VJC – The worst time may be behind – Update

• VJC’s 3Q20 net loss from core business narrowed down to VND968bn from VND1,479bn in 2Q20.
• We cut FY21F EPS forecast by 11.1% but increase FY22F EPS forecast by 7.1% to reflect our expectation of higher domestic traffic growth.
• Reiterate HOLD rating with higher DCF-based TP of VND117,800.

Air transport business to recover in 3Q20

VJC’s total flights fell 55.3% yoy to 15,190 flights in 3Q20, most of which are domestic flights with lower revenue per flight than international flights, leading to a 72.5% yoy drop in core revenue. VJC has no S&LB transactions in 3Q20 while it recorded VND836bn of S&LB gross profit in 3Q19, resulting in a net loss of VND971bn in 3Q20 (vs a NP of VND1,700bn in 3Q19). However, despite the Covid-19 outbreak in Da Nang in late-July, we saw a recovery in VJC’s 3Q20 business results. Due to domestic traffic recovery, 3Q20 total flights increased 10.1% qoq, leading to a 41.5% qoq hike in core revenue, which helped 3Q20 net loss from core business narrow to VND968bn from VND1,479bn in 2Q20.

S&LB, abnormal financial income and other income to save FY20F profit

In FY20F, we expect total pax volume to drop 40.4% yoy, of which outbound pax volume would plunge 87.7% yoy while inbound pax volume would drop 18.1% yoy. We envisage VJC’s revenue/NP from core business to drop 57.9% yoy /2,614% yoy to VND16,255bn/VND-4,099bn, but we expect S&LB transactions, abnormal financial and other income to boost FY20F NP to VND96bn.

FY21-22F outlook is enlightened by the vaccine announcement

As at 20 Nov 2020, six vaccines have been approved for early or limited use. Based on the positive signs from vaccine development, in FY21-22F, we expect outbound pax volume to soar 365% yoy/75% yoy, which equals to 57.3% /100.1% of the 2019 level, while inbound pax volume to grow 23.1% yoy/8.0% yoy, which equals to 100.8%/108.8% of the 2019 base. We expect FY21-22F net profit from core business to propel to VND182bn/VND879bn and S&LB transactions would help boost FY21-22F NP to VND3,169bn/VND4,652bn.

Reiterate HOLD as positive factors have been priced in

We raise our TP by 13.9% on the back of: (1) upward revision in FY22F EPS forecasts onwards following higher domestic traffic growth assumption and (2) we roll forward our DCF valuation to FY21F. Upside risk includes higher-than-expected international traffic recovery since FY21F. Downside risk includes (1) uncertainties arising from the pandemic and (2) higher-than-expected fuel price.

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