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SKG - Competition Will Begin to Impact Earnings Results

​“The company’s Q3 2016 business results displayed its ability to continue on a strong trend of growth. In Q3 2016, SKG achieved VND99 billion in revenue, equivalent to +20.7% YoY growth, with a 25% YoY increase in passengers.

Boosting its investment in existing routes will support short-term growth: RongViet Research believes that SKG’s growth prospects will largely depend on its investment in existing routes. Accordingly, Superdong XI will start to operate in the beginning of 2017 and it could improve the traveling capacity in Ha Tien – Phu Quoc route (or Rach Gia – Nam Du), especially during peak seasons such as Tet holiday in Q1 2017. In addition to this, the company could also experience further growth in the short term from Superdong XII, which will begin to operate in early Q3 2017, along with its other new ferry boats. Meanwhile, Ngoc Thanh, the main competitor, officially operate 2 new high-speed boats with the similar capacity to SKG’s boats and has lower fees (14% lower). It creates pressure on the future growth of this route and may also cause SKG’s profit margins to drop in order to compete.

Long-term Prospects Depends on its New Routes: With the plan to provide transportation services in a new route, namely Soc Trang – Con Dao, SKG will be able to have first movers advantage during its initial development phase of Con Dao in the near future.

Since the short and long term outlooks for the company remain positive, SKG is considered to be an attractive company for long-term and growth investors. The main concern at this moment is the increase in competition along with the new route that SKG has invested in, which needs time to prove its effectiveness. We adjust the fair price of SKG to VND72,800/share, 16% lower than the latest update (changes in the EPS forecasts and growth of cash flow). In order to mitigate further risks, we recommend investors to invest in SKG for long-term when the P/E for 2017 declines lower than 8x.”