Earnings Report /

Airports Corp: The worst is yet to come

  • 2019 – Earnings remained high.

  • FY2020 outlook – Profit is expected to bottom out by 2Q 2020.

  • We think shares will correct at 2Q 2020 results. This will bring a good entry point. TP: VND 65,000, ACCUMULATE.

Tung Do
Tung Do

Logistics, Aviation

Rong Viet
12 May 2020
Published byRong Viet

Net sales was VND 3,635 Bn (-18% YoY) due to a 11% decline in passenger volume in 1Q 2020 (domestic -1%, international -29%) combined with several aeronautical service fees waiver for airlines.

EBIT dropped by 30% YoY to VND 1,378 Bn while financial revenues increased sharply by 27% YoY to VND 545 Bn owing to the increased amount of short-term deposits.

PBT remained high at VND 1,927 Bn, though, dropped by 22% YoY.

FY2020 Outlook – Profit is expected to bottom out by 2Q 2020

Almost all flights have ceased operation since the government issued a temporary suspension on foreigners' entries around mid-March as well as reducing the frequency of domestic flights at the beginning of April. Despite the limits on domestic flights’ frequency was lifted recently, we believe that passenger volume will still remain at low levels in 2Q 2020 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 VND 755 Bn in 2Q 2020.

Thanks to well-organized pandemic control program, we assume that the COVID-19 will be partly contained by the end of 2Q not only in Vietnam but also in some other Asian countries like China, South Korea, followed by other countries in 3Q. Therefore, we expect the Government to gradually relax international flight restrictions from the end of 2Q before the aviation industry enters the peak summer season. Accordingly, the growth rate of passenger volume and, hence, profit will gradually recover from 3Q onward.

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 upcoming resumptions of international flights. Looking further, as the sole operator of 21 airports in Vietnam, ACV will be the main beneficiary of Vietnam's aviation and tourism industry in the long term.

The target price is set at VND 65,000 / share, revised down 23% from the previous target price in the 2020 Strategy Report as we factor in negative effects of COVID-19 on the group’s business operation. ACV stock price has recovered more than 39% since the bottom set in late March 2020 following the positive progress of disease control in Vietnam together with the lift of domestic flights’ frequency limits. However, we believe the share price is likely to correct as the results of 2Q 2020 are going to be announced. This will bring a good opportunity to ACCUMULATE the stock.