AST – The worst seems to be over – Initiation

• Taseco Air Services JSC (AST) owns the largest chain of airport retail stores in Vietnam, with 108 stores covering all of Vietnam key airports.
• We expect AST’s net profit to be back to growth trajectory from 2022F onwards following the recovery of Vietnam’s aviation industry.
• Initiate coverage on AST with an Add rating and TP of VND85,700.

Local key player in airport retail
AST has established the largest chain of airport retailing in Vietnam with a total of 108 stores covering Vietnam key airports. AST’s retailing chain outperforms its following rival, Southern Airport Services JSC (SAS) with an estimated 50 stores. Being able to offer comprehensive non-aeronautical and tourism services enhances AST’s competitiveness and makes it stand out distinctively, in our view.

Vietnam air travel is on the bumpy road to recover
We expect the domestic pax to increase 137.0% yoy in FY22F (103% of prepandemic level) with recovering travel demand. The domestic pax may continue to grow strongly by 15.8% yoy in FY23F before slowing down to 7.9%/8.3% yoy in FY24-25F. International tourism is the key to the recovery of Vietnam int’l air traffic in the coming periods. In our base case, air traffic between Vietnam and Southeast Asia countries will recover strongly from 2Q22F as the tourism promotion has been implemented, followed by Korea, Europe, Japan and the U.S in 3Q22F, Taiwan and Russia in 4Q22F and China in 1Q23F. In the base case, we expect Vietnam int’l pax to reach 12.2m pax in FY22F (29.3% of prepandemic level), and may increase 222.5%/11.7% yoy in FY23-24F.

Net profit to revert in FY22F and grow at 127.2% CAGR in 2023-25F
AST’s revenue may increase 363.2% in FY22F and increase at 47.9% CAGR in FY23-25F on the recovery of Vietnam aviation. With the contribution from financial income and affiliate income from VINACS, we expect AST’s net profit to revert to VND29bn in FY22F from the net loss of VND118bn in FY21, and may grow at 127.2% CAGR in FY23-25F.

Initiate coverage with an Add rating and target price (TP) of VNDD85,700
We initiate coverage on AST with an Add rating and the DCF-based TP of VND85,700. Re-rating catalysts include (1) international air traffic is fully re-opened, (2) higher-than-expected new stores growth and same stores sales growth, and (3) expanding business into new airports. Downside risks include (1) risk of delisting if FY22F net profit continues to be negative, (2) slower-than-expected international tourism recovery from Vietnam’s major markets, and (3) growing competition from the downtown duty free retailing.

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