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Airport Corporation of Vietnam (ACV: UPCOM) BUY - 1Y Target Price: VND 58,500 Current Price: VND 46,900

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Airport Corporation of Vietnam (ACV: UPCOM) BUY - 1Y Target Price: VND 58,500 Current Price: VND 46,900 SSI – RESEARCH INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY Airport Corporation of Vietnam (ACV: UPCOM) BUY - 1Y Target Price: VND 58,500 Current price: VND 46,900 Kim Nguyen The first stage of growth [email protected] +84 8 3824 2897 ext. 2140 2016 business preview: 2016 GPM supported by encouraging sales volume and no maintenance expense 28 December 2016 ACV held an investor meeting on 15th December 2016. The followings are key INDUSTRIALS - VIETNAM takeaways from the meeting: Key figures The company announced estimated business results for 2016, which are quite Market cap (USD mn) 4,747 positive. ACV estimated 2016 net revenue of the parent company to achieve VND Market cap (VND bn) 107,988 13,393bn (+23% YoY) and PBT to achieve VND 4,079bn (+97% YoY). GPM is Outstanding shares (mn) 2,177 estimated to achieve 38%, a significant improvement from 23.6% in 2015. The 52W high/low (VND 1,000) 56/35.2 upbeat performance in earnings can be attributed to: Average 3M volume (share) N.a Average 3Mvalue (USD mn) N.a Sales volume growth. In 2016, ACV estimates total passenger volume through Average 3M value (VND bn) N.a its terminals to record 81.1mn passengers (+28% YoY and vs. 24% YoY in Foreign ownership (%) 3.19 2015), in which international passengers will total 23.9mn (+25% YoY) and State ownership (%) 95.4 domestic passengers are expected to reach 57.2mn passengers (+30% YoY). Management ownership (%) N.a The number of flights will reach 562K (+26% YoY). Cargo and parcel volume may record 1.035 mn tons (+6% YoY). As aeronautical revenue contributes more Stock performance than 80% to total revenue, the positive growth in sales volume fueled revenue growth in light of unchanged charging fees and high growth of international passengers with higher charging fees. Significant reduction of repair and maintenance expenses as accrued expenses. In 2016, ACV estimates maintenance and repair expense will be roughly VND 350bn, while it recorded VND 1,260bn in 2015(including VND 995bn in advance booking for maintenance as trade payables and roughly VND 260bn of other actual repair). As a result, 2016 GPM significantly expanded to 38% from 23.6% in 2015. Nevertheless, according to ACV, the company is Source: Bloomberg waiting for Ministry of Finance’s decision on whether ACV will continue to book Company Snapshot expenses for repair and maintenance in advance in 2017 (maximum amount will The parent company of Airports Corporation of Vietnam’s (ACV) predecessor was initially be VND 400bn) or it will record expenses on actual basis. founded in 1976 under the direct management and operation of the Civil Aviation Administration of Vietnam (CAAV) as Northern, Central and Southern Regional Airport Authority. ACV was incorporated following a merger of the Northern, Central and Southern Airport Corporation in 2012 by the Minister of Transport. It IPO-ed in November 2015 and was listed on UPCOM on 21st November 2016. Currently, ACV operates under a parent-subsidiary model and involves in managing and operating 22 civil airports in Vietnam. The company significantly expanded its operating capacity from 45 mil passengers per year in 2011 to more than 81 mil passengers per year in 2015. SSI.COM.VN Visit SSI Research on Bloomberg at SSIV <GO> Page 1 SSI – RESEARCH INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY ACV’s annual maintenance and repair expenses 2012 2013 2014 2015 2016E 2017E Advance booking for maintenance(VND bn) 995 995 995 995 200 400 Other repair(actual repair)(VND bn) 347 568 50 258 150 Source: ACV, SSI Research Note: ACV plans to record advance booking for maintenance and expenses of roughly VND 400bn in 2017, equal to average actual repair and maintenance expenses from 2012-2015 Impact from FX loss was similar to 2015. In the above estimated business results, ACV estimates FX loss on JPY dominated ODA loans of JPY 72bn will be VND 824bn (vs that of VND 641bn in 2015), implying a 6% appreciation of JPY against VND. If we were to exclude FX effects in 2015 and 2016, 2016 PBT of the parent company would increase by 81% YoY, reaching VND 4,903bn. ACV’s passenger volume from 2012-2016 ACV’s cargo volume from 2012-2016 90 40% 1,200 25% Passenger(million) Growth Cargos and Parcels(thousand tons) Growth 80 35% 34% 1,000 21% 20% 70 29% 30% 60 800 16% 25% 15% 24% 50 14% 600 20% 12% 40 17% 10% 15% 15% 30 400 10% 6% 20 5% 200 10 5% 0 0% 0 0% 2012 2013 2014 2015 2016E 2012 2013 2014 2015 2016E Source: ACV ACV’s Revenue breakdown by in 3Q16 ACV’s revenue Breakdown in 10M16 Non- aeronautical Retails LPC 9% 9% 13% Others 25% Non aeronautical 9% Aeronautical 82% PSC 48% ASC 5% Source: ACV Source: ACV Note: LPC-aircraft landing and parking charges, PSC- Passenger charges, ASC-Airport security charges SSI.COM.VN Visit SSI Research on Bloomberg at SSIV <GO> Page 2 SSI – RESEARCH INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY Expansion plan: 45% passenger designed capacity addition plan in 3 years from 2016-2019 Unlike Airports of Thailand PLC. (AOT TB) and Malaysia Airport Holdings Berhad (MAHB MK) which are currently in the second phase of growth (strong focus on enhancing non-aeronautical business), ACV is currently in the 1st phase of growth focusing more on aeronautical business (accounting for roughly 80% to revenue). ACV plans to strongly invest in infrastructure such as maintenance and upgrade maneuvering areas at the major airports such as TIA, NIA, DIA and Phu Quoc International Airport (PQIA) as well as expanding terminals in its airports to capture the incremental air travel demand in Vietnam. Overall, ACV’s total area of terminals is much smaller than its regional peers. For example, total terminal area in Tan Son Nhat is about 133,000sqm for serving actual capacity of 31mn pax in 2016 while that of Suvarnabhumi Airport is around 563,000sqm for serving actual capacity of 62mn pax in 2015 or that of roughly 700,000sqm in Kuala Lumpur International Airport for serving total 70mn passengers per year. As such, in the next 3 years, ACV will focus on expanding the airport terminals and apron in order to meet anticipated demand. At the meeting, ACV announced detailed capacity plans for the airports from 2016-2019 as follows: Firstly, from 2016 -2018, ACV will upgrade the maneuvering areas with total VND 6,247bn in CAPEX at NIA, TIA and PQIA. The CAPEX will be funded by the State Budget because ACV returned the maneuvering assets to the Government and lease back for operating post- privatization from 1st April, 2016. Therefore, in 2017, ACV will not record roughly VND 200bn in depreciation of the maneuvering assets. Nevertheless, ACV plans to pay leasing fees for these assets to the government of roughly VND 50bn per year as well as there will be new expansion projects which will commence operation in 2016-2017, ACV’s GPM will not be significantly impacted. Secondly, other expansion of the aprons and terminals will be funded by ACV’s own capital, targeting a total budget of VND 11,095bn from 2015-2018. Actual CAPEX for the period from 2016-2018 will be VND 8,698bn. In overall, ACV plans to invest approximately VND 8,698bn to increase its airports capacity from total designed capacity of 71.1 mn passengers in 2015 to 115 mn passengers in 2019, implying a CARG of 13%. Designed capacity of ACV’s airports from 2015-2019E Passenger(Million/year) Airport ACV’s CAPEX plans(VND bn) Capacity Utilization FY15 FY16 FY19 FY16 FY15-18 NIA 21 21 25 20.5 244 TIA 20 25 38 32.4 3,666 DIA 6 6 13 8.8 1,598 CRIA 1.6 2.5 10 4.2 1,150 Other airports 22.5 24.6 29 15.2 4,437 Total 71.1 79.1 115 81.1 11,095 Source: ACV, SSI Research Note: NIA- Noi Bai International Airport, TIA-Tan Son Nhat International Airport, DIA-Danang International Airport, CRIA- Cam Ranh International Airport Regarding TIA, The Ministry of Defense will transfer 21ha next to TIA to the MOT for expanding the airport’s apron. The Ministry of Transportation (MOT) and Vietnam Airlines are building the master plan but ACV will hold a majority stake in the project. Currently, the existing apron at TIA has 47 aircraft parking stands with 36,64ha; the additional 21ha is estimated to accommodate more than 16 parking stands. SSI.COM.VN Visit SSI Research on Bloomberg at SSIV <GO> Page 3 SSI – RESEARCH INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY Our thoughts: Although the CAPEX for expansion plan is significant, we think that the plan is a good catalyst for ACV because of following reasons: (1) Firstly, as of 3Q16, ACV had already accumulated significant cash on hand of VND 3,673bn and short-term investment of VND 12,333bn (short-term deposit). With EBITDA of more than VND 8,000bn a year (according to our estimates from 2017 onwards), ACV can fund the expansion plan without borrowing new debts. (2) Secondly, the expansion plan would not only upgrade total passenger capacity but also expand the commercial space which will boost ACV’s non-aeronautical revenue. ACV’s non-aeronautical revenue’s contribution to total revenue of 10% remains low compared with regional peers (vs that of 43% of AOT and 27% of MAHB). Therefore, non-aeronautical business still has room for growth. Possible increase in aeronautical charging fee in 2017 In August 2016, together with Civil Aviation Authority of Vietnam (CAAV), ACV proposed to the MOT to increase domestic passenger charge at 7 of the largest airports including TIA, NIA, DIA, CRIA, PQIA, Vinh International Airport and Phu Bai Airport.
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