VJC – Good entry point for an upcoming recovery – Update

• VJC posted VND123bn in 1Q21 net profit, completing 9.1% of our FY21F forecast as the Covid-19 outbreak since Tet hit harder than expected.
• Lower target price (TP) by 3.5% to VND138,900 to reflect the negative effects of recent Covid-19 outbreak on VJC’s FY21 results.
• We upgrade to Add as VJC’s share price decline opens up an opportunity to accumulate for the inevitable recovery from 2022F onwards

1Q21 net profit saved by sell & lease-back (S&LB) and financial activities
In 1Q21, VJC total flights fell 31.7% yoy due to the absence of international flights, leading to the 63.3% yoy plunge in core revenue. VJC had one S&LB transaction with a gross margin (GM) of 26.7%, which narrowed gross loss to VND1,014bn. However, thanks to (1) the 154.3% yoy surge in financial income due to transferring real estate projects and (2) the 87.9% yoy decrease in financial expenses due to the provision reversal of VND115bn in PV Oil investment, VJC recorded net profit of VND123bn in 1Q21.

Asset liquidation and financial activities to improve financial health
With the additional cash flow of VND3,708bn from selling treasury shares and transferring real estate projects estimated to be collected in 2Q21F, we believe VJC’s liquidity and financial health will improve, which will help VJC stay strong through the pandemic and continue to expand its fleet when the time comes.

Inevitable recovery ahead
We believe Vietnam can re-open the international skies by end-3Q21 as expected. Hence, we forecast FY21F international passengers might be the same as in FY20 and jump significantly in FY22F with a volume growth of 650% yoy while domestic passengers would increase 10.0%/19.4% yoy in FY21-22F. As a result, we expect total ASK (Available seat kilometers) capacity to increase 2.9%/99.5% yoy in FY21-22F.

Earnings forecast revision
We lower FY21F EPS by 15.3% and lower FY22-23F EPS by 6.5%/5.5% to reflect: (1) 9.5% lower in FY21F domestic pax as the current Covid-19 outbreak would reduce domestic air travel demand in FY21, (2) 67.2% lower in FY21F international pax in FY21F and 7.2%/0.8% lower in FY22-23F as Vietnam is getting vaccines slower, (3) 11.8% pts expanding in S&LB GM to 26.7% in FY21F, equivalent to S&LB GM in 1Q21, and (4) 3.3% upward adjustment in total outstanding shares as VJC has sold its treasury shares in Apr-2021.

Upgrade to Add with lower TP of VND138,900

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