We attended AST’s AGM on May 24 in Hanoi. Overall, the short-term recovery outlook is optimistic albeit trailing our expectation. Meanwhile, management is more aggressive on the medium-term outlook than our expectation. 

- Revenue: VND339bn; +29% YoY; 23% of our 2024F. 

- PBT: VND62bn; + 29% YoY; 19% of our 2024F. 

- PBT margin: 18.3% vs Q4 2023: 14.7%; our 2024F: 22.1%. 

- Store count:121; +1 vs YE 2023.

Domestic sales slumped in accordance with a 13% YoY decrease in the number of Vietnam’s domestic air passengers due to aircraft repairs by domestic airlines. Meanwhile, international passengers continued strongly recovering, on track to exceed ACV’s target of 41 million passengers for 2024.

- Revenue: VND1,350bn; +23% YoY; 92% of our 2024F; 118% of 2019.

 + Domestic: VND453bn.

 + International: VND857bn.

- PBT: VND230bn; + 29% YoY; 71% of our 2024F; 87% of 2019.

- PBT margin: 17.0% vs 2023: 16.1%; our 2024F: 22.1%; 2019: 23.1%.

- Store count: 126; +6 vs YE 2023.

AST is confident that it will exceed its guidance. Nevertheless, management attributes the compression in 2024G PBT margin vs 2019 to two factors: (1) lower sales per store due to weak domestic consumer sentiment and the incomplete recovery of high-spending Chinese tourists and (2) ACV’s new revenue sharing scheme which leads to higher leasing costs for AST.

However, we believe 2024 PBT margin will improve significantly vs 16% in 2023 due to higher sales/store. This is because of a recovery in foreign air passengers, which reached 100% of the pre-COVID level in Q1 2024.

ACV’s revenue sharing scheme now applies to ~95% of stores vs fixed rental fees pre-COVID. Per AST, while this new scheme hurts its profit margins, it favors AST’s scale to help the company in bidding competition. Accordingly, small-scale retailers find it harder to bear the cost and it has become infeasible for one retailer to operate one or two stores only.

Rental fees as an effective percentage of retail revenue 

Source: AST, Vietcap

AST aims to double its floor area in the medium term thanks to  bidding for space in three new passenger terminals and expanding the current stores, which is a stronger goal than our expectation. The company is intensively preparing human resources and processes for this large project. AST also plans to take on more debt and raise new equity in 2025. No further guidance on investment costs and issuance size was provided.

Timeline of key new passenger terminals 

Source: AST, ACV, Vietcap; Details of store count has not been finalized by ACV.

AST is working with strategic shareholders and foreign agents to redesign old brands as well as introduce new-look brands for its points of sales (POS). Starting in May and June 2024, it will roll out these designs for new stores. During the medium term, it will apply new branding to other POS.

Per management, A la carte Da Nang Hotel’s NPAT should remain negative in 2024, which is worse than the pre-COVID annual level of ~VND50bn. This is due to increased competition, the slow recovery of Chinese tourists, and the hotel’s previously good view is now partly blocked and its 10-year-old infrastructure requires repair. However, AST does not plan to divest from this hotel as it completes AST’s value chain from airport to hotel in Da Nang.

VinaCS (air catering services) is facing difficulties vs the pre-COVID period due to the restructuring Bamboo Airways (its biggest client) but should improve going forward as other clients are moving to Noi Bai International Airport where VinaCS operates. AST is closely watching and preparing for bidding for Long Thanh International Airport’s catering services.

7. Proposed dividends:

- VND1,200/share for FY 2023.

- 30% on par value (in cash and/or in stock) for FY2024.

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