Investors eyeing lucrative aviation share listings

November 28, 2016 | 09:38
With news of Vietnam Airlines registering on the UPCoM market and Vietjet planning its IPO, the Vietnamese stock market is looking at a busy December.
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Although details of its IPO have not been made public, Vietjet is preparing a $200 million IPO in December, according to a Reuters news bulletin from last week. This is big news for the stock market to close the year.

Vietjet declined to comment on the report and said the company has not released official information.

However, according to International Financing Review - another Reuters publication - the IPO will take place in early December and Vietjet was valued by analysts at between $1 billion and $1.4 billion.

Commenting on the information, experts said that top companies, such as Vietjet, would usually be valued at a premium, especially as Vietjet's growth rate has exceeded that of the Vietnamese airline industry, which for many years has seen double-digit growth.

Along with Vietjet, the debuts on the UPCoM market of Airports Corporation of Vietnam (ACV) on November 21 and Vietnam Airlines in early December are bringing billion-dollar quality assets to the market. As a result, the market will become more attractive to foreign capital and local investors will have more options.

Rare catch on the horizon

Desire to invest in the aviation industry can be gauged by ACV's price movements on the UPCoM market. After only three days of trading, ACV went from VND25,000 (about $1.1) on November 21 to VND40,300 ($1.77) at the close of November 24.

Thus, with a total of 1.17 billion shares in circulation, ACV’s market capitalisation has exceeded $2.1 billion. According to its 2016 business plan, the company is targeting $530 million revenue, $90 million in pre-tax profit, and a 5 per cent dividend yield.

ACV’s shares have been soaring since appearing on the UPCoM market, possibly because of the limited quantity of tradable shares as well as the large price fluctuations typical to the UPCoM market. As of now, the Ministry of Transportation holds up to 95.4 per cent of ACV and these shares are not tradable.

Nonetheless, the price increases in ACV or Vietnamese top brewer Habeco, whose share rose from VND39,000 ($1.72) to VND145,000 ($6.38) in just eight trading sessions, has shown the appeal of big companies that are embedded in industries considered to have strong potential in Vietnam.

Back to the aviation industry, according to a forecast from the International Air Transport Association, Vietnam is among the seven fastest-growing aviation markets in the world and will become the third in terms of volume of passengers and transported cargo.

Figures from the Civil Aviation Authority of Vietnam are even more optimistic. In particular, in the first quarter of 2016 alone, domestic airlines transported over 9 million passengers, both domestic and foreign, up 32 per cent on-year.

However, even though there are four airlines in service, the market seems to be dominated by the competition of the two largest carriers, Vietnam Airlines and VietJet Air, which hold about 87 per cent of the domestic market.

For three years in a row, Vietjet shareholders received a dividend yield of 70 per cent annually. Notably, the 2016 yield is expected to be 100 per cent, and according to unofficial sources, 2017’s profit could exceed 70 per cent of the chartered capital, not to mention additional paid-in capital.

According to its income statement, in 2015, Vietjet’s revenue rose by 205 per cent to $488 million, while net income reached $44 million. The company is targeting a revenue of $968 million.

As for Vietnam Airlines, in 2016, the company was aiming for a pre-tax profit of $101 million, up 121 per cent from 2015. Vietnam Airlines (OTC: HVN) launched an IPO in November 2004, selling 49 million shares for VND22,307 ($0.98) apiece.

According to a securities stock broker, HVN’s shares are being offered at VND35,000-40,000 ($1.54 - $1.76) per share. This puts HVN’s market capitalisation at about $2.8 billion, which would rank among the highest on the exchange, when listed.

According to analysts of a securities firm, these figures show a great potential for Vietnam’s aviation industry, and for investors the question is not of price but availability.

Looking back at Vietnam Airlines’s IPO, late 2014 was not the best time for the stock market, but there was fierce competition between investors registering to buy. Eventually, Techcombank and Vietcombank came out on top with much higher bids than initially expected.

This race will be repeated by Vietjet’s upcoming IPO, especially now that the stock market is vibrant. Vietjet has a few advantages, such as remarkable growth rate and a modern, dynamic management structure run by “well-known” entrepreneurs in the market. It is the first Vietnamese company to have a complete IPO that meets international standards.

“These factors make the company more appealing than any state-owned enterprise currently being privatised,” said the above expert. “The market will do a better job at pricing, but simple methodologies, such as discounted cash flows or public company comparables, could easily value Vietjet at $2 billion - a December “blockbuster” for the Vietnamese stock market.

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By By T Le

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