INITIATION 2-Mar-19 HVN (UPCOM) Rating OVERWEIGHT Airline Market price (VND) 42,2 1Y-Target price (VND) 64,1 1Y-price return (%) 51.9% 1Y-dividend yield (%) 2.3% 1Y-total return (%) 54.2% ' VND 5 4 4 35 3 3 25 2 2 15 1 1 5 3/218 6/218 9/218 12/218 3/219 Stock performance (%) YTD 1M 3M 12M Absolute 28% 1% 27% -4% Relative 15% 5% 17% 7% Source: Bloomberg, compared to VN-Index Stock Statistics 52-week range (VND) 2-Mar-19 28.k-44.7k Shares o/s (m) 1,418 Mkt cap (VND bn.) 59,852 Mkt cap ($m) 2,579 % Foreign owned 9% Est. free float (mn. shares) 71 3m avg. daily vol. (shares) 797,345 VND/USD 23,28 Index: VN-Index/HNX 1,7/11 Source: Bloomberg, KIS Ownership 2-Mar-19 State ownership 86.16% ANA Holding Inc. 8.77% Source: StoxPlus, KIS Mr. Bao H. Vo Price - Volume (+84 28) 3914 8585 - Ext: 146 bao.vh@kisvn.vn www.kisvn.vn ' shares Investment Ideas: Travel demand is still robust in 219 and 22: The domestic market, although continue to slowdown, is expected to remain robust in the next 3 years when the travel demand in North Asian routes will primarily boost the international one. Taming fuel price: Lower expected fuel price can be considered as a positive signal for airlines in 219 in both business results and valuation aspects when the pressure on profit margins could be eased noticeably. Potential market rebound: After the delay in 218, HVN s fleet capacity will be expanded noticeably with 17 narrowbody A321neo, 3 787-1 and 2 A35. This is essential for the airline to gain back its domestic market share and adequately handle the robust growth in regional hauls. The changes in the domestic market due to new entrants are estimated to be insignificant. Supports from the value chain: HVN and its subsidiaries and associates covers every node in Vietnam aviation s value chain. This will make HVN the first direct beneficiary from the booming of the industry. Potentials from State divestment: After listing on HSX on 2Q219, the divestment is also expected by HVN to happen within 219, which could give Vietnam s only full-service carrier long-term operation improvement and short-term enhance in valuation. Risks: Heavy swing of fuel price and FX rates Aviation safety risk Unexpected change in regional tourism policy Recommendation: Using 3Y-average regional EV/EBITDAR of 4. and our forecasts, we evaluate HVN share value at VND 64,1 at the end of 219; hence, with today (19/Mar/219) price of VND 42.2k, the total 1-year expected return is 54.2% (including 2.3% expected dividend yield). Therefore, we recommend OVERWEIGHT on HVN for 1-year investment period. VND bn. 216 217 218U 219E 22E Net revenue 7,89 82,951 96,821 117,344 135,458 Growth (%) 6% 18% 17% 21% 15% Net profit 2,15 2,659 2,533 2,982 3,75 Net margin (%) 3% 3% 3% 3% 3% EPS (bonus-adjusted, VND) 1,131 1,227 1,181 1,455 1,839 Growth (%) 227% 8% -4% 23% 26% ROE (%) (excl. minority) 15% 15% 13% 15% 16% Net debt/equity (%) 353% 225% 172% 96% 29% PER (x) 37.3 34.4 35.73 29.1 22.95 PBR (x) 2.86 2.67 2.87 2.52 2.17 EV/EBITDAR (x) 5.45 4.31 3.81 2.6 1.93 Dividend yield (%).76% 1.69% 2.35% 1.9% 1.9% 2-Mar-219 Page 1
1. Travel demand still robust in 219 1.1. Domestic market: stabilizing but not stall The growth of Vietnam domestic aviation market has slowed down significantly in terms of the number of passengers after a golden time from 213 to 217. In 218, the number of domestic air-passengers was estimated to be at 34.9 million (+12%YoY); moreover, the number of international passengers surpassed the domestic one and reached 37 million passengers (+18%YoY). Figure 1. Vietnam Air-Passenger (mil. passengers) 4 Domestics International 37 35 35 31 31 3 28 25 23 24 2 18 15 18 15 1 5 214 215 216 217 218E Source: IATA, CAPA, CAA, ASEANStats, VJC, HVN, KIS 29.5 Figure 2. Vietnam Air-Passenger (mil. passengers) 16 Total Air-Passenger (million) 15. Growth (%) 12 93.6 82.1 8 62.1 71.4 51.9 4 25.3 33.1 4.5 212 213 214 215 216 217 218E 219F 22F 235F Source: IATA, CAPA, CAA, ASEANStats, VJC, HVN, KIS 3% 25% 2% 15% 1% 5% % According to Vietjet s management (HOSE: VJC), the local airlines are exploiting all the domestic routes and the current feasible choice is lifting the flight frequency, in which the highly profitable ones already reached their near-peak frequency; thus, it is unlikely to replicate the robust growth in the past. Vietnam Airlines also shared that although it still expects a robust domestic demand, most of its new route establishment and frequency increases will be carried out in the international market. From statistics published by Civil Aviation Authority of Vietnam (CAAV), during the first two months of 219, the local airlines of Vietnam carried out 54,531 flights, +14%YoY. More specific, according to the data from Centre for Aviation (CAPA) and OAG, from 1/Jan/219 to 18/Mar/219, the number of total flight seats of Vietnam aviation was up 12%YoY, in which the domestic ones grew at 9%. CAPA expects that although the domestic market of Vietnam would be more into the mature phase in the coming years, with the upgraded air infrastructure in several new local tourism destinations in 2-tier cities (Can Tho, Phu Quoc, etc.), it could enjoy a growth rate of about 1% in the next 3-5 years before slowing down to the 1-digit growth rate in the longer term. 2-Mar-219 Page 2
Thousands seats Figure 3. Vietnam domestic seats 45, 4, 35, 3, 25, 2, 15, 1, 5, 28% Seat Seat Growth 18% 15% 14% 14% 1% 12% 212 213 214 215 216 217 218 3M218 3M219 3% 25% 2% 15% 1% 5% % Source: CAPA - Centre for Aviation, OAG, KIS *3M data was collected in the first 11 commencing weeks of the year. 3M.219 was from 1/Jan/219 to 18/Mar/219 1.2. North Asia will be the primary fuel for the international growth With the slowdown in the domestic market, the local airlines have turned to international routes since late 217. In 218, the regional expansion can be seen clearly with the low-cost carrier (LCC) Vietjet when 22/23 new established routes are international ones. The robust growth of international air-passengers was from the developing inbound tourism between Vietnam and North Asian countries such as China, Taiwan or South Korea, which contributed more than 5% total foreign visitors in 218. Figure 4. Foreign Visitors arrived Vietnam, 211-218E 2 3% Foreign tourists (mil. visitors) 26% 16 Growth % 15.6 19% 12 13. 14% 2% 8 1. 7.6 7.9 7.9 6.8 4 6. 11% 4% 1% 211 212 213 214 215 216 217 218E Source: GSO, KIS 35% 3% 25% 2% 15% 1% 5% % Figure 5. Visitors from China, S. Korea and Taiwan 15. 1. 5.. Source: GSO, KIS From China From S. Korea From Taiwan From other countries 5.88 4.69 4.61.39.85.44 1.11 1.95 1.78 5.26.62.51 2.42 1.54 5.33.56 2.16 4.1 2.7 3.59 5.75.65 3.16 4.56 214 215 216 217 11M217 11M218 In Dec 218, Korea announced to ease the visa regulation on Vietnamese visitors. Accordingly, from 219, Vietnamese visitors to Korea who permanently resident in 3 major cities of Vietnam (Hanoi, Ho Chi Minh City and Danang) will be eligible for a 5- year multiple-entry tourist visa. Additionally, after a short suspension of Kuan Hung visa (a special Taiwanese visa for Vietnamese tourists without presenting financial statements) following the disappearance of 152 Vietnamese tourists in Taiwan late last year, Taiwan decided to reinstate the special visa for Vietnam from March 2, 219. Although the regulations 2-Mar-219 Page 3
will be tightened, the resume of Kuan Hung would boost the number of Vietnamese tourists to Taiwan in specific, and contribute to the international growth. Consequently, we expect a growth rate in Vietnam air-passenger of 12-15% annually in 219 and 22. Additionally, North Asian short-hauls are also the 2 nd focus of HVN besides the domestic market; hence, the strong demand from the destinations could also fuel for HVN s growth. Figure 6. Vietnam international departing by country (seats) Figure 7. Vietnam Airlines International Seat capacity Others Russian Federation Cambodia Hong Kong Malaysia 3% 4% 14% 18% Japan China South Korea Cambodia Singapore Japan Taiwan Thailand China South Korea 4 8 12 4% 6% 7% 7% 9% 12% 16% Thailand Taiwan Singapore Australia Laos Hong Kong Thousands seats Source: CAPA, KIS; on the commencing week of 18-Mar-219 Source: CAPA, KIS; on the commencing week of 18-Mar-219 2. Taming fuel price As the uncertainty in behaviours of oil export/production countries and group (majorly the U.S, Russia and OPEC group), the price of Brent oil and JetA1 had a sharp hike in 1H218 before reaching the peak of USD 86.29/barrel in Oct 218. In average, the prices of Brent oil and JetA1 in 218 were at around USD 71.55/barrel (+3%YoY) and USD 82.97/barrel (+29%YoY) respectively. This surge caused a significant impact on the profit margin of all airlines, especially where airlines of Vietnam haven t had any specific fuel hedging plan. According to EIA, the average Brent oil price is forecasted to be around 61 USD/barrel in 219 (-17% YoY). Despite OPEC+ output cut agreement in 219, the massive production of US shale oil will effectively eat up OPEC+ agreement. Besides, concerns about the slow pace of global economic growth in 219 have led to a lower expected increase on oil demand. Hence, the outlooks of both demand supply sides are estimated to put a substantial pressure on oil price In the best scenario for airlines, we expect Brent oil price could drop to USD 6-7 per barrel; however, as this factor has relatively high uncertainty, we conservatively use the forecasted Brent oil and JetA1 of USD 73 and USD 85/barrel (+2%YoY) in our 219 estimation. 2-Mar-219 Page 4
5/214 8/214 11/214 2/215 5/215 8/215 11/215 2/216 5/216 8/216 11/216 2/217 5/217 8/217 11/217 2/218 5/218 8/218 11/218 2/219 Figure 8. Oil/Jet fuel price historical fluctuation (USD per barrel) 14 12 1 8 6 4 2 Brent Jet A1 Source: Bloomberg, KIS Nonetheless, as the expected fuel average price is lower, this can be considered as a positive signal for airlines in 219 in both business results and valuation aspects when the pressure on profit margins could be eased noticeably. 3. Potential market share rebound 3.1. Fleet capacity recovers from short-term stall In 218, the constrained in the fleet capacity could be considered as an essential cause of HVN s modest growth where almost all the operating figures remained the same with 217. As of Dec 218, HVN s fleet had 93 planes (1 plane less than in 217). According to HVN 218 delivery plan, HVN would have received 9-1 A321neo and 2 A35 from 1H218, but due to a delay in the Pratt & Whitney engine production, only received 3 A321neo on Nov and Dec 218 and 2 A35. Hence, the seat capacity of HVN s fleet was stalled in 218. Nonetheless, we expect this capacity shortage is only a short-term factor when the full-service carrier (FSC) will receive totally 22 airplanes in 219 and 4 ones in 22. In which, all 17 of booked A321neo jets are expected to be delivered to HVN throughout the year without any further delay. The estimated seat capacity of HVN s fleet will increase by 2% in 219 and 4% in 22 accordingly. 3.2. Potential rebound in domestic market share As the estimated seat capacity of HVN s fleet was almost reduced in 218 whereas the growth air-travel demand in Vietnam was still robust, the domestic market share of HVN was narrowed significantly from 42% in 217 to around 38% in 218. However, with the increase in the fleet s capacity, especially from A321neo jets, HVN will be able to adequately handle its primary focus: domestic market. We expect HVN s local market share would recover to 4-42% in 219. Furthermore, with 28 widebody models (787-9 and 787-1), Vietnam Airlines can be able to cautiously 2-Mar-219 Page 5
expand its operations to further destinations of North Asia region, especially to secure its market share in South Korea and Japan. 3.3. Support from the whole valuation chain Besides the trio-airline group of HVN: Vietnam Airlines (FSC), VASCO (which is changing its name to SkyViet) and Jetstar Pacific Airline (LCCs), the unique advantage of HVN comes from its subsidiaries and JVs/Associates. The list of HVN s direct subsidiaries and JVs as the end of 218 is as follows: Subsidiaries Ownership Business segment 217 Revenue 217 PBT Jetstar Pacific 69% Airlines N.A N.A Skypec 1% Fuel 2,768 321 VAECO 1% Aircraft maintenance 2,233 128 VACS 1% Air Caterers 826 172 VIAGS 1% Ground Services 1,857 167 NCT 55% Cargo Terminal 742 34 TCS 55% Cargo Terminal 815 515 TECS Express 51% Logistics 3 78 Vinako 65% Air forwarders 148 18 NCS 6% Air Caterers 616 15 NAS 51% Ground Services 42 2 VFT 52% Pilot Training 47 8 AITS 53% I.T services 193 9 Alsimexco 51% Labour Import/export 33 5 Sabre 52% I.T services 78 9 Source: HVN, KIS JVs/Associates Ownership Operation 217 Revenue 217 PBT VALC 32% Aircraft rental 1,945 65 Cambodia Angkor Air 49% Airlines N.A N.A MAS 36% Ground Services 297 49 Airimex 41% Import/Exports 255 1 Aplaco 3% Plastic production N.A N.A Source: HVN, KIS From the lists above, we can see that HVN s network of subsidiaries and JVs/Associates covers directly and indirectly every node in Vietnam aviation s value chain. On the one hand, this will make HVN the first direct beneficiary from the booming of the industry when not only the airlines of HVN can enjoy the growth in number of passengers but also other subsidiaries can have robust growth for the growth in the air traffics from HVN airlines and also from other competitors. On the other hand, as disclosed by HVN, Jetstar Pacific Airlines (JPA) has stopped occurring losses from 218 and is currently under a re-structuring process, which is expected to gain some profits from 219. Hence, the subsidiaries network will also give HVN more sustainable advantages in terms of profit margin, cash flows and financial aspect from 219 onwards. 2-Mar-219 Page 6
3.4. Insignificant domestic changes The domestic sky seems to be crowded with not only the rapid expansion of current players but also the newcomers: Bamboo Airways (a subsidiary of FLC Group HSX: FLC) started operation from 16/Jan/219 and an unnamed JV of AirAsia with Hai Au Aviation (expected to launch in 2H219, have not received any permit). Nonetheless, these new players could seize a part of the domestic market share, but the competition might not be significant due to: (1) Limited airports slots: the current dominants (Vietnam Airlines and Vietjet) are holding most of the slots in major airports and also highest flight frequency in the golden routes. Meanwhile, when the congestion is a headline issue in major hubs, there will be not many slots left for the newcomers. (2) Constraints in air infrastructure: as can be seen above, almost all the Vietnam aviation value chain is shared between HVN and Vietnam Airport Corporation (UpCOM: ACV). This is a unique advantage of HVN compare to other competitors when they only have limited supplier choices for ground and support services, which are also crucial for any airline. (3) Limited in fleets capacity: As of 18/Mar/219 The current fleet of 6 jets of Bamboo Airways and a potential fleet of 5-6 jets of AirAsia s JV seems to be incomparable to the current dominants (HVN with 91 in-service and 4 in-storage jets; VJC with 63 inservice and 1 in-storage one). Hence, in our opinion, Vietnam Airlines can remain its position in the domestic market as well as its bargaining power, which could help it pass a part of the input expenses (fuel price, rental rate, etc.). 4. Positive signals from the potential State Divestment As shared by HVN management, HVN is expected to be officially listed in HOSE/HSX within Q2.219 when the only required document left is the in-coming audited 218 financial statements. This transfer (from UpCOM to HOSE) is expected to increase the transparency and also prepare for the potential State divestment on Vietnam s only full-service carrier. Regarding the State divestment, HVN disclosed the current divestment scheme is that the State ownership will be reduced by (1) State sells a part of its stakes in HVN AND (2) HVN issues shares. The proposed scheme was submitted to the Commission for the Management of State Capital at Enterprises (CMSC) at the end of Feb/219 and is currently waiting for approvals of this office and Vietnam Prime Minister. Although it still needs a while before the official details can be released, the divestment is also expected by HVN to happen within 219. Beside the potential long-term operation improvement, this could also create a short-term boost for HVN s valuation in 219. 2-Mar-219 Page 7
5. Earnings projection & Valuation 5.1. Earnings projection Unit: VND bn. 217 218 219F 22F Assumption Net revenue 82,951 96,821 117,344 135,458 Sales Growth (%) 18% 17% 21% 15% From Vietnam Airlines & VASCO 63,967 71,552 86,718 1,15 From other subsidiaries 18,984 25,269 3,626 35,353 EBITDAR 21,26 22,143 28,6 31,5 EBITDAR margin (%) 26% 23% 24% 23% Aircraft rental cost 12,593 12,278 17,851 2, EBITDA 8,667 9,864 1,155 11,6 EBITDA Growth (%) -7% 14% 3% 8% Operating profit 3,475 4,842 5,133 5,983 EBIT Growth (%) -16% 39% 6% 17% Other profits / losses 1,31-394 -319-62 Profit / Loss from FX 138-822 -815-715 Profit from SLB 772 577 577 Net profit 2,659 2,533 2,982 3,75 NPAT Growth (%) 26% -5% 18% 26% 5.2. Valuation Expected number of passengers: 21% in 219 and 15% in 22 with the domestic market share recovered to 4% and 42% respectively and overall load factor remained at 81%. Pax. yield is expected to increased only 1%. Rental cost increase significantly due to higher number of operating leased aircraft and a higher rental rate (+1%) in 22 due to potential shortage in Boeing aircraft. JetA1 price used in the forecast is $85 and $87/barrel in 219 and 22. An expected increase of 2% in USDVND rate in 219 and 22 Source: HVN, KIS forecasts Using 3Y-average EV/EBITDAR of the regional peers of 4. and our forecasts above, we evaluate HVN share value at VND 61,4 at the end of 219; hence, with today (19/Mar/219) price of VND 42.2k, the total 1-year expected return is 54.2% (including 2.3% expected dividend yield). Therefore, we recommend OVERWEIGHT on HVN for 1-year investment period. VNDbn. 219F 22F Remarks EV/EBITDAR multiple (x) 4. 4. Regional peer 3Y-average Enterprise Value (A) 112,25 124,21 Minorities Interests (B) 71 97 Preferred share value (C) Net debt (D) 2,422 7,255 Equity Value E = A-B-C-D 9,893 115,859 Common outstanding shares (mil. shares) 1,418 1,418 Fair Price (VND) 64,1 81,7 1Y - Target Price (VND) 64,1 219 2-Mar-219 Page 8
1Y - price return (%) 51.9% 1Y- dividend yield (%) 2.3% 1Y-Expected return (%) 54.2% 219 5.3. Changes to recommendation and price target Date Recommendation Price target (VND) Consensus (VND) HVN 24-Dec-18 Overweight 49,4 42,6 16-Jul-18 Neutral 33,5 33,5 Comp. Estimates & Projections 6, 5, 4, 3, 2, 1, Mar/218 Jun/218 Sep/218 Dec/218 Mar/219 HVN Price KISVN 1Y- Target Price Source: Bloomberg, KIS 7. Risks 7.1. Significant swing of fuel price & FX rates As accounting for around 33% operating expense of Vietnam Airlines, a swing in the fuel price could cause directly and noticeably impacts on airlines profitability. On the other hand, as HVN has a significant exposure to FX risk; the FX loss also caused significant impact to the net profit of the airline. These factors are affected by many determinants (e.g. behaviors of major oil production countries, geopolitical situations, etc.) and contains a significant amount of uncertainty for prediction. As the fuel price and FX rates could deviate from the forecast in our estimations, we conducted a sensitivity analysis of HVN s expected NPAT in 219 with the JetA1 price from $7 to $85 per barrel and the change of USDVND rate from -1% to 3%. The results are as below: 2-Mar-219 Page 9
USDVND change (%) JetA1 (USD/Barrel) 7 75 8 83 85 9-1.% 6,866 5,897 4,928 4,347 3,96 2,991 -.5% 6,73 5,734 4,765 4,184 3,797 2,828.% 6,54 5,571 4,62 4,21 3,634 2,665.5% 6,377 5,48 4,439 3,858 3,471 2,52 1.% 6,214 5,245 4,277 3,695 3,38 2,339 1.5% 6,51 5,82 4,114 3,532 3,145 2,176 2.% 5,888 4,919 3,951 3,369 2,982 2,13 2.5% 5,725 4,756 3,788 3,26 2,819 1,85 3.% 5,562 4,593 3,625 3,43 2,656 1,687 7.2. Aviation safety risk The recent fatal crash of 737Max8 in Ethiopia once again posed the tremendous impact from safety risk to the aviation industry which can affect airlines in many aspects. One of the first issue is that as the aircraft (in this case Boeing 737Max variants) could be grounded on a global scale and cause (1) shortage (even in years if the plane order is cancelled) in airlines fleet capacity, which could decline their growth; (2) replacement for the cancelled or delayed orders could be costly for airlines as the recent limited available aircraft in the region. Regarding to the 737Max issue, HVN has not operated or ordered any 737Max jet for its fleet; hence, the downside impact for HVN in the following years could be an increase in its rental cost. 7.3. Regional Tourism policy Among factors could impact the tourist flows into North and South East Asian region, especially ones from/to Vietnam, the Custom and travel liberation regulations of countries in these regions, on the one hand, will affect significantly the potential growth of airlines of Vietnam. On the other hand, these changes are related to the geopolitical strategy of each pair of countries, which are uncontrollable to companies. 2-Mar-219 Page 1
Appendix Figure 9. Number of passengers of Vietnam Airlines 35 Total Number of passengers 3 Domestics 25 International 2 15 1 5 213 214 215 216 217 218 219F 22F Source: HVN, KIS Figure 1. Vietnam Domestic ASK by airlines (million) Bamboo Aiwaiys Jetstar Pacific Vietjet Vietnam Airlines 1 2 3 4 Source: CAPA, KIS as of commencing week of 18-Mar-219 Figure 11. HVN revenue breakdowns (VNDbn.) Figure 12. Fuel Price vs RASK-CASK Spread 12, 18% 17% 2% 8 1, 15% 6 8, 6% 1% 4 6, % 5% 2 4, -4% % 2, -5% -2-1% 213 214 215 216 217 218-4 Airline services Merchandise -6 Air-Support Services Others -8 29% 47.9 22% 21.5 56.1 29.6 2% 214 215 216 217 218 219F -8% -2.3-19% -42% RASK-CASK Spread (VND) Total revenue growth % -1-91.5 Change in JetA1 % 4% 3% 2% 1% % -1% -2% -3% -4% -5% Source: HVN, KIS Source: HVN, Bloomberg, KIS estimate Figure 13. Fleet of Vietnam Airlines 218 219 22 7 Seats 7 4 4 ATR72 7 4 4 15-18 seats 61 77 78 A321-2 58 57 57 A321neo 3 2 21 28-3 seats 25 28 31 A33-2 2 A35-9 12 14 14 787-9 11 11 11 787-1 3 6 Total 93 19 113 Source: HVN, CAPA, KIS 2-Mar-219 Page 11
Figure 14. Regional peer comparison Regional FSCs Country Market Cap (USD mn.) PER (x) EV/EBITDAR (x) 3Y-EV/EBITDAR (x) Fleet size (unit) LF (%) China Southern Airlines Co Ltd CHINA 13,619 1.3 7.6 6.1 754 82% Air China Ltd CHINA 19,662 13.3 7.6 5.9 655 81% Cathay Pacific Airways Ltd HONG KONG 6,645 22.3 5.2 6.9 212 84% China Eastern Airlines Corp Ltd CHINA 12,377 15. 8.6 7.5 637 81% Singapore Airlines Ltd SINGAPORE 8,69 17.6 3.8 3.5 186 81% Qantas Airways Ltd AUSTRALIA 6,52 1.9 3.8 3.4 313 83% ANA Holdings Inc. JAPAN 12,614 13.8 N.A. N.A. 292 74% Thai Airways International PCL THAILAND 834 N.A. 4.3 5.6 13 78% Japan Airlines Co Ltd JAPAN 12,311 1.8 N.A. N.A. 231 77% Hainan Airlines Holding Co Ltd CHINA 5,727 29.5 7. N.A. 41 86% Jet Airways India Ltd INDIA 392 N.A. 7.3 4.9 12 84% China Airlines Ltd TAIWAN 1,729 21.9 4.1 4.2 N.A. 8% Virgin Australia Holdings Ltd AUSTRALIA 1,141 N.A. 3.5 3.9 133 8% Air New Zealand Ltd NEW ZEALAND 1,812 8.5 3.8 3.5 16 83% Eva Airways Corp TAIWAN 2,324 1.6 3.5 3.5 N.A. 78% Garuda Indonesia Persero Tbk PT INDONESIA 1,11 N.A. 1.7 1.7 22 75% Average 15.4 5.1 4.7 Market Cap Weighted Average 14.1 4.7 4. Source: Bloomberg, KIS as of 18/Mar/219 2-Mar-219 Page 12
FINANCIALS MODEL Market Cap: VND 59,852bn. Unit: VND bn. 217 218U 219F 22F Net Revenue 82,951 96,821 117,344 135,458 Sales growth (%) 18% 17% 21% 15% From Vietnam Airlines & VASCO 63,967 71,552 86,718 1,15 From other subsidiaries 18,984 25,269 3,626 35,353 COGS 72,278 84,614 13,437 119,596 Gross margin (%) 13% 13% 12% 12% SG&A 7,198 7,365 8,773 9,879 EBITDAR 21,26 22,143 28,6 31,5 EBITDAR margin (%) 26% 23% 24% 23% Aircraft Rental cost 12,593 12,278 17,851 2, EBITDA 8,667 9,864 1,155 11,6 EBITDA margin (%) 1% 1% 9% 8% Depreciation & amortization 5,193 5,22 5,22 5,22 Operating profit 3,475 4,842 5,133 5,983 EBIT margin (%) 4% 5% 4% 4% Net interest expenses 1,351 1,29 1,87 676 As % of avg. net debt 3% 3% 4% 5% Interest cover (x) 2.6 4. 4.7 8.9 Other profits / losses 1,31-394 -319-62 Profit / Loss from FX 138-822 -815-715 Profit from SLB 772 577 577 Expenses related to longterm debts & leasing -291-634 -567-39 Tax 496 77 745 937 Effective tax rate (%) 16% 22% 2% 2% Net profit 2,659 2,533 2,982 3,75 Net margin (%) 3% 3% 3% 3% Minorities 289 251 171 197 Net attributable profit 2,371 2,282 2,811 3,553 Outstanding shares (mn) 1,228 1,418 1,418 1,418 EPS (bonus-adjusted, VND) 1,227 1,181 1,455 1,839 EPS growth (%) 8% -17% 23% 26% DPS (VND) 824 99 8 8 Payout ratio (%) 38% 52% 52% 52% EBITDAR = Net revenue (COGs -Depr n&amort n Rental Expense) SG&A expenses EBITDA = EBITDAR - Rental Expense EBIT = EBITDA Depr n&amort n Net interest expenses = interest expenses interest income Other profit/loss consists of other financial income/expenses, profit share from JVs/associates and other income/loss Payout ratio = Dividend paid / Net attributable profit BS & CF ITEMS (VNDbn) 217 218U 219F 22F Increase in WC -4,442 411-679 -1,32 Capex -7,118-1,342-2,347-2,559 Other cash flow items 299 831 831 831 Free cash flow 19,112 7,656 11,861 13,463 Share issues 63 839 839 839 Dividends paid 1,11 1,31 1,135 1,135 Increase in net debt -18,164-7,185-11,565-13,167 Net debt, end of year 39,172 31,987 2,422 7,255 Enterprise value 91,613 84,327 72,934 59,964 Total equity 17,433 18,67 21,293 24,747 Minority interests 639 538 71 97 Shareholder s equity 16,794 18,68 2,583 23,84 BVPS (VND, bonus-adjusted) 13,681 12,739 14,513 16,89 Net debt / equity (%) 225% 172% 96% 29% Net debt / EBITDA (x) 4.5 3.2 2..7 Total assets 88,55 82,182 73,33 63,59 Net debt = debts cash & equivalent Key ratios & Valuation 217 218 219F 22F ROE (%) (excl. minority interest) 15% 13% 15% 16% ROA (%) 3% 3% 4% 6% ROIC (%) 6% 6% 8% 12% WACC (%) 6% 7% 9% 12% PER (x) 34.4 35.7 29. 23. PBR (x) 2.7 2.9 2.5 2.2 PSR (x).6.5.4.4 EV/EBITDA (x) 1.6 8.5 7.2 5.4 EV/Sales (x) 1.1.9.6.4 Dividend yield (%) (bonus-adjusted) 1.7% 2.3% 1.9% 1.9% 2-Mar-219 Page 13
Contacts HCM City Head Office Level 3, TNR Tower 18-192 Nguyen Cong Tru St., District 1, HCM City Tel: (+84 28) 3914 8585 Fax: (+84 28) 3821 6898 Institutional Sales Ms. Uyen Lam Head of Institutional Sales (+84 28) 3914 8585 (x1444) uyen.lh@kisvn.vn 2-Mar-219 Page 14
Recommendation System OVERWEIGHT: where we believe prospective 12 months VND total return (including dividends) will be 15% or more. NEUTRAL: where we believe it will be -5% to 15%. UNDERWEIGHT: where we believe it will be -5% or less. Disclaimer This report has been issued by the KIS VN Securities Corporation (KIS) with the instructional contributions of KIS VN Securities Corporation whose employees are specified in the publication. This report is for information of its institutional and professional customers. This report is and should not be construed as an offer to sell or a solicitation of an offer to purchase or subscribe for any investment. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Investors are advised make their own financial decisions based on their independent financial advisors as they believe necessary and based on their particular circumstances such as their financial situation, investment objectives and other considerations. In preparing this report, we have relied upon and assumed the accuracy and completeness of all information available from public and other sources which we believe to be reliable, but which we have not independently verified. KIS makes no express or implied guarantee, representation or warranty and accepts no responsibility or liability as to the accuracy or completeness of such information. Opinions, estimates, and projections expressed are current opinions of the authors as of the original publication date appearing on this report only and the information, including the opinions contained herein, and are subject to change without notice. KIS and its affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, companies mentioned herein. Further, KIS and its affiliates, and/or their officers, directors and employees involved in the preparation or issuance of this report may, from time to time, have long or short positions in, and buy or sell, the securities, or derivatives (including options) thereof, of companies mentioned herein, or related securities or derivatives in a manner that may be consistent or inconsistent with this report and opinions expressed therein. As a result, investors should be aware that KIS and its affiliates and/or their officers, directors and employees may have a conflict of interest that could affect this report. This report shall not be copied, reproduced, distributed (in whole or in part) or disclosed by recipients to any other person without the express permission of KIS in writing. 2-Mar-219 Page 15