Initiation of Coverage: ACV — Better to be careful than reckless

Hold-Underperform

Target price: VND 76,400

Upside: 0%

What’s new?

• Aero revenues are cruising at high altitude.
• Non-aero income has been cleared for takeoff.
• But the potential delisting puts the entire flight at risk of cancellation.
• Ultimately, this risk overwhelms our positive fundamental view.

Aero revenues are flying. ACV’s aero revenues, which comprise c. 80% of total revenues, have posted attractive CAGR of 24% in FY14-18, supported by strong growth in passenger throughput. Surging traffic and a potential increase in the regulated passenger service charge support confidence in an extended growth runway for this business.

Non-aero income has been cleared for takeoff. By focusing on large scale airports, ACV should leverage economies of scale to strengthen non-aero sales. Probable increases in rental rates are supported by strong demand and should improve this segment’s performance further.

Short-term headwinds are a worry. Unfortunately, the state’s buyback proposal presents the risk that the shares may not be publicly traded for much longer. Also, major runway overhauls that we expect to commence in 2H20 could be a drag on next year’s results.

Yuanta vs consensus. We are in line with the Street’s view on FY19 results but more cautious on FY20-21E. This could be due to our flat YoY PAX growth assumption for 2020E, and we also believe current facility capacity limitations will hinder business growth until FY22E.

We prefer our pilots to be pessimists, not optimists. Investability, a concern for all UPCom-traded shares, is especially acute for ACV given the potential for the tiny free float to be repurchased by the government.

We thus initiate with Hold-Underperform and set our target price in line with the current market level. Our fair value estimate of VND 86,000 implies 13.4% 12-month total shareholder returns (TSR), but the fundamental story may be superfluous amid the stock’s potential removal from UPCom trading. We might change our investment view on ACV if the authorities decide against proceeding with this plan.

Please access the link for our complete report: ACV_Initiation_edited_final

Analyst: Quang Vo, quang.vo@yuanta.com.vn