, Vietnam's container ports may encounter some challenges because both the new master plans for seaports and the cap on port charges depend on state policies. Along with that, they have to bid successfully before expanding capacity.

Among marine transportation stocks, KB Securities recommended watching Gemadept (GMD). In the first three quarters of the year, GMD recorded VND575 billion (34.7% YoY) in PAT on revenue of VND2,168 billion (14.1% YoY), of which port operations and logistics brought in VND1,884 billion (20% YoY) and VND284 billion (-14.2% YoY) in revenue, respectively. GMD’s total docking capacity in 9M21 reached 1,905,000 TEUs (52% YoY), mainly driven by the Haiphong port system with 754,359 TEUs (13% YoY) and Gemalink with 528,351 TEUs. However, the throughput in Lach Huyen port decreased 21.7% YoY because it could not accommodate large vessels due to alluvial deposits.

KB Securities estimated GMD's NPAT in 2022 at VND848 billion (36.3% YoY), the majority of which came from joint ventures at VND137 billion vs. VND3 billion in 2021, assuming Gemalink's 2022E throughput of 1.35 million TEUs (50% YoY) and a 10% increase in freight rates. GMD plans to transfer a 25% stake in Gemalink (effective ownership for GMD is 15%), which may bring a profit of VND343 billion for GMD. However, this isn’t included in the valuation due to the need for more details. By using the SOTP valuation method, this stock company recommends buying GMD with a target price of VND56,300/share, 22.9% higher than the closing price on December 24, 2021.