Airport Corporation of Vietnam (ACV: UPCOM) PRELISTING REPORT Mai Anh Dinh [email protected] BUY - 1Y Target Price: VND 37,700 Kim Nguyen LISTING INFORMATION [email protected] +84 8 3824 2897 ext. 2140 ACV will list on UPCOM on 21st November, 2016 with the reference price of VND 25,000/share. The parent company IPO-ed in December 2015 with 77.8 18 November 2016 mn shares offered to the public, equivalent to 3.5% of total shares. Average winning price was VND14,344/share (see our IPO report). INDUSTRIALS - VIETNAM List of subsidiaries Key Figures Charter cap (USD mn) 96.5 Investment in % Name of Subsidiaries Core business Charter cap (VND bn) 21,.711 subsidiaries(VND bn) Stake Outstanding shares (mn) 2,177 Southern Airport Commercial 671 51.00% Management ownership (%) N.A Services JSC Service in airport Saigon Ground Service Ground service in State ownership (%) 95.4% 78 55.51% JSC airport Foreign ownership (%) 2.93% Noi Bai Aviation Fuel 66 60.00% Aviation Fuel Service JSC(NAFCO) Company Factsheet 13A 14A 15A Source: ACV (as at 30 September 2016) Revenue (USD, mn) 452 493 585 Net profit (USD, mn) 109 123 78 According to the privatization plan of the Government, ACV divested from Cam Total equity (USD, mn) 808 957 915 Ranh Aviation Commercial JSC in 2015 (from 51% ownership to 10%). The Total assets (USD, mn) 1,641 2,045 1,990 company continued to divest from the ownership of 55.5% in Saigon Ground th Net debt (USD, mn) 302 403 398 Service JSC (SGN: UPCOM) to 48% between 02-07 November 2016, making ROA (%) 7.1 6.7 4 it no longer a subsidiary and may record roughly VND 150bn in income from ROE (%) 14.4 14 8.5 the divestment in 4Q16 . SGN contributed roughly 5% and 5% to ACV’s revenue and net profit in 2015, respectively. Source: ACV SSI.COM.VN Visit SSI Research on Bloomberg at SSIV<GO> Page 1 Ownership structure 2.93% 0.34% 0.14% 1.18% Ministry of Transportation (MoT) ACV's Trade Union Foreign Institutions Local Institution Individual Investors 95.40% Source: ACV( as at 31 December 2015) In the privatization plan, ACV plans to sell a 20% stake to a strategic partner. 7% was sold to Aeroport de Paris (AdP) at the beginning of 2016. ACV and AdP is still negotiating on the remaining 13%. According to the updated regulation on SOE privatization, the State ownership in ACV will reduce from 75% to 65% in the coming time, detailed divestment plan is still not disclosed. Estimated free float is 4.6% BUSINESS UPDATE 1. Airport expansion plan ACV owns 22 airports in Vietnam. In 2015, overcapacity was mainly experienced at Tan Son Nhat International Airport (TSN) with 133%, reaching 26.5 mn passengers through terminals with designed capacity of 20 mn passengers per year, followed by Da Nang Airport with 6.7mn passengers, reaching 112% utilization in 2015. Noi Bai International Airport with 17.2 mn passengers achieved 69% of utilization thanks to the new Noi Bai Terminal 2 (commenced operation from the end of 2014). Amid overcapacity at TSN, ACV expanded the international terminal, increasing capacity by 25% and commenced operation from November 2016. This enables the airport to receive 25 mn passengers per year. Nevertheless, ACV expects that TSN may achieve more than 30 mn passengers in 2016, surpassing 20% of designed capacity. As the new Long Thanh Airport may not be ready until 2025, the Ministry of Transportation (MoT) recently guided for a plan of expanding TSN by another 60% in 2018 and 100% in 2020 in order to ease the bottleneck. Further detailed information is still not announced. SSI.COM.VN Visit SSI Research on Bloomberg at SSIV<GO> Page 2 In 9M16, ACV commenced operation on expansion projects of Tho Xuan Airport by 2x to 1.2mn passengers/year (Thanh Hoa province), Cat Bi International Airport by 4.6x to 4mn passengers/year (Hai Phong City) and Cam Ranh Airport (Nha Trang city) with total CAPEX of VND 4,433bn (including TSN and Phu Quoc International Airport). Long Thanh International Airport project has no new development since our IPO report. 2. Company’s business plan 2016 Consolidated business plan 2016P 2015 %YoY Net sales (VND bn) 14,860 13,173 +12.8% PBT (VND bn) 2,388 2,277 +4.8% PBT Margin 17% 17.3% -0.3% PBT/Charter capital 9.44% - - Dividend 5% - - ACV, SAS, SGN, NAFCO, SSI Research 3. 2015 and 3Q16 business updates Historical business performance Net sales EBITDA PBT Sales growth GPM EBITDA margin PBT growth PBT margin 14,000 100.0% 12,000 80.0% 10,000 60.0% 8,000 40.0% 6,000 20.0% VND bn VND 4,000 0.0% 2,000 -20.0% 0 -40.0% 2011 2012 2013 2014 2015 Source: ACV In the past 4 years, EBITDA grew at a 33% CAGR, driven by (1) average passenger growth of 25% per annum (2) establishment of Vietjet Air, a low cost carrier in 2012, and (3) Noi Bai Terminal 2 commenced operation at the end of 2014, increasing both passenger capacity and commercial area in 2015. SSI.COM.VN Visit SSI Research on Bloomberg at SSIV<GO> Page 3 Historical passenger through terminal Historical Cargo volume Passenger Growth Freight Growth 70 40% 1200 35% 35% 60 1000 30% 30% 50 25% 800 25% 40 20% 20% 600 30 15% 15% 400 20 tons Thousand 10% Mn Passengers Mn 10% 200 10 5% 5% - 0% 0 0% Source: ACV, Civil Aviation Authority of Vietnam(CAAV) 3Q16 business update In 3Q16, ACV reported VND 4,060bn in net revenue (+5% QoQ) and VND 804bn in net income (vs a loss of VND 16bn in 2Q16). The company recorded VND 267bn in FX loss due to 1.9% appreciation of JPY against VND on JPY dominated ODA loan of JPY72 bn (~USD 713mn as at 30 September 2016) (vs a loss of VND 1,379 bn amid 9.5% appreciation of JPY against VND in 2Q16). If excluding FX effects, 3Q16 PBT would decline by 9.6% QoQ. Accumulatively, for 2 quarters from 04 April 2016 to 30 September 2016, net revenue achieved VND 7,919bn, completing 53.3% of 2016 target and PBT achieved VND 968bn, completing 40.5% of 2016 target. In total, ACV recorded a significant FX loss of VND 1,646bn (vs a loss of VND 705bn for entire 2015). ACV only announced 2016 quarterly business results without 2015 figures; therefore, we are lack of absolute numbers for YoY comparison. We believe that the actual YoY growth of 2016 revenue is encouraging thanks to increasing passengers, cargo and commercial flight growth reported in 9M16. In 9M16, total passengers through ACV’s terminals reached 70.5mn, increasing 29.6% YoY and completing 80% of 2016 target. 2 largest airports totaled roughly 55mn passengers, equivalent to 78% of total passenger traffic. International passengers reached 17.5 mn, increasing 25.2% YoY and domestic passengers recorded 43mn, up 31.5% YoY. Cargo and parcels totaled 765.7 mn tons, increasing 6.9% YoY (~ 69.4% 2016 target). Commercial flights were 417.8K flights, up 25.9% YoY (~79% of 2016 target). GPM of international business is higher than domestic one thanks to higher charging fees of roughly 2.5x-6.4x. SSI.COM.VN Visit SSI Research on Bloomberg at SSIV<GO> Page 4 OUTLOOK 22% passenger capacity addition plan by 2020 According to IPO plans, ACV planned to increase total designed capacity by 22%, receiving 90.8 mn passengers by 2020. Especially, because TSN and Noi Bai International Airport contribute roughly 50% to ACV’s total revenue, expansion of TSN as above mentioned and the new Terminal 2 in Noi Bai Airport Airport will enable ACV to enjoy clear earnings growth driven not only by passenger growth but also non- aeronautical revenue growth over the next 5 years. Possible increases in domestic aeronautical charge from 01 January 2017 In August 2016, ACV coupled with Civil Aviation Authority of Vietnam CAAV proposed to the MoT to increase domestic passenger charge at 7 airports including TSN, Noi Bai, Da Nang, Cam Ranh, Phu Quoc, Vinh and Phu Bai Airport since 01 January 2017. Specifically, domestic passenger charge may increase by 43% (from VND 70K/pax to VND 100K/pax) and domestic landing charge may increase by 43% and equivalent to 50% of international flights. In 2015, total passengers of those 7 airports accounted for 90% of total passengers, and domestic passenger charges accounted for roughly 40% of net revenue. According to ACV, this may be approved by the MoT as CAPEX for international terminals and airports are similar to domestic ones yet current domestic charging fee is lower by roughly 2.5x-6.4x compared with international ones. This will help improve GPM of domestic segment of ACV, which enjoy higher growth rate than the international segment. Vietnam is ranked as the 5th fastest growing market in terms of additional passengers per year and the 7th fastest growing industry in percentage terms from 2016-2035 by the International Air Transport Association (IATA). According to the most updated forecast by IATA, forecasted passenger numbers of world aviation is expected to reach 7.2 billion in 2035 with a 3.7% annual CAGR, roughly doubling the 3.8 bn air travelers in 2016. IATA also projects overall Vietnam aviation will continue to grow at an annual rate of 7.3%, being the 7th fastest growing market in terms of percentage.