ANALYSIS BANKING UNIVERSITY STUDENT RESEARCH VietJet Aviation Joint Stock Company FINANCIAL ANALYSIS TEAM ANALYSIS TEAM ANALYSIS 5 LECTURER TRAN MINH TAM CLASS D04 NHI Ho Chi Minh, December 2021 Ticker VJC Recommendation BUY Stock Exchange (HOSE) Sector Industrials Industry Airlines HIGHLIGHTS We issue a BUY recommendation on VJC Our recommendation lays on the following key catalysts VJC has strong comparative advantages and posses a valuable opportunity for prosperous development VJC is a fai.
Trang 1BANKING UNIVERSITY STUDENT RESEARCH
VietJet Aviation Joint Stock Company
FINANCIAL
ANALYSIS
TEAM ANALYSIS
TEAM ANALYSIS 5 LECTURER: TRAN MINH TAM
CLASS: D04
NHI
Ho Chi Minh, December 2021
Trang 2HIGHLIGHTS
We issue a BUY recommendation on VJC.
Our recommendation lays on the following key catalysts:
VJC has strong comparative advantages and posses a valuable opportunity for prosperous development
VJC is " a fairy tale" in the aviation industry of Vietnam Started in 12/2011, VJC has grown rapidly in a short time.
Firstly, Having strong capacity expansion in international routes From 2017, VJC will open new international routes within a radius 2,500 nautical miles Its strategic markets will be ASEAN and Northeast Asia including Taiwan, Hong Kong, Mainland China, Korea, and Japan.
Secondly, Passenger yields will continue rise Domestic market will rise in 2017-2019 VJC's positive passenger growth mainly comes from seizing market share from its competitors and passengers from other traditional transportation methods.
VJC has steadily improved the cost efficient managenent.
EBIT in 2014 was 476,742 million, EBIT in 2015 was 778,780 million and EBIT in 2016 was 1,802,622 million EBIT increased from 2014 to 2016.
Total revenues growth increase rapidly, total revenue was 6,939,316 million, 11,012,896 million, 15,883,566 million from 2014 to 2016.
Profitability has improved and was remained high for almost ratios.
In 2014, 2015 and 2016, ROE of the company is higher than the industry average ROE of 30%, showing a very good use of equity compared to peers.
OPERATING
60 FLIGHT ROUTESIncluding 37 Domestic Routes and 23
International Routes (2016)
Flight network development
40 30 20 10 0
Stock Exchange: (HOSE) Sector: Industrials
Industry: Airlines
Financial Data
In VND billion 2014 2015 2016
Total liabilities/ Total asset 87.90% 86.80% 83.40%
Trang 3Company profile
Company's name: VIETJET AVIATION JOINT STOCK COMPANY
Stock code: VJC Listed floor : HOSE Business code No: 102325399 Head Office: Block 1, Apartment 2C, Van Phuc Diplomatic corps, Ngoc Khanh Ward, Ba Dinh District, Hanoi, Vietnam
Fax : (84-4) 3728 1838 Website: www.vietjetair.com Capital: VND 3.000.000.000.000 (Three trillion Vietnam dong)
BUSINESS DESCRIPTION
Madam Nguyen Thanh Ha
Chairman of the Board of Directors of VietJet JSC
VJC is one of two low cost carriers (LCCs) and the only private-owned carrier in Vietnam The company was established on 23rd July 2007, and commenced the first commercial flight on 24th December 2011 with the Ho Chi Minh City - Hanoi route Total passengers served by VJC reached 14.05 mn pax in 2016 after 4 years of operation, representing a CAGR of 64.51% since 2013 As of 31 Dec 2016, VJC operates a fleet of 41 aircraft, in which 19 aircraft are funded by SLB and 1 aircraft is owned by the company via financial lease Other aircraft include 15 dry leases and 6 wet leases The airline owns an intensive network, with 37 domestic routes and 23 international routes VJC achieved a domestic market share of 40.8% in 2016, an increase from 37.1% in 2015, with the metric based on total passengers boarding domestically via Vietnam-based airlines, according to Civil Aviation Authority of Vietnam (CAAV)’s report.
Trang 4FIGURE 1 : Ownership Structures
Government of Singapore (GIC)
Shareholder's structure
In December 2016, Mrs Nguyen Thi Phuong Thao, the CEO successfully sold about 39 mn shares to the public at VND 84,600/share to institutional investors and VND 86,400/share for individual investors Following afterwards in 1Q17, VJC successfully conducted a private placement consisting of roughly 22.4 mn shares
at VND VND 84,600/share to Sunflower Sunny Investment Ltd Co, of which Mrs Nguyen Thi Phuong Thao is the CEO, as part of commitment
to the above-mentioned institutional investors in order to fund the company expansion.
Source: VJC's data
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Trang 5FIGURE 2 : Flight network development
Advertisement to trade real estate, land-use rights owned by owner, user or leaseholder (to invest in housing or building, construction projects for sale, lease and lease/purchase; to invest in improving land and invest in infrastructure on leased land in order to lease the infrastructure, including land).
Other means of transport by road supporting services relating to tourism promotion and tour arrangement.
Construction of other civil engineering projects (to construct and exploit facilities for aircraft maintenance; to construct and exploit flight operation center; to construct and exploit facilities for airport terminals).
Other education services (to offer practical training for pilots, technicians and engineers and other professional staff).
To transport passengers by air (to transport by air; to transport inbound and outbound passengers by air).
To transport goods by air (to deliver regular public goods transportation services, domestically and internationally) Direct supporting services for air transport (ground operation services include passenger service, maintenance service, cleaning and other services for aircraft parking at the terminal, technical support services, catering services, scheduled and unscheduled aircraft maintenance service; aircraft spare parts supply service; aircraft refuelling services).
Other supporting services (to operate large capacity aircraft, general aviation aircraft, on land and water; to operate leased aircraft).
General wholesale (to trade Duty-Free goods) act as agents, brokers, auctions (to be an agent for machinery, industrial equipment, ships, aircraft).
To lease machinery, equipment and other tangible assets (to lease aviation transport equipment with pilot: aircraft).
Sales and leaseback business model adoption
"SLB- Sale and leaseback" is a popular business in aviation industry and is especially used by low-cost carriers (LCCs) to expand the fleet, such as Indigo (India), Virgin Australia or Norwegian (Norwegian) Accordingly, VJC purchases new aircraft in large orders at steep discounts in order to sell the units to leasing companies at more favorable prices and then in turn leases those aircraft back Leasing fees and term commitments are fixed over the leasing period of 6-12 years and non-cancellable.
In this way, VJC can use new aircraft at a much lower cost than used aircraft Keeping young fleet which helps save operation cost, including the heavy D-check.
However, with the expansion of the fleet by way of sale and leaseback, the cost of renting a plane has also increased steadily over the years By 2014, the cost of this activity was reported to be 1.046 trillion VND, up to
3.575 trillion VND by 2016 In addition, another risk is due to the hiring of aircraft that will suffer the world Operational limitations, such as only flying and landing at certain locations.
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Trang 7MACRO ANALYSIS
Source: GSO, VCBS
FIGURE 5 : The Revenue from oil in the state
budget and Global oil prices
Source: CafeF
GDP growthAccording to CAPA, the moment Vietjet entered the market is extremely perfect "The company started operating as soon as Vietnam was on the path of economic growth The country's GDP has risen at least 5% a year since Vietjet's launch and has reached more than 6% in 2015 and 2016 " the CAPA report said.
Vietnam has become one of the fastest growing markets in Asia and in the world The domestic market has grown from 12 million passengers in
2012 to 18 million passengers by 2016 The average growth rate has reached an astonishing number, exceeding 30% a year Contribute a considerable part of our GDP.
Oil priceAfter falling, crude oil prices continued to improve, although generally remained moderate Oil supplies fell, mainly due to OPEC's commitment to cut output and the US shale oil companies reduced their operations Meanwhile, demand continues to rise In the coming time, crude oil prices are forecast to continue decreasing.
When oil prices fall, the shipping sector is benefited most as it is the biggest buyer of gasoline For the aviation industry, falling oil prices will help lower input costs and lower freight rates Exchange rate
Approximately 70% of the cost of airfreight in foreign currency in the context of high USD / VND exchange rate Meanwhile, local sales were measured in VND at ceiling prices.
On January 4, 2016, the State Bank of Vietnam officially switched to a new exchange rate regime, FIGURE 6 : USD/VND exchange rate where the ratio was anchored on three criteria: the
Trang 8supply and demand of VND, the exchange rate and any
changes Balance the macroecon omic
situation.Rate
Pressure
of raising deposit interest rates is not high While the mobilizing interest rate
remained relatively stable, the lending interest rate was adjusted downward, according
to the policy of reducing the
working interest rate by 0.25%, together with
solutions
to support interest rates for some sectors.
Trang 9FIGURE 7 : Interest rate for deposit and loan
A month or less contract Three month contract Over twelve month contract
Government As of 20/09/2017, credit growth reached 11.02% compared with December
2016, higher than the same period last year (2015: 10,8%; 2016: 10,5%).
Reducing interest rate helps to reduce the cost burden for businesses, especially the aviation industry For VJC, reducing interest rate reduces cost and accords to business model This will reduce the cost of products and services to help promote aviation and economic growth.
Inflation
FIGURE 8: Inflation and core inflation
Source: General statistics office of Vietnam
After a plunge since the beginning of the year, headline inflation rebounded in August and September due to the increase in food and food stuff prices In detail, the Consumer price index (CPI) growth increased from 2.52% in July to 3.35% and 3.4% (yoy) respectively in the next two months Pressures on inflation mainly resulted from the increase in the public service price as well as the adjustments in petrol price in the quarter In detail, in terms of health service price,
in August and September there were 20 provinces conducting price adjustment in health services for those who did not register to health insurance, with an increase of 29.01% compared to December 2016 and 58.08% compared to September 2016 In terms of education service, 5 provinces and 41 municipalities implemented tuition fee adjustments in August and September.
By the end of September, the price of education service had rose by 7.92% over December 2016 and 8.65% (yoy).
At the same time, transportation price followed an upward trend after several adjustments in the quarter with a rate of 5.7% in September and 6.7%
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Trang 10FIGURE 10 : International tourists
Source: UNWTO World Tourism Organization
FIGURE 11 : Top 5 Fastest growing aviation
Source: IATA
FIGURE 12 : Passenger traffic by air (mill)
Analysis of the aviation industry in the Pacific and South-East Asia
In 2016, according to the report of the ICAO Pacific to maintain is the area constitute the largest rate is 33% of the total passenger traffic, an increase 10.2% and the 2nd level with 29% market share, RPKs growth of 9.5% compared to the year 2015.
Asia-Aviation industry in Southeast Asia is one of the fastest growing regions in the Asia-Pacific where the population, strong development of tourism in the countries of South East Asia liberalization policies and the opening of the regional aviation market.
The low-cost aviation type LCC in South East Asia flourished with fast growth in the past decade The regional market is very potential for low-cost airlines due to the income per capita is still low.
Status of aviation in VietnamVietnam's fast-growing aviation market in the world in the third period from 2001 - 2014 with the increase averaging 16.6% Currently, Vietnam is one of 5 countries in Asia have the most powerful growth According to the Vietnam Civil Aviation Administration (CAA), passenger transport by air of Vietnam reached the 5-year growth was 5.1% and reached 81 million passengers in the year 2016, of which 57 million hotel Port of Vietnam Aviation Corporation (ACV) estimated the year 2017 Vietnam will reach 91 million passengers moved by air (+ 12.3%), in which the 70.3% were domestic passengers (64 million).
Travel by plane per capital in Vietnam is basically still low compared to other developed countries and other developing countries in the region This shows that our country's aviation market has great potential With a GDP per capital of Vietnam is lower, reaching 2.053USD compared with the average of the 9.159USD ASEAN in 2014, Vietnam has the opportunity to develop the aviation industry
as per capital income increases.
Source: CAA and ACV General
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Trang 12Threats of the aviation sector in Vietnam.
New competitors
Southeast Asian leading airline groups, AirAsia and Lion, are both aiming to launch new affiliates in Vietnam Besides, another proposed Vietnamese start-up, VietStar, already has a business licence and is preparing to launch services in late 2017 or 2018 Any start-up activity
in Vietnam’s domestic market would lead to overcapacity, pressuring already weak yields.
VietJet is the market leader domestically, giving it a huge competitive advantage However, AirAsia and Lion are much bigger in the broader Southeast Asian market and have the ability to put a lot of resources into a new JV They are also extremely aggressive competitors.
The Vietnamese market may not be able to support a new start-up – certainly not two start-ups.
If the AirAsia group succeeds at launching Vietnam AirAsia, and Lion group succeeds at launching Batik Vietnam, a blood bath will likely ensue.
An upgrade project at Ho Chi Minh has started, which could increase the airport’s capacity to 40 million passengers However, there is a limited footprint, and Ho Chi Minh will eventually require
a new airport A new airport further from the city centre is being designed to handle 100 million annual passengers eventually, but a contract for the first phase has not yet been awarded It will
be at least eight years before the first phase is completed.
However, Ho Chi Minh is Vietnam’s largest city and most important commercial centre, by a wide margin Most demand is concentrated in Ho Chi Minh, and the prospect of several years of infrastructure constraints would have a major impact on some groups ability to grow.
Resources.
For aviation sector, the human resource is a special element is used for training pilots are very expensive, so the main personnel team must hire foreign and domestic human resources are very limited, the company hired 90% pilot countries lack Resources should be biased phenomenon, the airline soliciting airlines.
The domestic aviation industry is growing at a very fast speed, some airline groups are developing "hot" leads to insufficient preparation, human resources or technical divers pilot aircraft missing, does not meet up with the rapid increase of the fleet and the airlines, especially the cheap airlines This is also a great challenge for Vietnam Airlines.
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