A company analysis and valuation,masters thesis

Therefore, Vietnam currently has seven aviation companies, including Vietjet Joint Stock Company VJC, Airports Corporation of Vietnam ACV, Vietnam Airlines Corporation HVN and General av

Dissertation submitted in partial fulfillment of the

Requirement for the MSc in Finance

FINANCE DISSERTATION ON

A COMPANY ANALYSIS AND VALUATION

NAME OF STUDENT: NGO MINH NGOC

ID No: 17047725

Intake 1

Supervisor: Assoc Prof Dr Do Thi Kim Hao

September 2018

ACKNOWLEDGEMENTS

During one intensive full-time year drowning in University of West of England environment Over all, I have achieved profoundly valuable knowledge about Banking systems and Finance status in Vietnam and many developed countries Therefore, working in Agribank Lao Cai Branch, it was a great chance for learning, practicing and developing professional skills

In order to finish this thesis, I am deeply grateful to all those who have given ideas, valuable comments, as well as their support during three months of the internship First and foremost, I would like to express my deepest gratitude and special thanks to

my supervisor, Assoc Prof Dr Do Thi Kim Hao, for her careful and precious guidance, necessary advices

Besides, it will definitely be my shortage if I do not send my truly thanks to all my lectures at UWE-BAV, whose provide me with the best learning conditions, teaching methods which not only develop my dissertation but also lay the foundation for my career

Moreover, I am greatly indebted to Ms Nguyen Thi Huong – Manager of Corporate Clients Department She was my direct supervisor in Agribank Lao Cai Branch, who in spite of being extraordinary busy with her duties, took time out to hear, guide and keep

me on the correct path during the training

Last but not least, I convey my sincere thanks to my family, friends who are always

by my side with the best support helping me complete the dissertation as well

TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION 7

1.1 The background 7

1.2 The objectives 8

1.3 The methodology 8

1.4 The methods 8

1.5 An overview 8

CHAPTER 2 MACROECONOMIC ANALYSIS 10

2.1 World economy 10

2.2 Vietnam economy 11

2.2.1 PEST analysis 12

2.2.2 Financial analysis 14

2.2.3 Summary about Vietnam economy 16

CHAPTER 3 INDUSTRIAL ANALYSIS 17

3.1 The global aviation industry outlook 17

3.2 The Vietnam aviation industry outlook 18

CHAPTER 4 Vietjet Joint Stock Company 21

4.1 Business description 22

4.2 SWOT analysis 22

4.2.1 Strengthens 22

4.2.2 Weakness 25

4.2.3 Opportunities 27

4.2.4 Threats 29

4.3 Ratios analysis 30

4.3.1 Profitability ratios 30

4.3.2 Gearing ratios 31

4.3.3 Investment ratios 32

4.4 Valuation 32

CHAPTER 5 AIRPORTS CORPORATION OF VIETNAM (ACV – up COM) 34

5.1 Business description 35

5.2 SWOT analysis 36

5.2.1 Strengths 36

5.2.2 Weakness 36

5.2.3 Opportunities 36

5.2.4 Threats 36

5.3 Ratios analysis 37

5.3.1 Profitability ratios 37

5.3.2 Gearing ratios 38

5.3.3 Investment ratios 38

5.4 Valuation 38

CHAPTER 6 Vietnam Airlines Corporation (HVN – upCOM) 41

6.1 Business description 42

6.2 SWOT analysis 43

6.2.1 Strengths 43

6.2.2 Weakness 43

6.2.3 Opportunities 43

6.2.4 Threats 43

6.3 Ratios analysis 43

6.3.1 Profitability ratios 43

6.3.2 Gearing ratios 44

6.3.2 Investment ratios 45

6.4 Decision investor 45

CHAPTER 7 General aviation services company (AST – HOSE) 46

7.1 Business description 47

7.2 SWOT analysis 47

7.2.1 Strengths 47

7.2.2 Weakness 47

7.2.3 Opportunities 48

7.2.4 Threats 48

7.3 Financial analysis 48

7.3.1 Profitability ratios 48

7.2.2 Investment ratios 49

7.3 Valuation 49

CHAPTER 8 Compare four companies in Vietnam aviation industry 51

CHAPTER 9 CONCLUSTION 58

REFERENCES 59

APPENDIX 61

LIST OF TABLES AND FIGURES

Figure 1 Global growth continues 10

Figure 2 Vietnam GDP growth rate from 2013 to 2018 14

Figure 3 GDP per capital of ASEAN countries from 2017 to 2022 and the CAGR of GDP per capital 2017- 2022 15

Figure 4 Vietnam inflation rate from Jan 2017 to Jul 2018 16

Figure 5 Chart of market share of domestic passenger carriage in Vietnam 2011-2016 19

Figure 6 CASK operating cost index and fuel surcharges (USD cents): 2013 - first half of 2017 24

Figure 7 the chart of number of tourists and the growth of tourists from 2009 to 2017 in Vietnam 28

Figure 8 The profitability ratios of Vietjet JSC 2015 - 2017 31

Figure 9 Gearing ratio of VJC 2017- 2018 31

Figure 10 The Investment ratios of Vietjet JSC 32

Figure 11 Compare between VJC with other enterprises in the world 33

Figure 12 The profitability ratios of ACV (2015-2018) 37

Figure 13 Investment ratios of ACV 2014-2017 38

Figure 14 Compare between ACV with other enterprises in the world 39

Figure 15 Domestic aviation market share from 2015 to 2017 42

Figure 16 The profitability ratios of HVN from 2016 to 2019 44

Figure 17 Gearing ratios of HVN from 2014-2017 44

Figure 18 The investment ratios of HVN from 2015 - 2017 45

Figure 19 The profitability ratios of AST from 2016 to 2019 48

Figure 20 Investment ratios of AST 2016-2018F 49

Figure 21 Compare between enterprises in the aviation industry 50

Figure 22 Sensitivity analysis 50

Figure 23 Key data in main enterprises in aviation industry 51

Figure 24 EV/EBITDA 2017 52

Figure 25 Comparing the P / B and ROE indexes of the national aviation industry (04/2018) 54

Figure 26 Comparing P / B and ROE indexes for national airports (04/2018) 54

Figure 27 ROA and ROE of aviation businesses 2015-2017 55

Figure 28 ROE and Dupont Aerospace Analysis 2016-2017 57

Figure 29 Asset Situation of enterprises 61

Figure 30 Capital structure of aviation enterprises 2016-2017 62

LIST OF ABBREVIATIONS

ASEAN Association of Southeast Asian Nations

CAGR Compound annual growth rate

CPI Consumer Price Index

EBITA Earnings before interest and taxes and amortization

EBITD

A

Earnings before Interest, Taxes, Depreciation, and Amortization

GDP Gross Domestic Product

IMF International Monetary Fund

OECD Organisation for Economic Co-operation and Development OPEC Operational Expenditures

SMEs Small and Medium Enterprises

SOEs State Owned Enterprises

WTO World Trade Organization

CHAPTER 1 INTRODUCTION 1.1 The background

"Asian airlines and their increasing passenger numbers are driving global aviation markets We envisage that APAC will account for up to half of total annual increase in air traffic by 2020," Shukor Yusof, an aviation expert at Endau Analytics, told DW Vietnam's two fundamental transporters - Vietnam Airlines and Vietjet - are additionally performing admirably regarding development and course extension "Vietnam has a youthful, lively populace and this is driving the avionics division locally and provincially," said Yusof The quantity of air travelers going on local aircrafts is evaluated at 21.8 million, up multi year-on-year On the household advertise, four local aircrafts including Vietnam Airlines, VietJet Air, Jetstar Pacific Airlines and VASCO are working 52 residential air courses associating Hanoi, Danang and HCMC with 18 nearby air terminals

In addition, Vietnam's aviation segment positions the fifth among ASEAN nations The area served in excess of 94 million travelers including 13 million remote travelers,

an expansion of 16 percent contrasted with 2016, more than twofold that of Asia In any case, household traveler development backed off to 13 percent in 2017 from 25 percent

in 2016 Among now and 2020, traveler transportation is required to ascend by 16 percent, and from 2020 to 2030, by 8 percent Merchandise transportation will increment by around 18 percent until 2020, and 12 percent somewhere in the range of

2020 and 2030

In conclusion, Vietnam, at present one of the world's quickest developing aeronautics market will be the fifth quickest developing business sector by 2035, as indicated by the International Air Transport Association Therefore, Vietnam currently has seven aviation companies, including Vietjet Joint Stock Company (VJC), Airports Corporation

of Vietnam (ACV), Vietnam Airlines Corporation (HVN) and General aviation services company (AST)

The research will focus on these four that analyze financial ratios, competitiveness and development indicators in order to find a safe and efficient company for investment

1.2 The objectives

This study refers to a macroeconomic analysis, industry analysis and a company analysis on four enterprise including Vietjet JSC (VJC), Airports Corporation of Vietnam (ACV), Vietnam Airlines Corporation (HVN) and General aviation services company (AST) in Vietnam aviation’s industry Therefore, a definitive motivation behind which is to give sound and all around examined speculation proposals In addition, the dissertation gives a glimpse of the aviation market in Vietnam and analyze major competitive factors in the industry At the same time analyzes the main economic indicators of the four companies through financial statements Finally, making investment recommendations to investors should invest in any company to achieve the highest return

1.3 The methodology

When study the Macroeconomic, using the PEST model to study the major factor indicators, such as real GDP (nominal GDP), CPI Vietnam inflation Besides, when analyzing the industry, focus on the factors that influence the development of the industry, the competition in the market as well as the trends of consumers in recent years affect how the fashion market (SWOT analysis method) Finally, about company analysis and valuation, based on financial statements, economic indicators, industry analysts' analysis, and stock market performance of the four companies Therefore, the research uses a top-down analysis method from the macroeconomic to each company in this industry

1.4 The methods

The ratio analysis in this study focused on some methods such as profitability ratio, gearing ratio and investment ratio, EV/EBITDA From there, the study extracted the analytical data so that the private investors can have a panoramic view of these companies

competitors, the ability of companies The final section is a detailed study of the major Vietnamese aviation companies, namely Vietjet Joint Stock Company, Airports Corporation of Vietnam, Vietnam Airlines Corporation and General aviation services company To get the most out of each company's performance, investors should evaluate how the company's stock looks At the same time there are predictions for the future of the business

CHAPTER 2 MACROECONOMIC ANALYSIS 2.1 World economy

The global economy enhanced in 2017 and will achieve an eight-year high one year from now as indicated by the Organization for Economic Co-task and Development Be that as it may, needs private venture to support development into 2019 The association bumped up its gauge to 3.6 percent during the current year from 3.5 percent in its last figure to achieve 3.7 percent in 2018

Catherine Mann, OECD Chief Economist, says a few elements added to the enhanced economy ―First there has been a continued monetary policy‖ she explains ―But perhaps some people don’t know that actually there is quite a bit of fiscal stimulus in the system and that is added to the growth The third element is that trade has recovered and it’s moving along quite smartly right now.‖

Figure 1 Global growth continues

With its most grounded development in 10 years, the euro region was additionally observed outpacing other major created economies this year and was up on past figures The OECD conjectures development of 2.4 percent for 2017 dropping to 2.1 percent in

2018 Be that as it may, Brexit implies Britain is passing up worldwide development The OECD's 2017 development estimate of 1.5 percent makes Britain the weakest economy in the G7 Moreover, development in emerging market sector and creating economies in general is anticipated to fortify to 4.5 percent in 2018, preceding achieving 4.7 percent in 2019 as the recovery in commodity exporters matures and ware costs level off after the current year's expansion

2.2 Vietnam economy

Vietnam's economic performance in 2017 has been versatile, reflecting hearty fare situated assembling, solid household request and slow bounce back of farming GDP growth is assessed at 6.8 percent in 2017 – the quickest extension in the previous ten years The uptick in development mirrors a solid bounce back of the agribusiness area, rising worldwide and residential interest that helped assembling and exchange, combined with vigorous remote speculation inflows

Moreover, Vietnam's medium term monetary standpoint stays positive Development and macroeconomic soundness are required to be managed over the medium term Development is anticipated to balance out around 6.5 percent, with some possibility to amaze on the upside in the short run, particularly if the worldwide recuperation stays unblemished While expansion is anticipated to stay direct on account of a generous worldwide value condition, solid wage development may at last lift center swelling Outer adjusts are anticipated to profit by hearty fares and FDI inflows On the monetary front, the mix of shortfall decrease and divestment from SOEs is relied upon to contain open obligation over the medium term

On the other hand, Vietnam is encountering quick statistic and social change After years of growth, Vietnam's populace come to around 95 million out of 2017 (up from around 60 million out of 1986) and is relied upon to extend to 120 million preceding following off around 2050 At present, 70 percent of the populace is under 35 years old, with a future of near 73 years However, the populace is quickly maturing There is a rising working class—right now representing 13 percent of the populace, however anticipated that would achieve 26 percent by 2026

In the course of the most recent thirty years, the arrangement of fundamental administrations has essentially moved forward Vietnam is today an essentially more taught and solid society than twenty years back, and these characteristics are evenhandedly dispersed Inclusion and learning results are high and evenhandedly accomplished in grade school—confirm by amazingly high scores in the Program for International Student Assessment (PISA), where the execution of Vietnamese understudies surpasses that of numerous OECD nations From 1993 to 2012, baby and under-five death rates were decreased from 33 to 19 and 45 to 24 for every thousand

births individually Hindering likewise fundamentally diminished over a similar period, from 61 to 23 percent, and future during childbirth has expanded from 71 to 76 years

In addition, access to family unit foundation has enhanced drastically In 2016, 99 percent of the populace utilized power as their principle wellspring of lighting, up from

14 percent in 1993 In rustic territories, in 2016, 77 percent of the populace approached sanitation offices—contrasted with 36 percent in 1993 Country access to clean water has likewise enhanced, up from 17 percent in 1993 to 70 percent in 2016 Access to these administrations in urban territories is over 95 percent

In 2015, female-headed family units in Vietnam were more averse to be poor than male-headed families and essential and junior optional school net enrolment rates are basically equivalent for young men and young ladies There are more female understudies going to class than male at the upper optional and tertiary training levels From 1990 to 2015, the maternal death rate tumbled from 233 to 58.3 passing for every 100,000 live births and baby mortality dropped from 44 passing for each 1000 live births to 15—with no distinction among kid and young lady babies Ladies' monetary strengthening has additionally consistently enhanced in Vietnam over the previous decade Ladies' work compel investment rate is inside 10 percent of that of men, which

is a littler hole than that found in most different nations Likewise, there has been an upward pattern in the offer of ladies in wage work, for the most part determined by expanded business open doors for ladies in outside claimed trade arranged processing plants All things considered, a few holes hold on—especially relating to ladies' entrance

to abnormal state authority positions and ladies ethnic minorities There is likewise a noteworthy irregularity in the sex proportion during childbirth

2.2.1 PEST analysis

2.2.1.1 Political analysis

Vietnam is embracing a blended economy government still assumes a major job in arranging and overseeing and numerous nations don't perceive the market economy for Vietnam yet even its WTO' bond since January 2006 The endorsed official records of the eleventh National Party Congress plainly stipulate that Vietnam keeps on applying the market economy with communist introduction, and the State Owned Enterprises

(SOEs) still assume the unequivocal jobs of Vietnam' economy This may break the empowering BE and make dangers to private SMEs

2.2.1.2 Economics analysis

Vietnam keeps up a steady and high monetary development (7% in normal for the most recent decade) Neighborhood ventures are looking up to challenges in access to costly credit and money related administration because of high expansion (9-11%), high financing costs of sparing (13-17%/year), and to cash depreciation (three times in 2010)

2.2.1.3 Social analysis

Vietnam has a youthful populace with 46% of populace are in working age and around 1 million new contestants in the process of childbirth advertise every year, except by and large efficiency remained to a great degree low and is just three-fifths the ASEAN normal or around one-tenth the level in Singapore [4] Vietnam is the main nation in Asia to enter Top 5 of the 2009 Happy Planet Index (HPI), reported by the New Economics Foundation (NFF) in July 2009 Vietnamese people groups are exceptionally hopeful to their future on account of stable political administration, peace and financial development

2.2.1.4 Technology analysis

For this factor, control lack is presently exceptionally current with expanding request; web is generally open with sensible value; fake and impersonation, particularly in programming items, are far reaching in Vietnam

Besides, another factors are legal and environment factor that played a rule with Vietnam economy in general For Legal factor, Vietnam has accessible Enterprise Law, Investment Law and other worldwide and provincial understandings (WTO, ASEAN, APEC), in principle, all sort of undertakings (SOEs, private endeavors, joint endeavors) need to play the amusement with similar standards, however by and by, the execution of Laws is a genuine test because of low quality of human asset in broad daylight administration and defilement issues (116/178 positioned nations) Last but not least, Vietnam has a long seaside outskirt (2500km) and is considered as a standout amongst the most helpless nations because of catastrophic event dangers, environmental change and ocean level ascent Undertakings in Vietnam need to consider the ecological elements to their business arranging and working procedures Vietnamese people groups

don't endure effectively to business hones that damage to condition For instance, the Vedan Vietnam Limited JSC, an entirely Taiwanese-contributed firm needs to pay a

"staggering expense" for its contamination to Thi Vai River, the Coop Mart Supermarket System and retailers declined to offer Vedan' items, special exercises urge the customers to state NO with Vedan and the organization is looking to liquidation in 2007-2009

2.2.2 Financial analysis

2.2.2.1 GDP growth

Vietnam's GDP developed by 6.79 percent year-on-year in the second quarter of

2018, contrasted and a 6.28 percent development in a similar time of the earlier year Gross domestic product Growth Rate in Vietnam found the middle value of 6.26 percent from 2000 until 2018, achieving an unequaled high of 8.46 percent in the final quarter of

2007 and a record low of 3.14 percent in the principal quarter of 2009

Figure 2 Vietnam GDP growth rate from 2013 to 2018

Vietnam is a developing economy in the Southeast Asia As of late, the country has been ascending as a main farming exporter and an appealing outside venture goal Vietnam's key items are: rice, cashew nuts, dark pepper, espresso, tea, fishery items and elastic Assembling, data innovation and cutting edge enterprises establish a quickly developing piece of the economy Vietnam is likewise one of the biggest oil makers in the district This page gives the most recent revealed an incentive to - Vietnam GDP Growth Rate - in addition to past discharges, chronicled high and low, here and now

conjecture and long haul forecast, financial timetable, study accord and news Vietnam GDP Growth Rate - real information, verifiable outline and date-book of discharges - was keep going refreshed on September of 2018

In addition, Vietnam's aviation industry has the same correlation with GDP growth Greater per capita income growth will stimulate higher air travel demand According to IMF data (October 2017), Vietnam's GDP per capita is relatively low compared to the region, only equal to one fifth of Malaysia and one third of Thailand However, Vietnam's per capita GDP is projected to grow at an average annual rate of 7.6% and is among the fastest growing economies in Southeast Asia for 2017-2022 As a result, Vietnam's aviation industry is expected to continue to grow thanks to improved living standards

Figure 3 GDP per capital of ASEAN countries from 2017 to 2022 and the CAGR of

GDP per capital 2017- 2022

2.2.2.2 Inflation rate

Vietnam's CPI facilitated to a three-month low of 3.98 percent year-on-year in August 2018, beneath 4.46 percent in the earlier month Swelling impeded for: nourishment (3.56 percent versus 3.78 percent in July); lodging and development materials (3.73 percent versus 4.23 percent), and transport (8.67 percent versus 10.84 percent) Interim, costs climbed quicker for both piece of clothing, footwear, cap (1.53 percent versus 1.52 percent) and family unit machines and merchandise (1.25 percent from 1.18 percent) Yearly center swelling, which prohibits unpredictable things, expanded to 1.54 percent from 1.41 percent in July On a month to month premise, customer costs went up 0.45 percent, following a 0.09 percent fall in July Expansion

GDP per capita of ASEAN countries 2017-2022

Source: IMF, FPTS Reports CAGR of GDP per capita between 2017 and 2022

Rate in Vietnam found the middle value of 6.41 percent from 1996 until 2018, achieving

an unsurpassed high of 28.24 percent in August of 2008 and a record low of - 2.60 percent in July of 2000

Figure 4 Vietnam inflation rate from Jan 2017 to Jul 2018

In Vietnam, the most essential classes in the shopper value list are sustenance and nourishment and drink administrations (36.12 percent of aggregate weight), lodging and development materials (15.73 percent), transport (9.37 percent), family unit apparatuses (7.1 percent) and garments and footwear (6.37 percent) The record likewise incorporates: instruction (6 percent), wellbeing (5 percent), culture, diversion and tourism (4.29 percent), drinks and tobacco (3.59 percent), different merchandise and enterprises (3.3 percent) and posts and telecoms (2.89 percent) This page gives the most recent detailed an incentive to - Vietnam Inflation Rate - in addition to past discharges, chronicled high and low, here and now estimate and long haul expectation, monetary date-book, study accord and news Vietnam Inflation Rate - genuine information, recorded diagram and schedule of discharges - was keep going refreshed on September

of 2018

2.2.3 Summary about Vietnam economy

GDP in Vietnam is required to be 7.10 percent before the finish of this quarter, as indicated by Trading Economics worldwide large scale models and examiners desires Looking forward, we gauge GDP Growth Rate in Vietnam to remain at 6.10 out of a

year time In the long haul, the Vietnam GDP Growth Rate is anticipated to slant around 6.50 percent in 2020, as indicated by our econometric models

CHAPTER 3 INDUSTRIAL ANALYSIS 3.1 The global aviation industry outlook

The aviation industry includes a series of services from air freight, airports to aviation aids In particular, air transport plays the most important role in the value chain; For air transportation, the airport and auxiliary services will benefit If air transport is the backbone of the industry, airports are responsible for providing infrastructure for most

of the other business segments in the value chain, connect each country's aviation system with other modes of transportation

 World air transport industry

First, the world's air transport market is quite concentrated, with only two regions in Asia Pacific and Europe accounting for 59% of the passenger transport market and 64%

of the freight market share Second, the world passenger and air cargo industry is currently in a new phase of growth after the slow growth of 2000-2004 According to IATA statistics, the rotational passenger volume (RPK) and global transport (RTK) output for the period 2012-2017 will be 7.0% and 4.3% per year, respectively , higher than the 2-4% per year period 1985-2005 The main driver of growth in the next phase came from the low-cost segment (LCC) The market share of LCC enterprises increased sharply from 15.7% in 2006 to 25.5% in 2016 Meanwhile, with the trend of

"outsourcing" from developed countries, demand for air cargo is increasing Air transport mainly carries high value items such as electronics, machinery parts, fashion goods, fragile goods, chemicals Global aviation goods market is quite fragmented by the policy supports the domestic airlines of the countries Asia-Pacific and Asia-Pacific regional air routes are the two largest air routes in the world Last, forecast for the period 2017-2036, the passenger and air cargo industry will grow at an average rate of 4.7% per year and 4.2% per year, with the main driver coming from the Asia Pacific region

 World Airport Industry

Airport requires large investment capital and is the premise for the socio-economic development of a country, so often associated with the policy of socio-economic development plan, the field of activity the condition and must be approved by the State

management agency of that country On the other hand, the growth dynamics of airport services are linked to the growth of the air transport industry Customers of airports are airlines, service charges at airports are collected directly or indirectly through airlines

As a result, the revenue of airports often fluctuates in line with the volume of passengers

as well as the flow of goods and passengers The service charges of the airports are usually in the price bracket and the rates prescribed by the management agency The operation of the airport is based on the exploitation of the natural business advantages of the property, so the main costs are fixed costs, easy to control and forecast Moreover, the passenger and cargo market of the airports is quite concentrated with the proportion

of passengers and cargo through the 20 largest airports in the world respectively accounted for 18% of total passengers and 45% of total cargo Asia Pacific is the region with the most developed aviation industry in the world as it is also the region with the most developed air transport

3.2 The Vietnam aviation industry outlook

Firstly, Vietnam passenger air transport market is currently dominated by four airlines: Vietnam Airlines, Vietjet Air, Jetstar Pacific and VASCO In particular, Vietnam Airlines owns 68.85% ownership and 51.00% stake in Jetstar and VASCO Therefore, it can be said that Vietnam air transport market is the "confrontation" between Vietnam Airlines and Vietjet Air There are also two airlines representing two different modes of transportation: traditional and low cost airlines, between the state and private management model

Secondly, air cargo transport accounts for about 25% of Vietnam's export and import value There are 55 foreign airlines and 4 domestic airlines operating in Vietnam Of these, four Vietnamese airlines make up the absolute share of domestic routes thanks to government protectionism The international routes, dominated by foreign firms with 82% market share The major international air cargo routes in Vietnam are Asia Pacific, the EU and North America

Third, Vietnam's air transport industry is still in the process of development and is expected to grow strongly in the future, based on the following dynamics: (1) the recovery of the world aviation industry, (2) Vietnam is located in a dynamic aviation area, (3) fast-growing tourism and investment; and (4) improved living standards

Fourth, according to IATA forecasts, Vietnam is the fifth fastest growing market in terms of annual sales in the period 2015-2035, with a CAGR of 6.7% per annum, higher than 3.9 % / year in the world and 4.6% / year in the Asia Pacific region

Fifth, the aviation industry and aviation services in Vietnam are also in the process of development, benefiting from the growth of the air transport industry ACV (Up Com Vietnam Airlines Corporation) is now the only company operating and operating 21 active airports stretching from the North to South of Vietnam However, the challenge now is the expansion of capacity and the construction of new airports to reduce the load for two major airports are Tan Son Nhat and Noi Bai

As such, Vietnam's aviation market is currently dominated by four airlines: Vietnam Airlines, Vietjet Air, Jetstar and VASCO In particular, Vietnam Airlines owns 68.85%

at Jetstar and 51.00% stake in VASCO Therefore, it can be said that Vietnam air transport market is the confrontation between Vietnam Airlines and Vietjet Air There are also two airlines representing two different modes of transportation: traditional and low cost airlines, between the state and private management model From 2011 up to now, Vietjet Air has continuously increased its market share, causing the market share

of Vietnam Airlines to decline sharply According to statistics from CAPA, in 2016, the market share of Vietnam Airlines is 42%, down from 69% in 2011 In contrast, Vietjet's market share increased to 42% in 2016 - equal to Vietnam Airlines, in In 2011, Vietjet is not present in the market share of Vietnam aviation

Figure 5 Chart of market share of domestic passenger carriage in Vietnam

2011-2016

Source: IMF, FPTS Reports

According to the latest data from CAPA, Vietnam Airlines' market share in 2017 has increased to 44%, from 42% in 2016 Vietjet Air has maintained a market share of 42%

in 2016

To sum up, Vietnam Airlines and VietJet Air are operating 52 international flights to

30 cities in 17 countries and territories In addition, there are more than 50 foreign airlines operating regularly 71 flights from 22 countries and territories to Vietnam Taking into account the total market share of Vietnam passenger carriage, Vietjet has increased its market share from 11% in 2013 to 27% in 2016, gradually gaining market share from Vietnam Airlines and international airlines Meanwhile, Vietnam Airlines still accounts for a large share of passenger carriage in the market, with 40% in 2016, down from 51% in 2015 This shows that Vietnam aviation industry is in a very competitive stage

CHAPTER 4 VIETJET JOINT STOCK COMPANY RECOMMENDATION: NEUTRAL

VJC share price fluctuation (2/2017 - 9/2018)

Thông tin giao dịch (03/05/2018)

Giá hiện tại

25,3%

Vốn điều lệ (tỷ VNĐ)

4.513

The business results for 2017 grew strongly thanks to increased passenger traffic and the highest sales of aircraft in history Passenger transport increased 21.8% YoY, reaching 17.1 million thanks to Vietjet opened 21 more international routes and a domestic route In addition, in 2017 the company sold and leased 17 aircraft - the highest in history These two factors contributed 53.8% YoY and 42.3% y / y respectively to 103.3% YoY and 5.074 billion dong respectively

The dividend payout in 2017 includes: (1) cash dividend of VND 1,000 / share, ex-dividend date is 5/9/2018 and payment date

is May 25, 20% shares will be made in 2018 with the execution time decided by the Board

I highly appreciate the competitive advantage and business prospects of Vietjet

in the next 2-3 years, based on: (1) Vietnam's growth in aviation is still high; (2) Advantages in cost management of VJC; (3)

experienced management team in the industry

With these advantages, VJC is one of our favorite aviation stocks However, owing to the specific nature of the aviation industry, Vietjet also faces a number of business risks

In addition, VJC shares are currently traded significantly higher than peers From a prudent point of view, I view NEUTRAL for VJC shares at the moment

Investment risk: (1) risk of economic recession and disease; (2) fluctuation risk of triple oil price - exchange rate - interest rate; (3) Increased competition; (4) Excess risk with large number of aircraft ordered; (5) Dilution risk of shares; (6) Risk of airport services depends on ACV (Upcom Airport Corporation)

Factors 2015 2016 2017

Information transaction

Recent price (VND/Share) Highest price 52w Lowest price 52w Listed Share Share in market Volumes in 3months Foreign ownership Charter capital Market capitalization

Transactions

4.1 Business description

In 2017 continues to be a successful year of Vietjet with strong business results thanks

to increasing passenger volume During the year, VJC has operated in 82 routes, including 38 inbound routes (up 1 route compared to 2016) and 44 international routes (up 21 routes compared to 2016) Turnover in 2017 increased 53.8% YoY, reaching 42.303 billion Inside:

First of all, revenue from passenger transportation continued to grow due to increased passenger traffic and new international routes In 2017, passenger car sales increased by 38.5% YoY to VND16,854 billion (accounted for 39.8% of total sales) with the main growth driver coming from: Passenger volume increased 21.8% YoY, reaching 17.1 million In particular, international passenger traffic increased 91% YoY, reaching 4.8 million arrivals and domestic arrivals increased 12% YoY, reaching 12.3 million In

2017, Vietjet opens 21 more international routes (up 91% yoy) and one domestic flight Moreover, the load factor remained at 88% although the total number of seats was increased Increased flight frequency (operating hours - block hours - maintained at a high rate of 13.8 hours / aircraft / day) will help total flight in 2017 increase 17.0% YoY, reaching 98.805 trip

Second, the revenue from auxiliary activities increased sharply thanks to the expansion

of international routes Additional revenue in 2017 reached 5,477 billion dong (up 12.9%

of total sales), up 54.2% YoY on the back of a 22% increase in passengers and an average per-passenger average revenue increase of 26% YoY, reaching $ 14.3 per passenger We find that the average per capita turnover of international passengers tends

to be higher than that of domestic passengers due to the longer flight time, the passengers will tend to use more services such as food, water Drink and carry more luggage

4.2 SWOT analysis

4.2.1 Strengthens

First, according to CAPA, the moment Vietjet entered the market is extremely perfect

"The company has been operating as soon as Vietnam is on the path of economic growth, with a GDP growth of at least 5% every year since Vietjet's launch, and more than 6% in

2015 and 2016 ", reported CAPA

Second, improving incomes and the rapid rise of middle class in Vietnam have made aviation travel, with many people, within reach This demand is rising as the price of airplanes is lower now, just as the price of passenger cars or trains on most domestic routes

Third, Vietnam, a long and narrow piece of land with high speed and low rail system, made moving between cities even more difficult People are, therefore, ready to switch from passenger and train to cheap domestic flights

Fourth, since Vietjet launched, 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% annually

Last reason, Vietjet does not have to attract the familiar passengers of other airlines The company, taking advantage of Vietnam's booming market, focuses on new customer segments, less on the fly by offering cheap airfares Since 2012, Vietjet has accounted for about 70% of the growth of civil aviation in the domestic market

In a short time, Vietjet from a startup company has become a market leader In 2016, the number of passengers traveling on Vietjet flights is almost equivalent to Vietnam Airlines Both airlines account for about 42% of the domestic market "For a medium-size domestic market (more than 20 million passengers), which accounts for a large share

of market share in just five years, is a remarkable achievement." In a similar-sized market, the Philippines, It took more than a decade for LCC Cebu Pacific to overtake Philippine Airlines Even AirAsia needed six years to take over Malaysia's domestic

market, which was smaller than the current market in Vietnam" CAPA acknowledged In

2017, Vietjet holds less than 10% of Vietnam's international market share and 27% of Vietnam's total market Vietnam Airlines still has a larger market share because it has an advantage over Vietjet on flights abroad However, Vietjet is beginning to focus more on expanding its international market share, and in the future, it could overwhelm Vietnam Airlines even in this segment

According to CAPA, Vietjet is one of the lowest cost airlines in Asia and in the world

In the first half of 2017, the maximum operating cost (CASK) index reached only 4 US Cents

(Source: Vietnam finance website)

Figure 6 CASK operating cost index and fuel surcharges (USD cents): 2013 - first

half of 2017

The CAPA data show that among low-cost carriers, only AirAsia, Wizz Air, Ryanair and Cebu Pacific have a CASK of less than or equal to 4 US cents Vietjet expects to further reduce the CASK as it expands its fleet A larger fleet will create economies of scale, especially, Vietjet has been increasing the coverage of narrow body aircraft

Vietjet has been using A321ceo for over 2 years The company expects to start receiving the first batch of A321neo by the end of 2017 or beginning of 2018 From

2018, Vietjet will welcome the addition of the 240-seat A321neo

According to CAPA, ancillary revenue - an important factor in the success of low-cost airlines, helped Vietjet achieve profitability in the early stages These accounts represent 23% of Vietjet's total revenue A small number of other low-cost carriers depend on over-

6/2016 6/2017

Not include meterials

the-counter revenues for more than 30% of their total revenue, but 23% are astonishing numbers for a relatively new airline It is in Asia, where these surcharges are usually

quite low

Vietjet has quickly built a strong brand in Vietnam A study in 2015 showed that its brand awareness was 96%, with a satisfaction rating of 88% Vietjet is focusing on building customer loyalty programs, which will further enhance the position of Vietjet in the domestic market CAPA further commented that the network of dealers is managed directly by Vietjet without the need to go through the global distribution system (GDS), which is partly offset by costs Vietjet also stopped paying commissions to agents in

2015 It still pays incentives for agents, which account for about 0.3% of Vietjet's total costs However, this cost is acceptable and the total cost of distribution of Vietjet is still very low, allowing the company to continue to maintain the provision of cheap airfare

4.2.2 Weakness

From a beginning period Vietjet talked about with potential JV accomplices the foundation of LCCs in other Asian markets Be that as it may, a few potential JVs neglected to emerge, and the main JV it has so far fashioned (in Thailand) has experienced various difficulties

Thai VietJet was at first settled in 2013, yet just propelled planned administrations in Sep-2016 The new aircraft was at first postponed for one year before propelling contract flights in late 2014, and was deferred for almost an additional two years in anchoring endorsement for booked flights Meanwhile, VietJet had a dropping out with its underlying neighborhood accomplice – the Thai provincial carrier Kan Air Therefore, VietJet keeps on considering JV openings in different nations Be that as it may, it will confront challenges practically anyplace it sets up shop as LCCs as of now have noteworthy existences in all significant Asian markets VietJet appears to need to

embrace a comparable JV technique to those of the main Southeast Asian LCC bunches – AirAsia and Lion It needs different markets with a specific end goal to put the majority

of the about 200 air ship it has on arrange

First, Vietnam has a portion of the most minimal residential tolls on the planet Passages were at that point low before VietJet's entrance, due to some degree to government controls, and have turned out to be even lower as VietJet has extended Then, VietJet's normal toll in 2015 dropped by 17%, to just VND815,725 (USD36), as residential rivalry escalated Its normal admission has since expanded marginally in 2016, driven by a bigger universal activity Residential tolls remain to a great degree low Passages are probably not going to increment at any point in the near future, given the extraordinary rivalry and limit circumstance

Last, VietJet has a basic reservation framework that further restricts its capacity to expand ticket incomes The framework is basic to the point that when another goal is added it is sent to the base of the rundown on its web booking motor, as opposed to showing up in sequential order arrange

As CAPA has featured in the keep going segment on qualities, VietJet has a solid neighborhood brand and appropriation organize Be that as it may, outside Vietnam the circumstance is the inverse, and the aircraft is a moderately obscure product As VietJet extends more in Vietnam's universal market it should conquer this shortcoming There are immense open doors in the universal market, however Vietnam is a greater inbound, instead of outbound, showcase In 2016 there were 10 million inbound guests and 5.6 million outbound voyagers (incorporates guests and explorers which did not arrive or leave via air) Building up its image and building up a dispersion arrange in abroad markets will be costly and testing It should depend more on GDSs, which are costly It

will likewise need to beat firm rivalry from outside aircrafts, which are additionally extending quickly in Vietnam

VietJet has depended for the most part marked down and leasebacks since late 2014, when it started taking flying machine straightforwardly from Airbus VietJet has since taken 28 air ship from its request with Airbus, and has sold and rented back almost every air ship Deal and leasebacks are regularly alluring to LCC new companies as they produce a quick benefit VietJet's benefits have flooded since 2015 as the quantity of offer and leasebacks bargains finished has expanded VietJet revealed a gain of VND518 billion (USD23 million in light of current conversion scale) from deal and leasebacks in

2015, which represented 33% of its aggregate working benefit The carrier created a gain

of VND581 billion (USD26 million) from deal and leasebacks in 1H2016, which represented 41% of its aggregate working benefit (Figures for 2H2016 and 1H2017 are not accessible)

4.2.3 Opportunities

According to CAPA, Vietnam has been gradually becoming a popular tourist destination The number of tourists has exceeded 10 million by 2016, an increase of 26% over 2015 The number of tourists arriving in Vietnam continues to increase by 30% in the first nine months of 2017, to 9.5 million This number has doubled since 2010 and is likely to continue to double in the next few years

Figure 7 the chart of number of tourists and the growth of tourists from 2009 to 2017

in Vietnam

CAPA said that Vietjet will benefit as more and more foreign tourists come to Vietnam Its domestic operations will benefit from the destinations of Vietnamese tourists spread throughout the country Vietjet's international operations will also benefit from Vietjet's ability to access eight of Vietnam's 10 largest source markets (the country's largest foreign-origin) with its narrow body aircraft

Until now, Vietjet has relied solely on direct flights, typical of a new low-cost airline

in the early stages of development However, Vietjet is determined to pursue the sixth air traffic rights (the right to take passengers, goods, correspondence from a second country

to a third country through the territory of the country of the operator) Creating more traffic links in Ho Chi Minh City (HCMC) will be a challenge, as the current ground of the airport and facilities is limited However, the government is considering a plan to build a new airport that will turn HCMC into a hub Meanwhile, Vietjet also opened more flights in Hanoi and several other provincial cities Some planned routes can only be realized if Vietjet attracts more traffic links

number of tourists growth of tourists

 Codes flights

Vietjet also has a strategy of pursuing co-operation in code flights Vietnam is the destination of many foreign airlines, some of which can benefit the domestic market Foreign airlines seeking more links in the Vietnamese market have few options because Vietnam's domestic market is a monopoly market - including Vietnam Airlines and Vietjet In addition, Vietnam Airlines is a member of SkyTeam, leaving Vietjet with the members of oneworld and Star, and some other lesser names Vietjet can also become a member of Star's new partner program

CAPA recommends, Vietjet needs to invest heavily in booking systems and technology to best support the codeshare It is crucial for Vietjet to benefit from cooperation with Japan Airlines and to sign contracts with other potential companies

4.2.4 Threats

First of all, Southeast Asian driving aircraft gatherings, AirAsia and Lion, are both planning to dispatch new offshoots in Vietnam On 31-Mar-2017 the AirAsia Group declared the marking of another joint endeavor concurrence with Vietnamese financial specialists, while Lion is as yet hoping to anchor an accomplice in Vietnam

Secondly, VietJet is the market pioneer locally, giving it an immense upper hand Be that as it may, AirAsia and Lion are substantially greater in the more extensive Southeast Asian market and can put a considerable measure of assets into another JV

Thirdly, VietJet as of now faces expanded rivalry from Vietnam's solitary other LCC, Jetstar Pacific Jetstar Pacific is currently a more impressive contender and a key part of the general Vietnam Airlines Group procedure

Vietnam's domestic market is probably not going to keep developing at the high twofold digit rate (20% to 30%) experienced from 2012 to 2016 Local development has

just impeded in 2017 and is probably going to moderate further, conceivably to the single digits Slower household development will weight VietJet, compelling it to depend to a higher degree on the all the more difficult universal market The likelihood of slower local development is especially a worry, since rivalry is probably going to increase,

including from potential new businesses

Nowadays, Ho Chi Minh Airport is currently working admirably over its composed limit Runway openings and terminal space are presently at a premium, especially amid top hours Overhauls at Hanoi and Da Nang are well under way, which should empower Vietnam's second and third biggest air terminals to stay aware of interest A second runway and new terminal are likewise made arrangements for Nha Trang, and another terminal for Haiphong Hanoi, Da Nang, Nha Trang and Haiphong are as of now bases for VietJet Be that as it may, Ho Chi Minh is Vietnam's biggest city and most vital business focus, by a wide edge

VietJet could battle to put the about 200 air ship it has on arrange, given the foundation requirements and the foreseen slower development in Vietnam's residential market The universal market is all the more encouraging, and has turned into a concentration for VietJet in 2017, yet is very aggressive and testing VietJet's choice, in

2016, to arrange 100 737 MAX airplane from Boeing especially cocked eyebrows

4.3 Ratios analysis

4.3.1 Profitability ratios

Figure 8 The profitability ratios of Vietjet JSC 2015 - 2017

In general, the company's profit growth rate is effective, but from 2015 to 2017 ROE ratio are significantly reduced (54.5% – 52.72% – 47.89% respectively) The reason is that the enterprise deducts a part of money for repair and maintenance of aircraft

Thanks to the decrease in selling and administrative expenses (mainly labor costs and marketing and advertising expenses), VJC's core operating margin (excluding profit from selling aircraft) decreased only slightly from 10.5% in 2016 to 10.4% in 2017, although the gross profit margin of the main business fell 0.9% Selling and administrative expenses were at 2.6% and 1.0% respectively, down from 3.3% and 1.2% respectively

Figure 9 Gearing ratio of VJC 2017- 2018

Total outstanding loans (short & long term) reached VND7,524 billion, up 10.7% over the beginning of the year However, the ratio of debt to equity (D / E) declined to 71.0% from 143.6% at the beginning of the year This index decreased sharply while the amount

of debt increased due to the un-distributed profit after tax increase and in 2017 VJC has issued 22.4 million shares for Huong Duong Sunny Co., Ltd (under the control of deputy Chairman) in March 2017 at the price of 84,600 VND / share

Ratio (%) FY 2015 FY 2016 FY 2017