Vietcap Securities (VCSC) just release a research report about Viet Jet Airline Corporation (VJC) . VJC is a Vietnamese ultra-low-cost airline, known for its racy advertising featuring flight attendants in bikinis.
According to the report, VCSC has raised the target price for Viet Jet Airline Corporation (VJC) by an additional 3% to 106,000 Vietnamese dong per share and maintain a MARKET-APPROPRIATE recommendation.
“We believe VJC will benefit from the recovery of the aviation industry after the COVID-19 pandemic. However, we hold a cautious view on passenger transport yield due to the economic difficulties impacting demand, and we forecast that VJC’s net profit after tax and minority interests will not return to the 2019 level until 2025. Therefore, we consider the current valuation of VJC to be fairly appropriate.” the report mentioned.
The upward revision of our target price is mainly due to a 2% increase in our projected total EBITDAR (earnings before interest, taxes, depreciation, amortization, and aircraft rental costs) for the 2023-2027 period, primarily supported by our higher assumptions for VJC’s international passenger volume during this period. In this updated report, VCSC has shifted the target price timeline to mid-2024 from late 2023 previously.
VCSC forecasts VJC’s revenue to reach 55 trillion Vietnamese dong (+36.8% YoY) in 2023, and the net profit after tax and minority interests to be 910 billion Vietnamese dong compared to a net loss of 2.3 trillion Vietnamese dong in 2022. VCSC predicts that VJC’s transportation segment will achieve net profits of approximately 626 billion Vietnamese dong and 1.2 trillion Vietnamese dong in 2023 and 2024, respectively.
In this updated report, VCSC anticipates VJC’s international/domestic passenger traffic (measured in RPK – revenue passenger kilometers) in 2023 to be equivalent to 74%/118% of the 2019 volume, compared to our previous forecast of 70%/118%.
Risks/supporting factors: Resumption of international flights slower/faster than expected; oil prices remaining higher/lower.
The growth of domestic passenger volume for VJC will reach an average level from 2023. VCSC forecasts that VJC’s domestic passenger traffic in the periods 2023/2024/2025 will reach 118%/118%/119% of the 2019 level, compared to the previous forecast of 118%/119%/122%, as domestic travel demand gradually decreases from Q3 2022. Additionally, VCSC believes economic difficulties will also impact air travel demand.
The reopening of China will boost VJC’s international passenger transportation activities. VCSC expects VJC to benefit from China’s resumption of group tours to Vietnam since March 15, 2023. According to the Airports Corporation of Vietnam, international passenger arrivals in Q1 2023 reached 67% compared to 2019. VCSC believe that in the subsequent quarters of 2023, VJC’s international passenger traffic will experience a significant recovery due to the reopening of existing flight routes, particularly to and from China. Therefore, VCSC forecasts VJC’s international RPK index to reach 74%/100%/108%/110% of the 2019 level in the 2023/2024/2025/2026 periods, compared to our previous forecasts of 70%/98%/106%/108%.
The core business operations will generate profits in 2023 as aircraft fuel prices decrease. Although VCSC has adjusted down the assumptions for domestic/international passenger yields (a measure for airfare) in 2023 by 5%/16% compared to previous forecasts, the negative impact on the profit of the Transportation segment has been offset by (1) our reduction of 17% in the average Brent crude oil price in 2023 to $75 per barrel compared to $90 per barrel in our Energy Industry Report dated May 10, 2023, and (2) a decrease of 29% in our assumption for the aircraft fuel differential for 2023.