Earnings Report /
Vietnam

Airports Corp: The worst is yet to come

  • 2019 earnings high, but profit expected to bottom out by Q2 20

  • While 2020 earnings will be unprecedentedly low due to the pandemic, 2021 profit growth expected to be robust

  • We revise down the target price by 23% to VND65,000/share; Accumulate

Tung Do
Tung Do

Logistics, Aviation

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Rong Viet
12 May 2020
Published byRong Viet

High earnings in 2019

  • Net sales was VND3,635bn (-18% yoy) due to a 11% decline in passenger volume in Q1 20 (domestic -1%, international -29%) combined with several aeronautical service fees waiver for airlines. 
  • EBIT dropped by 30% yoy to VND1,378bn while financial revenues increased sharply by 27% yoy to VND545bn owing to the increased amount of short-term deposits. 
  • PBT remained high at VND1,927bn, though, dropped by 22% yoy. 

FY 20 outlook: Profit expected to bottom out by Q2 20 

Almost all flights have ceased operations since the government issued a temporary suspension on foreigners entering the country around mid-March as well as reducing the frequency of domestic flights at the beginning of April. Despite the limits on frequency in domestic flights being lifted recently, we believe that passenger volume will remain low in Q2 20 with an anticipated decline of 80% yoy. Thus, net sales is expected to drop by 90% yoy.  Since fixed costs account for the majority of the group's cost structure, we estimate that ACV will incur a loss of VND755bn in Q2 20. 

Thanks to a well-organised Covid-19 control programme, we assume that the virus will be partly contained by the end of Q2 not only in Vietnam but also in some other Asian countries like China, South Korea, followed by others in Q3. Therefore, we expect the government to gradually relax international flight restrictions from the end of Q2 before the aviation industry enters the peak summer season. Accordingly, the growth rate of passenger volume and, hence, profit will gradually recover from Q3 onwards. 

Valuation and recommendation 

While 2020 earnings will be unprecedentedly low due to the pandemic, 2021 profit growth rate is expected to be robust on the back of the upcoming resumptions of international flights. Looking further ahead, as the sole operator of 21 airports in Vietnam, ACV will be the main beneficiary in Vietnam's aviation and tourism industry in the long term. 

We set the target price at VND65,000/share, revised down by 23% from the previous target price in the 2020 Strategy Report as we factor in the negative effects of Covid-19 on the group’s business operations. ACV stock price has recovered more than 39% since the bottom set in late March 2020, following the positive progress of Covid-19 control in Vietnam, together with the lifting of the frequency limits for domestic flights. However, we believe the share price is likely to correct as the results of Q2 20 are announced. This will bring a good opportunity to Accumulate the stock.