AST- Further strengthen in 4Q22F – Update

• In 3Q22, AST posted VND13bn in NP vs. VND40bn net loss in 3Q21. 9M22 NP turned positive to VND5bn, fulfilling 18.3% of our FY22F forecast.
• We expect AST’s net profit to increase to VND30bn in FY22F from the net loss of VND118bn in FY21, and may grow 7.9 times to VND266bn in FY23F.
• Reiterate Add with DCF-based target price of VND85,700.

3Q22 results: earnings turned positive on brilliant domestic air traffic

3Q22 revenue hiked 96 times yoy, bringing 9M22 revenue to surge 207.1% yoy as (1) total pax through Vietnam airports hiked 73 times yoy in which domestic pax throughput hiked 87 times yoy while international pax hiked 35 times yoy, and (2) total stores increased 9.3% yoy from 108 stores to 118 stores. 3Q22 gross margin has returned to the pre-pandemic level of 53.1%, bringing 3Q22 gross profit to increase to VND98bn (vs. VND3bn gross loss in 3Q21). However, 3Q22 selling expenses surged 172.0% yoy mainly due to increasing labor cost and renting cost for the business recovery. As a result, 3Q22 NP reached VND13bn (vs. VND40bn net loss in 3Q21). In 9M22, AST recorded VND5bn in NP (vs. VND102bn net loss in 9M21), in-line and fulfilling 18.3% of our FY22F forecast.

Gathering strength from 4Q22

With strong financial health, AST will raise total number of retail stores to 120 in FY22F from 108 in FY21. Combined with the untied international travel as most countries have removed restrictions for tourists, we expect AST’s 4Q22F NP to follow the recovery momentum and may reach VND25bn, bringing AST’s 2022F NP to turn positive (VND30bn) in FY22F. In the coming years, we expect AST’s number of stores to increase at 5.3% CAGR in FY22-25F. With the strong recovery of Vietnam total pax in medium-term, we expect AST to strongly benefit from this with the same store sales to increase at a CAGR of 45.1% in FY22-25F. Thereby, we expect AST’s retail revenue to increase at 50.1% CAGR in FY22-25F. As a result, AST’s NP may surge 7.9 times yoy to VND266bn in FY23F when int’l air traffic recovers strongly, then grow at 5.8% CAGR in FY24-25F.

Reiterate ADD with a target price of VND85,700

We reiterate our Add rating on AST with unchanged DCF-based TP of VND85,700 on the mix of (1) we roll our DCF valuation to end-2022F, and (2) we revise up FY22F EPS by 4.7% but reduce FY23-24F EPS by 3.2%-2.7%. Re-rating catalysts include (1) international air traffic recovers strongly, (2) new stores opening and same-store sales grows strongly. Upside risk includes expanding business into new airports. Downside risks include (1) risk of delisting if FY22F net profit continues to be negative, (2) uncertainties from China’s zero-Covid policy, and (3) growing competition from the downtown duty-free retailing.

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