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Aviation Sector – Fasten your seat belt and prepare for takeoff

Sector note 25/11/2021    565


  • We expect Vietnam aviation to strong recover from 2022F with government’s air traffic resumption plans and improving vaccination coverage.
  • It’s a good time to start to accumulate aviation stocks giving seeable strong leap on 2022-23F earnings growths.
  • Our top picks are ACV, VJC and SCS for their best representatives of each segment with strong growth and catalysts in endemic

Almost full preparation for skies reopening
Assuming a vaccination rate of 1,000,000 doses/day from now on as the vaccine supply is improving, we expect 45.5%/80.0% of Vietnam population will be fully vaccinated by 4Q21/1Q22, thereby, the goal of achieving herd immunity may be reached in 1Q22. With the improving vaccination coverage, the government targets a plan to gradually resume domestic air traffic in 4Q21 and come back to normal operations in 1Q22. With the int’ air traffic, the government has agreed on a pilot plan to welcome foreign tourists with vaccine passports to Phu Quoc, Ha Long, Hoi An, Nha Trang…, following the plan, Vietnam international air traffic may come back to normal operations since 3Q22.
Airport infrastructure investment to accelerate since 2022F
Beside the maintenance project in Tan Son Nhat International airport (TIA) and Noi Bai International Airport (NIA) to be finished in 1Q22, ACV is also preparing to start new projects in key international airports to expand the capacity including T3 Terminal in TIA and T2 expansion in NIA, which will resolve the immediate capacity shortage at these airports. Long Thanh International airport (LTIA) Phase 1 construction is still on track and will be the growth engine of Vietnam aviation industry from 2025F onwards. In addition, Ministry of Transportation (MOT) expects total private investment capital in 2021-2030 of VND141,193bn (equal to 5.1x times of private capital in the 2010-2020 period), which will open up new opportunities for private investors to engage deeply in aviation infrastructure segment. Given the infrastructure upgraded to free the bottleneck of capacity shortage and new airports to be developed until 2030F, the government expects country total pax throughput to increase by 14.1% p.a. in FY22-30F.
Time to keep an eye on aviation stocks
Overcoming the unprecedented pandemic in the history, business results of companies in the aviation industry were severely affected, leading to the underperformed price movement of aviation stocks compared to the Vn-index. However, looking to the future when the world as well as Vietnam will successfully control the pandemic, the aviation industry is forecasted to have a strong leap with total pax throughput to rise 193%/19% yoy in 2022-23F, resulting in strong recover and growth of aviation companies’ business results. Thus, we believe it’s a good time to start to accumulate aviation stocks for a medium-to-long-term investment prospect.
Our top picks are ACV, VJC, SCS
We like ACV, VJC, SCS, which are the best representatives of each segment with strong growth and strong catalysts in the post-Covid era. Downside risks include: (1) uncertainties from the pandemic leading to lower-than-expected domestic passenger throughput and slower-than-expected in resuming international traffic, (2) higher-than-expected fuel price leading to higher operating cost of the airlines, which may lift up ticket price and reduce air travel demand, and (3) imposing floor price for domestic flight tickets may eliminate cheap airfares and hinder plans to stimulate air travel and tourism of the government in the coming periods

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