VJC – New hope on Long Thanh Int’l Airport ─ Update

• VJC‘s core net profit recorded a loss of VND3,663bn in FY20, better than our forecasts thanks to cost-cutting efforts.
• FY20 NP reached VND70bn, fulfilling only 72.9% of our forecast due to lower-than expected income from sale & lease-back (S&LB) business.
• Reiterate HOLD with a higher TP of VND143,100 following a more positive long-term growth prospect of Long Thanh Int’l Airport

Airline business is recovering better than expected

In 4Q20, VJC’s total flights fell 47.6% yoy to 19,003 flights but rose 25.1% qoq due to strong recovery of domestic traffic demand. Core revenue increased 14.3% qoq thanks to the 55.6% qoq surge in auxiliary & cargo revenue. VJC’s 4Q20 NP rose 85.2% yoy to VND995bn, in which core NP reached VND118bn, improving significantly on a qoq basis thanks to the auxiliary and cargo activities.

FY20 earnings fell short of our expectation due to S&LB business

For FY20, VJC’s total flights fell 44.3% yoy to 77,476 flights as international traffic has frozen since 2Q20, leading to a 64% yoy plunge in core revenue. VJC’s total pax dropped 39.8% yoy to 15m, of which domestic and international pax fell 17.1% yoy and 87.8% yoy, respectively. FY20 core NP recorded a loss of VND3,663bn, better than our forecasts thanks to cost-control efforts. S&LB posted VND3,124bn revenue, leading to VND70bn in FY20 net profit.

We delay the hope for international borders reopening

We think international flight may resume only from 3Q21F. Thus, we lower FY21-23F international pax forecasts by 34.7%-1.1%. Consequently, FY21-22F earnings were revised down by 55.9-10.6%. Thanks to the starting construction of Long Thanh International Airport (LTIA) on 05 Jan 2021, we believe the project will complete in 2025F, which is on schedule following the government’s master plan. Thereby, we lift VJC’s FY25-30F domestic/international pax CAGR assumption from 8%/12% p.a. in our previous forecast to 12%/15% p.a.

Reiterate HOLD and raise TP by 21.5% to VND143,100

We raise our DCF-based TP to reflect the following factors: (1) 4% pts/3% ptsincrease in FY25-30F domestic pax/ international pax CAGR, (2) 3.3% downward adjustment on total outstanding shares as the plan for selling treasury share hasn’t been finalized yet. An upside risk is stronger-than-expected international traffic recovery. Downside risks include: (1) longer-than-expected Covid-19 pandemic, (2) slower-than-expected aviation infrastructure construction and (3) higher-than-expected fuel price.

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