ACV – Welcome arrivals – Update

• ACV posted VND701bn in 1Q22 net profit (+2.5% yoy), marking the first quarter of core business returning to positive growth since FY20.
• We lower FY22-24F EPS by 14.1%-7.0% following the longer-than-previous expectation of China’s zero covid strategy.
• Reiterate Add with lower TP of VND114,000.

1Q22 results: core business returns to positive growth

Since the outbreak during Feb-Mar, ACV’s 1Q22 total pax decreased 11.0% yoy following the 12.5% yoy drop of domestic pax. Meanwhile, int’l pax surged 175.5% yoy, marking the resume of int’l flights. 1Q22 net revenue grew 10.8% yoy, coming in at 13.1% of our full year forecast. 1Q22 gross margin widened to 31.1% from that of 18.6% in 1Q21 regarding to 14.4% yoy reduction in D&A expenses. Thus, 1Q22 gross profit surged 85.0% yoy, marking the first quarter of core business returning to positive growth. 1Q22 financial income decreased 26.5% yoy as (1) lower investment yield (2) FX gain decreased 36.6% yoy (JPY depreciated 5.5% against VND in 1Q22 vs 6.5% in 1Q21). Consequently, ACV’s 1Q22 NP increased 2.5% yoy, fulfilling 11.6% of our full year forecast.

Solid domestic traffic recovery, more challenges for the return of int’l pax

We expect a surge in pax throughput in 2Q & 3Q22 thanks to summer travel and the Seagames. For domestic air travel, ACV throughput is forecasted to increase 160.4%/15.8% yoy in FY22F/FY23F, respectively, recovering 102.9%/111.7% of pre-pandemic levels. For int’l air travel, we see the recovery road is bumpier as China still maintains the zero-Covid policy while Vietnam ‘s major tourism markets, ie: Korea, Japan, Taiwan,… have not announced any signals of travel resume. In our base case, we expect the resume of Korea, Europe, Japan and the U.S tourism in 3Q22F, Taiwan and Russia in 4Q22F and China in 1Q23F. Thus, ACV int’l pax throughput is forecasted to recover 29.3% of pre-pandemic levels to 8.3m in FY22F, and then to grow 218.4%yoy/14.3% yoy in FY23/24F.

Fine-tune our FY22-24F earnings forecasts

We adjust the int’t pax throughput following the longer-than-previous expectation of China ‘s zero-covid policy, which leads to a downgrade of 14.1% – 7.0% in FY22-24F EPS. We expect FY22F pre-tax profit to increase 644% yoy to VND7,365bn thanks to the recovery of total pax throughput (+186.5% yoy) and the contribution of FX gain from JPY debt revaluation (VND1,196bn).

Reiterate Add with lower DCF-based TP of VND114,000

Potential re-rating catalysts include (1) int’l air traffic is fully re-opened, (2) dividend plan is announced, and (3) listing on the main bourse is approved. Downside risks include (1) uncertainties arising from China’s zero-covid, (2) a stronger-than-expected JPY vs VND, and (3) slower-than-expected construction of Long Thanh International Airport.

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