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ACV – LTIA phase 1 to catalyse revenue in FY26F – Update

Company Note 24/11/2020    347

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  • The prime minister assigned ACV as the main developer of Long Thanh International Airport (LTIA) phase 1.
  • We expect the US$4.3bn project to drive ACV’s revenue growth from 2026 onwards.
  • We reiterate our Add call with a higher TP of VND88,200 after taking the impact of LTIA into account from FY26 onwards.

Market price

Target price

Dividend yield

Recommendation

Sector

VND 74,500

VND 88,200

1.21%

ADD

Airports

3Q20 results were lower than our expectation

Airport Corporation of Vietnam’s (ACV) revenue fell 68% yoy in 3Q20 following a 21.3% yoy decline in total pax throughput. International flights were still frozen while domestic travel’s recovery was disrupted by the 2nd wave of Covid-19 in Jul-Aug 20. Thus, domestic pax throughput declined 31.6% yoy in 3Q20. NP fell 93.6% yoy to VND141bn in 3Q20, compared with a net loss of VND394bn in 2Q20. Net profit fell 76.8% yoy to VND1,369bn in 9M20, below at 56.4% of our full-year forecast.

LTIA officially put on the table

In Nov 2020, the Prime Minister assigned ACV as the main developer of Long Thanh International Airport phase 1. This US$15bn international airport is a mega project, with total capacity of 100m pax throughput and 5m tonnes cargo per annum. Phase 1 of the project can serve 25m pax throughput and 1.2m tonnes cargo per annum. The investment cost of phase 1 was estimated by ACV at about US$4.3bn (VND99,000bn). ACV expects to start construction of phase 1 in Dec 20 and complete it in FY25F. Our forecasts now include the impact of LTIA in terms of capex and revenue prospects.

Entering a peak capex cycle

ACV plans to fund LTIA phase 1 with US$1.5bn internally-generated funds and US$2.7bn of debt. Thus, we expect interest income to drop significantly to -44.3% CAGR in FY20-25F, which will hurt bottom line (interest income contributed 16%/17%/79% to FY18/19/20F’s pretax profit). We estimate ACV to raise about VND60,000bn via bank borrowings or bond issuance. This would increase the D/E ratio from 0.4x in FY20F to 1.3x in FY25F.

Reiterate Add with a higher DCF-based TP of VND88,200

We cut FY20-22F EPS forecasts by 9.0-22.8% to reflect lower traffic assumptions and lower net financial income. We lift our DCF-based TP to VND88,200 due to 1) lower total EBITDA of FY21-FY30F to factor in mid-term cash burn period, 2) WACC decreased from 12.56% to 8.9% to reflect higher debt/equity, and 3) increased LT growth rate from 4% to 4.5% to represent better growth potential after FY30F due to LTIA. Downside risks include 1) a longer-than-expected Covid-19 pandemic, 2) slower-than-expected construction of LTIA. Re-rating catalyst is faster than expected Covid-19 vaccine development and distribution.

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