Ports and investments

Japanese companies bought into Gemadept, a Vietnamese port operator and logistics operator.

Sumitomo teamed up with compatriot logistics company Suzuyo and a Japanese public-private fund specializing in infrastructure investment to take a 10% interest in Ho Chi Minh-based Gemadept. The trading house provided more than half of the roughly 4 billion yen ($37 million) the team paid to a local fund for the stake.

Total market cap of Gemadept is just $350m, which is less than I expected, given the number of ports that it owns (7 in total, with varying ownership levels). I estimate that it has capacity of more than 5m TEUs (ton equivalent units, an metric to judge how many containers can come into the port. It is adding at least 1.5m or almost 30% more in the next year or so.

Gemadept has more than 10% share of the market, or 1.7m a year. About 14 million container equivalents of goods are shipped in and out of Vietnam annually. If we assume similar to GDP growth, that would be 22.5 million by 2025. I personally think that could increase even more, given that exports have growth 13.8% annually over the past 5 years. It seems like 10% growth would be reasonable, which would mean that by 2025 Vietnam could see 27m container equivalents. That’s almost double.

GEMADEPT STOCK PRICE. SOURCE: VIETSTOCK

Given this backdrop, Gemadept’s stock has not performed that well, despite the strong positive tailwinds from exports, the China-US trade war or this purchase. You would think people would be excited about potential for better utilization and greater ability to invest in new ports. But they aren’t.

I will have to look into this more, but I am surprised that it is trading so low. The stock is trading just 4.4x trailing P/E, but 11.5x forward P/E. There was a big divestment in 2018 which boosted profits, so the 2019 figure is more realistic to describe its ordinary operations. Isn’t too low - DP World (a UAE ports operator and the world’s largest) is trading at just 10x - but still surprisingly given the growth in the market.

I am going to do more work on ports and Gemadept, but I thought I would just finish here on this summer Friday! Happy Weekend!