Aviation stocks get a boost as VN – China cooperation strengthens

Aircraft from Vietnam Airlines landed at an airport in Shanghai. VNA/VNS Photo

HÀ NỘI — After struggling due to the pandemic and its lingering effects, aviation stocks are expected to have excellent prospects in the near future thanks to Việt Nam’s promotion of cooperation with China. 

So far this year, the aviation industry hasn’t really taken off as expected, as airlines still show poor businesses performance. 

According to experts, since a significant portion of their revenue comes from international passengers, airlines are still facing difficulties due to the lingering impact of the pandemic. 

By the end of September, although airlines managed to reduce losses by VNĐ4 trillion (US$164.8 million) from the same period last year, they still reported a loss before tax of nearly VNĐ700 billion. 

In fact, Vietnam Airlines and Vietjet have seen some improvement in their gross profit margins, reaching around 5-8 per cent, thanks to increased exploitation in the international market. 

Nevertheless, the results were still much lower than before the pandemic.

Meanwhile, the core business is struggling to find a balance between income and expenses due to the incomplete recovery of the international market, especially in key markets. 

“Currently, aviation businesses are struggling with business results due to many macroeconomic impacts such as exchange rates, interest rates and fuel prices,” Lê Xuân, a HCMC-based independent trader, told Việt Nam News. 

On the other hand, stocks in this group have been affected by a significant drop of 55.49 points, or 4.49 per cent, of the market on August 18, causing them to remain unstable until now.

As a result, most of the aviation stocks have experienced sharp declines, with many still not recovering to the price levels seen at the beginning of August.

For example, shares of Vietnam Airlines (HVN) were last traded at VNĐ10,900 per share, 24.8 per cent lower than the high set in July, which was around VNĐ14,500 per share.

Previously, HVN was put under trading restrictions by the Hồ Chí Minh Stock Exchange (HoSE) starting on July 12 due to a delay in submitting the audited financial report for 2022, exceeding the prescribed deadline by 45 days.

Other aviation stocks, such as ACV of Airports Corporation of Vietnam, NCT of Nội Bài Cargo Terminal Service JSC, SGN of Saigon Ground Services JSC, MAS of Danang Airport Services JSC and others, have also not recovered yet.

However, a rare bright spot is seen in the performance of Vietjet’s stock (VJC). Currently, VJC is trading at VNĐ103,000 a share, surpassing prices before the August 18 session and being the most expensive stock in the aviation industry.

Positive signals

Some positive signs have started to emerge after the news of the state visit to Việt Nam by China’s Party General Secretary and President, Xi Jinping.

In the market, aviation stocks reacted positively to the headline. Despite the overwhelming selling pressure on large-cap stocks that brought the VN-Index down on December 13, the aviation shares, represented by HVN and VJC, performed well.

In a report highlighting the stocks that benefit from Việt Nam – China cooperation, Mirae Asset Securities made an optimistic prediction for the aviation sector, considering it as one of the industries with great potential.

Data from Mirae Asset showed that in 2019, Việt Nam welcomed over 18 million international visitors, with Chinese tourists making up 32.2 per cent, equivalent to around 5.8 million visitors. However, due to the adverse effects of the COVID-19 pandemic, the overall number of international visitors to the country took a nosedive during 2020-2021.

In particular, the number of international visitors in 2021 reached 157,000, and in 2022 it was 3.6 million. For China, in 2021, the total number of visitors to Việt Nam was the lowest in 10 years, at around 57,000.

However, in the first nine months of this year, the number of international visitors to the country was nearly 9 million, with Chinese tourists accounting for over 1.1 million. This indicates a gradual recovery in Chinese tourism. 

Xuân sees the potential for aviation stocks to recover as quite large, but the recovery time may be slower than in other industries.

“The bright spot for this industry is the number of international tourists is recording positive results, especially Chinese guests,” Xuân said. 

Moreover, China is expected to have an additional airline flying to Việt Nam, which will contribute to a significant increase in the number of visitors in the near future.

Việt Dragon Securities (VDSC) also believes that at the end of 2023, the momentum from Chinese tourists and more lenient visa policies will continue to support the positive trend of international air passenger traffic and the profit outlook of most businesses in the industry.

Therefore, companies with a strong competitive position, such as Airports Corporation of Vietnam, Saigon Ground Services and Taseco Air Services, among others, will maintain double-digit profit growth, although it may slow down slightly compared to the first half of the year as the low base effect gradually diminishes. 

Moreover, the growth rate of international passenger traffic is expected to normalise in 2024, resulting in a projected 42 per cent increase in profits before tax over this year. The increase will be driven by a greater contribution from the foreign market, which will result in higher average air service rates and profit margins.

“The international passenger market is expected to recover to pre-pandemic levels by 2025, and this trend will help most businesses in the industry continue to experience positive profit growth in 2024,” VDSC said. — VNS