HVN: Vietnam Airlines Likely Reverts VND 402.9 Billion Provision in Q4/2019, State Divestment On Hold

Vietnam Airlines Corp (HVN) is expected to revert VND VND 402.9 billion provision in Q4/2019 according to new regulation by the government.

The Ministry of Finance has issued Circular No. 48/2019 / TT-BTC guiding provision for loss of investments which stipulates that enterprises are not allowed to make provisions for investments abroad. Therefore, HVN will revert its provision for losses in investment in Cambodia Angkor Air.

According to the financial report, Vietnam Airlines has invested VND868.5 billion in Cambodia Angkor Air to own 49% stake in the company whose charter capital is USD 100 million. Last year, Cambodia Angkor Air lost US $ 6.4 million despite a net revenue of US $ 94.1 million. To date, Vietnam's airline has made a provision of VND 402.9 billion (up 7.4% compared to the beginning of the year).

In related news, State Capital Investment Corporation (SCIC) recently said it will divest 15% stake in HVN to reduce the state’s ownership rate in Vietnam Airlines to 71.16% in the period 2019-2020; At the same time, HVN will also issue shares to raise capital in the period of 2019 - 2025 to reduce the state capital stake to 51% as targeted.

In the latest update of HVN, Ho Chi Minh City Securities Corporation (HSC) estimates that in 9M2019, Vietnam Airlines will generate revenues of VND76,115 billion (up 3.6% compared to the same period last year) and profit before tax of VND2,986 billion (up 23.1%).

Accordingly, Vietnam Airlines will complete72.8% of the adjusted revenue plan for the whole year and complete 88.8% of the profit after tax target.

If excluding profit from Sale and Leaseback, Vietnam Airlines' 9-month pre-tax profit  will increase by 26% YoY, reaching VND 2,861 billion.

HSC said that profit in the period increased sharply due to the sudden increase in market share in July due to the limited capacity of its competitor Vietjet leading to total passenger volume up 3.3% YoY. However, this is only for short term.

Besides, contributing to higher profit number also comes from lower  fuel price -9.1%, more effective cost management and lower exchange rate losses.

In the short term, HSC expressed concern for Vietnam Airlines about the impact of increased competition in the domestic market and will lead to a decline in occupancy rates and ticket prices, with new comers such as Bamboo Airways and Vietstar Airlines Vinpearl Air, Vietravel Air and KiteAir Vietnam.

However, according to HSC, Vietnam Airlines has both traditional and low-cost airlines in its business model, thereby helping it expand its range from affordable to high-end customers in the context of low cost airlines are playing an increasingly important role in the industry.

In addition, with the diversity in the flight network and the reduction of dependence on the domestic aviation market, HSC experts expect Vietnam Airlines to have positive results especially from international flights.

 

 

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