Taseco owns the largest chain of airport retail stores in Vietnam, with a total of 108 stores covering all of Vietnam's key airports. 

Three major risks

Although Vietnam aviation has great opportunities to recover in the post-pandemic period, Mr. Nguyen Dzung, senior analyst at VNDirect, still sees three major risks that may negatively affect the aviation outlook.

First, in an already constrained global crude oil market, tensions between Russia and Ukraine exacerbated the situation, sending the Brent oil price to its highest level since 2008.Currently, there are many unpredictable factors that could keep oil prices high. Higher than expected oil prices lead to higher operating costs for the airlines, which may raise ticket prices and reduce air travel demand.

Second, China's "zero-COVID" strategy also negatively affects the recovery of Vietnam's aviation industry, as China accounted for 35% of international visitors to Vietnam in the pre-pandemic period. As long as China sticks to this strategy, VNDirect believes bilateral tourism between Vietnam and China will struggle to return to pre-pandemic levels.

Third, beside affecting current airlines’ business results and fleet expansion, the increase in the USD/VND exchange rate and rising USD interest rates may also affect aviation infrastructure investment borrowing in USD in the coming periods. In particular, ACV intends to borrow US$2.5bn for the megaproject Long Thanh international airport phase 1, for which ACV expects to disburse US$0.37bn, US$0.87bn, and US$1.26bn in 2022F, 2023F, and 2024F.

Why aviation stocks now?

The Vietnam aviation market has witnessed remarkable growth recently, offsetting the potential growth lost during the pandemic period. However, revenue from the domestic market is small; it is primarily derived from the international market (in the pre-pandemic period, revenue from the domestic market accounted for approximately 35% of total revenue, with the remainder derived from the international market).

Mr. Nguyen Dzung believes Vietnam's international air traffic will recover strongly from 4Q22F, leading to a strong recovery and the growth of businesses in the aviation industry. The recent decline in the aviation market has brought the stock prices of many aviation businesses to attractive valuation levels, considering attractive upsides and strong growth expectations in the coming periods.

VNDirect selects the best representatives of each segment with strong growth and strong catalysts in 2023–24F, including ACV and AST.

ACV is an interesting stock for long-term investment horizons, based on a solid recovery of business results in the coming years. For FY22F, ACV’s net profit may increase by 1003% to VND5,291bn thanks to the recovery of domestic tourism and financial income. For FY23F, thanks to the expected strong recovery of international passengers (218.5% yoy), ACV’s FY23F NP may increase 74% yoy to VND9,206bn.

In ACV’s audited consolidated financial statement, there were still two emphasized matters: (1) ACV has not yet obtained the decision about finalizing its equitization since its transformation into a joint stock company from competent authorities, and (2) ACV has not yet obtained the decision about approving the value of airfield assets from the Ministry of Transportation. Mr. Nguyen Dzung believes that when these problems are resolved, ACV will be wide open to listing on HSX in the future.

Furthermore, the government has authorized ACV to retain its profits until 2021 for reinvestment.At end-2020, ACV’s undistributed earnings were VND9,705bn, equivalent to a potential share dividend plan of 44% in 2022F. Mr. Nguyen Dzung believes this is a strong catalyst for ACV in the coming periods.

As for Taseco Air Services JSC (AST), this company owns the largest chain of airport retail stores in Vietnam, with a total of 108 stores covering all of Vietnam's key airports. Airport retail is also a business model with superb profitability thanks to the low price sensitivity of tourist consumers. AST has been put into warning status since 2021 as the company recorded a loss in net profit for two consecutive years, FY20-21. However, Mr. Nguyen Dzung expects AST’s net profit to increase to VND31bn in FY22F from the net loss of VND118bn in FY21 following domestic air traffic recovery and may grow 8.05 times to VND279bn (143.6% of pre-pandemic level) in FY23F thanks to the strong recovery of international air traffic.