rpo

Mobile World Investment Corp (HSX: MWG)

Title of presentation

Industrials & Transportation Sector

Vietnam Access Day March 2019

Lucy Huynh, CFA Phu Pham Dang Thai

Senior Manager Analyst Analyst
lucy.huynh@vcsc.com.vn phu.pham@vcsc.com.vn dang.thai@vcsc.com.vn

Copyright © Viet Capital Securities

1
Contents

Long-term sector structural growth drivers

Vietnam is becoming a manufacturing hub

Vietnam is a fast growing aviation market

Airline competition is heating up

Transportation infrastructure development

Key stocks
KBC CII ACV SCS AST VJC HVN

2
Mobile World Investment Corp (HSX: MWG)
Title of presentation

Long-term sector structural growth drivers

3
Long-term sector structural growth drivers
Vietnam is becoming a manufacturing hub, evidenced Transportation demand is also being driven by other
by the flow of registered FDI to manufacturing (USD bn) factors, such as urbanization (urban pop./total pop.)

18 16.6 16.4 16.6 40%

15.5 15.9
16 14.5
14 30%
12
10 9.1
7.1 20%
8
6
4 10%
2
0 0%

Vietnam is among the fastest growing aviation markets Risk: Pace of transportation infrastructure development
globally (millions)
45 8% Gemalink Deep-Sea Port Phase 1 (2020)
40 7%
35 6%
30
5% SGN T3 Pax terminal (2023)
25
4%
20
3%
15
10 2%
Long Thanh Airport Phase 1 (2025)
5 1%
0 0%
China US India Indonesia Vietnam
North-South express railway (2050)
Additional passenger contributed each year 2015-2035 CAGR

Source: FIA-MPI, GSO, IATA, VCSC 4

Mobile World Investment Corp (HSX: MWG)
Title of presentation

Vietnam is becoming a manufacturing hub

5
Vietnam presents a cost-saving opportunity for manufacturers

Labor-intensive manufacturing is cheaper in Vietnam

USD Vietnam China

Manufacturing wages (*) USD2.4/hr USD5.0/hr

Industrial land rent

USD150/sqm USD370/sqm
(top of the range)

Power costs USD7.6 cents/kWh USD8 cents/kWh

Vietnam has proximity to existing major supply chains in the Pearl River Delta region in China
(travel time between Hanoi/Hai Phong-Shenzen via different modes of transport)

Air ~1-2 hrs

Road ~13 hrs

Sea ~2-3 days

Source: Statista, JLL, EVN, VCSC; Note: (*) estimates based on 2016 data 6
Favorable public policies should continue to attract global manufacturers

Ratification of new FTAs should continue to drive FDI inflows

10 FTAs signed and effective

2 FTAs signed but not yet effective (incl. CPTPP)

1 FTA negotiated (EVFTA)

3 FTAs under negotiation

Industrial and economic zones provide further incentives for foreign manufacturers

Import/export duty Land use levy exemptions Visa exemptions for foreign
Tax incentives
exemptions or reductions workers

Source: Statista, JLL, EVN, VCSC; Note: (*) estimates based on 2016 data 7
More manufacturing activity means more transportation/logistics demand

Vietnam’s cargo traffic has increased at a five-year CAGR of 7% with air cargo traffic growing
the fastest (growth in cargo traffic measured in tons x km over 2013-2018)

18%

14%

11%

7%

4%

0%
Rail Road River Sea Air Total

Most cargo traffic is transported by sea, river and road (breakdown of total freight volume by
mode of transport)
0.2% 0.3% 0.3% 0.3% 0.3%

58.3% 57.3% 56.0% 51.8% 51.2%

18.6% 19.8% 19.9%

18.0% 18.3%

21.6% 22.4% 23.8% 26.8% 27.2%

1.9% 1.8% 1.3% 1.3% 1.3%
2014 2015 2016 2017 2018

Rail Road River Sea Air

Source: GSO, VCSC 8

Mobile World Investment Corp (HSX: MWG)
Title of presentation

Vietnam is a fast growing aviation market

9
Vietnam is a fast growing aviation market

Total pax has increased at a five-year CAGR of 19% (millions)

120 35%

100 30%

25% International pax Vietnam

80
Domestic pax
20%
60 Total pax Vietnam
15% Domestic pax growth (RHS)
40
10% International pax growth Vietnam (RHS)
20 Total pax growth (RHS)
5%

0 0%
2014 2015 2016 2017 2018

IATA forecasts that Vietnam will be one of the fastest growing aviation markets globally

45 8%
40 7%
35 6%
30
5%
25
4% Additional passenger contributed each year
20
3% 2015-2035 CAGR
15
10 2%
5 1%
0 0%
China US India Indonesia Vietnam

Source: ACV, IATA, VCSC 10

Inbound tourism is booming

International arrivals have increased at a five-year CAGR of 15%

18 60%
16 50% Other source markets by all modes
14
40% South Korean arrivals by all modes
12
10 30%
Chinese arrivals by all modes
8 20%
6
10% International arrivals by air growth (RHS)
4
2 0%
Chinese arrivals by all modes growth (RHS)
0 -10%
2014 2015 2016 2017 2018

But Vietnam’s largest source market is China, making it vulnerable to swings in Chinese arrivals
100%

80%

60% International arrivals by air

Chinese arrivals by all modes
40%
Linear (International arrivals by air)
20% Linear (Chinese arrivals by all modes)

0%
Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19
-20%

Source: ACV, Vietnam National Administration of Tourism (VNAT), VCSC; Note: VNAT only reports arrivals statistics by source market for
all modes of transport rather than by air/sea/land. However, we note international arrivals by air represented 81% of international arrivals 11
by all modes in 2018 and therefore we consider statistics by all modes of transport is a good indication of trends by source market by air.
Vietnamese airlines are adding capacity and international routes

We estimate the total fleet of Vietnamese carriers will more than double by 2025 (no. of aircraft)
377

179

2013 2014 2015 2016 2017 2018E 2019F 2020F 2021F 2022F 2023F 2024F 2025F

Vietjet Air Vietnam Airlines Jetstar Pacific Bamboo Airways

VietJet Air has been focusing on international expansion (no. of international routes)

66

44

23

11
5
2

2013 2014 2015 2016 2017 2018

Source: Company data, VCSC; Note: Our total fleet estimate is based on guidance from the airlines. 12
Mobile World Investment Corp (HSX: MWG)
Title of presentation

Airline competition is heating up

13
New players are expected to put pressure on pax yields

Opening up of Vietnam’s airline market is accelerating (year commenced operations under

current brand)

Vietnam Jetstar Bamboo Air Asia

1993 2008 2011 VietJet Air 2019 2019
Airlines Pacific Airways Vietnam*

VietJet Air has rapidly taken domestic market share from Vietnam Airlines

41.0% 40.0% 36.1%

47.6%
57.3%
65.2%
76.7% 71.2% 15.9%
18.0% 17.0%
15.3%
13.1%
13.9% 48.0%
37.1% 41.0% 43.0%
14.8% 29.6%
17.4% 20.2%
8.0%
2011 2012 2013 2014 2015 2016 2017 2018E

Vietjet Air Jetstar Pacific Vietnam Airlines Air Mekong

Source: Company data, VCSC; Note: *Assumed 14

Air travel is underpenetrated in Vietnam, implying room for more carriers

Air travel is underpenetrated in Vietnam (trip per capita/GDP per capita, 2015)

1.60 Malaysia: 1.46 Taiwan: 1.16 South Korea: 1.17

1.40
1.20 Japan: 1.24
1.00 Thailand: 0.86
0.80
Indonesia: 0.45
0.60
China: 0.39
0.40 Vietnam: 0.40
Phillipines: 0.36
0.20
India: 0.10
-
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

Vietnam’s current market structure is still favorable given its population size

Country Population (mn) Airlines (no.)

Vietnam 95 3

Thailand 70 20

Malaysia 30 10

Philippines 100 10

Cambodia 15 7

Source: Airbus, World Bank, VCSC 15

Incumbent players also have aircraft fleet scale and flight slot advantages

New entrants will initially lack the scale to compete (our 2019 aircraft fleet forecasts)

102

78

20
15
5

Vietjet Air Vietnam Airlines Jetstar Pacific Bamboo Airways Air Asia

We expect incumbents to hold on to favorable peak time flight slots at busy major airports
(peak/off-peak time flight slots on SGN-HAN route)
23

13 13
11
9

2 2 2

VietJet Air Vietnam Airlines Jetstar Pacific Bamboo Airways

Peak Off-peak

Source: Company data, VCSC 16

Mobile World Investment Corp (HSX: MWG)
Title of presentation

Transportation infrastructure development

17
Vietnam’s airport infrastructure operates at overcapacity

Pax terminals at major airports are mostly at overcapacity (2018 pax traffic/current annual
designed pax capacity)
165%

137% 132%

104%

81%

58%

SGN HAN DAD CXR PQC HPH

SGN airport should have runway capacity to absorb a runway shutdown for maintenance in H2 2019

300,000 80%

250,000
70%
200,000

150,000 60%

100,000
50%
50,000

- 40%
2015 2016 2017 2018 2019F

Annual aircraft movements Estimated average runway capacity utilization (RHS)

Source: ACV, VCSC 18

Vietnam’s sea port infrastructure has more capacity headroom

Major port areas still have ample capacity (estimated 2018 container cargo throughput in
TEUs/estimated 2018 container cargo capacity in TEUs*)

86%
70%
60%

Hai Phong Cai Mep HCMC

69% of Vietnam’s 2018* total sea container cargo traffic passed through southern ports near HCMC
Others
8%
Hai Phong
23%

Cai Mep
23%

HCMC
46%

Source: VPA, VCSC; Note: (*) We estimate 2018 container cargo throughput in Hai Phong by taking its 2017A throughput and
multiplying it by the 2018 average throughput growth rate for Vietnam; for the Cai Mep area we use its actual 2018 throughput; for the 19
HCMC area, we assume its 2018 throughput was in line with its 2017 level.
 Major transportation infrastructure projects in the pipeline

Expected key Expected Additional Estimated cost

Project name Project type Status Next stage
developers completion capacity (USD bn)
Feasibility study
Long Thanh Phase 1 – 2025
Airport ACV Feasibility study appraisal and 25 million pax 16.0
international airport
approval
Feasibility study
Tan Son Nhat T3 Pre-feasibility
Airport ACV appraisal and Latest 2023 20 million pax 0.4
pax terminal study
approval
Phase 1
Phase 2 2.2 million TEUs
launched in May
Lach Huyen deep- feasibility study (1.1 million
Port SNP/PHP 2018; Phase 2 – 2020 0.7
sea port appraisal and TEUs/each
Phase 2 under
approval phase)
feasibility study
Construction is
Gemalink deep-sea Under expected to be
Port GMD Phase 1 – 2020 1.5 million TEUs 0.3
port construction completed in
2020
Eastern section of Road State and PPP Design Construction 2021 654.0 km 5.2
the North-South contractors consultancy and
expressway (**) PPP bidding
Ben Luc - Long VEC Under
Thanh expressway Road Operation 2020 57.7 km 1.6
(state-owned) construction
(*)
Trung Luong - My
Under Operation and toll
Thuan expressway Road CII 2020 55.6 km 0.4
construction collection
(*)
North-South
Pre-feasibility Phase 1 – 2032;
express railway Rail Undisclosed Feasibility study 1,545.0 km 58.0
study Phase 2 – 2050
project

Source: ACV, CII, GMD, Saigon New Port (SNP), Vilnalines, Ministry of Transport (MoT), VCSC; Note: (*) Part of, or related to, the North-
South road expressway project; (**) Including 11 sub-projects from Nam Dinh to Ha Tinh, from Quang Tri to Thua Thien Hue, from Nha 20
Trang to Dau Giay (Dong Nai) and My Thuan 2 Bridge (Tien Giang - Vinh Long) - Resolution no.52/2017/QH14 dated November 2017.
Mobile World Investment Corp (HSX: MWG)
Title of presentation

Key stocks

21
Industrial park developer - Kinh Bac City Development (HSX: KBC)

KBC has a large leasable land bank, mostly in Having major manufacturers as anchor tenants is one
key industrial hubs in northern Vietnam (ha) of KBC’s competitive advantages
2,500 60%

2,000
50%
1,500
40%
1,000
30%
500

- 20%
2016 2017 2018 2019F 2020F 2021F
Total leased area Remaining leasable area
Occupancy rate - RHS

KBC's average IP land sales prices have shown good We expect KBC to maintain a stable GPM above 50%
growth, especially in key industrial hubs (USD/m2/50yrs) even as its revenue mix shifts (VND bn)

120 3,000 60%

2,500
100 55%
2,000
80
1,500 50%
60 1,000
45%
40 500
20 0 40%
2016A 2017A 2018A 2019F 2020F 2021F
0
2016 2017 2018 2019F 2020F 2021F Industrial parks Urban areas
Bac Ninh Hai Phong Others Other operating revenue GPM - RHS

Source: KBC, VCSC 22

Infrastructure and real estate - HCMC Infrastructure Investment (HSX: CII)

CII has nine BOT projects in its portfolio/pipeline, with Toll cash collection should increase as new BOT projects
an average concession period of 13 years and average come online and traffic volumes grow (VND tn)​
guaranteed ROE of 11% (forecast concession period) ​ 5

VND tn
BOT project name 2018A 2019F 2020F 2021F 2022F 2023F 2024F*
4
HN Highway
PR-TC 1 3
PR-TC 2
RM 1 2

RM 2 1
BTr 2
DT 741 -
2018A 2019F 2020F 2021F 2022F 2023F 2024F
Co Chien
HN Highway PT-TC 1 & 2 RM 1 & 2 BTr 2
TL-MT
DT741 Co Chien TL-MT

CII has 14.3 ha of land bank in prime areas in HCMC Real estate revenue is forecast to boost medium-term
for residential real estate development​ revenue (VND bn) ​

Land area 5,000

Project 2017A 2018F 2019F 2020F 2021F 2022F
(sqm)
4,000
Lakeview 1 14,060
Lakeview 2 6,515 3,000
Lakeview 3 9,474
Lakeview 4 9,474 2,000
Lakeview 5 9,474
Riverpark 15,378 1,000
Riverpark 19,882
152DBP 5,600 -
DR 41,497 2017A 2018A 2019F 2020F 2021F 2022F

Expected construction period Expected delivery period Others Toll collection Real estate

Source: CII, VCSC; Note: * We note that while our chart ends at 2024, this does not necessarily imply all concession periods end in
23
2024
Pax terminal operator - Airports Corporation of Vietnam (UPCoM: ACV)

ACV lacks key international pax terminals in its portfolio As a result, ACV’s international pax growth has lagged
(ACV’s market share of Vietnam’s 2018 pax traffic) Vietnam’s international pax growth (monthly YoY growth)

International Domestic 30%

20%
Others
30% 10%

0%

ACV International pax Vietnam

70% ACV
100% International pax ACV
International pax ACV underlying

We see only upside for ACV’s non-aeronautical revenue ACV’s significant long-term capex pipeline will moderate
but this will take time (% of total revenue) margin expansion and drag on FCFF (VND bn)

53% 30,000
47%
44% 44%
20,000

21%
14% 10,000
11%

CAPEX ex LTA CAPEX LTA

Source: ACV, VCSC 24

Air cargo terminal operator - Saigon Cargo Service (HSX: SCS)

SCS operates in a duopoly market with high barriers to Planned capacity increase will capture growing air cargo
entry due to limited land available around SGN airport traffic volume (tons)
400,000
350,000
300,000
Phase 1
250,000
200,000
150,000
100,000
50,000
TCS -
SCS

A flexible workforce and high operating leverage should Low capex needs and a strong balance sheet are expected
lead to further margin expansion and robust profits to drive strong FCFF generation (VND bn)
90% 1,500
80%
70%
60% 1,000
50%
40% 500
30%
20%
10% 0
0%

-500

GPM NPM -1,000

Source: SCS, VCSC 25

Airport retailer and hotel operator - Taseco Airs (HSX: AST)

By 2020, we expect AST to have 104 airport retail stores By 2021, we expect AST’s hotel capacity to increase 3.8x
across seven airports (no. stores*) after it begins operating its second hotel (no. rooms)
35
30
970
25
20
15
10
5
0
HAN DAD PQC SGN CXR HUI VDO Airport
TBC 202

Existing non duty-free Planned non duty-free

Existing duty-free 2014 2021F

Core businesses produce high GPM although We expect long-term core gross profits to increasingly
start-up of second hotel will initially drag come from AST’s hotel operations (VND bn)
70% 1,400
60% 1,200
50% 1,000
40% 800
30% 600
20% 400
10% 200
0% -

Non duty-free retail Hotel Others Consolidated Non duty-free retail Hotel Others

Source: AST, VCSC; Note: *existing and planned stores as of Jan. 30, 2018. AST has 100% ownership of all of its non-duty free stores 26
except at SGN and PQC airports, where it has a 65% stake in these stores. AST has 49% ownership of all of its duty free stores.
Low cost carrier - VietJet Air (HSX: VJC)

Continued international expansion is expected to drive International expansion should also drive up forecast
forecast volume growth (RPK) ancillary revenue growth ~GPM of 80%-90% (VND tn)
60,000 25,000

50,000 20,000
40,000
15,000
30,000
10,000
20,000

10,000 5,000

0 0

Low cost structure allows it to compete with low airfares VJC has superior operating efficiency with load factor and
(CASK-ex-fuel, US cents) block hours at industry-leading levels

2.8 90% 14.5

89% 14.0
2.6
13.5
2.4 88%
13.0
2.2 87%
12.5
2.0 86% 12.0
1.8 85% 11.5

VJC Peer median Block hour - RHS Load factor

Source: VJC, VCSC 27

 Full service carrier - Vietnam Airlines JSC (UPCoM: HVN)

As the national carrier, HVN dominates key domestic VNA offers similar service quality to other regional FSCs
and international routes (market share) (SKYTRAX rating)
HCMC - Hanoi HCMC - Singapore
5-star
4-star
BA
2%
VNA
30%
VNA Others
VJC 41% 40%
42% Non-rated

JPA
10%
JPA VJC
15% 20%

VNA’s lower cost structure than regional FSCs means HVN’s subsidiaries/affiliates materially contribute to
that it can price air fares more competitively NPAT and are mostly from non-airline operations (VND
(2018, US cents) bn)
7.49
7.01 3,000
6.47
6.16
2,500
5.24
2,000
4.13
1,500
1,000
500
0

RASK CASK CASK-ex-fuel

VNA Peer median

Parent Subsidiaries

Source: HVN, VCSC 28

 Key stocks: data

Market State FOL ADTV Share Target Div. 12M

FOL Upside
Ticker Rating Cap O'ship Avail. 30D Price Price Yield TSR
% %
USD mn % USD mn USD mn VND ps VND ps % %

CII BUY 250.4 9.8% 70.0% 45.3 1.1 23,250 31,500 35.5% 0.0% 35.5%

SCS BUY 317.3 0.0% 49.0% 63.0 0.2 146,000 181,900 24.6% 4.8% 29.4%

VJC BUY 2,826.2 0.0% 30.0% 220.1 4.1 120,000 149,200 24.4% 4.2% 28.6%

AST BUY 110.3 0.0% 49.0% 23.2 0.4 70,500 84,500 19.9% 4.2% 24.1%

KBC O-PF 302.3 0.0% 49.0% 89.1 1.8 14,800 16,000 8.1% 6.8% 14.9%

HVN M-PF 2,497.4 86.2% 30.0% 424.3 1.0 40,500 40,600 0.2% 2.0% 2.2%

ACV M-PF 8,320.7 95.4% 49.0% 3,777.6 0.3 87,900 83,300 -5.2% 1.0% -4.2%

Source: Bloomberg, VCSC; Note: Share prices as at March 01, 2019 29

 Key stocks: summary valuations

EV/
Share EPS g EPS g EPS g P/E P/E P/E EBITD ROE Net D/E
P/E P/B LQ
Ticker price 2018A 2019F 2020F 2018A 2019F 2020F A 2019F LQ
TTM x x
VND ps % % % X x x 2019F % x
X

CII 23,250 -94.3% 1003.4% -81.6% 70.5x 70.5x 6.3x 34.7x 6.9x 17.6% 1.2x 1.3x

SCS 146,000 16.7% 13.3% 35.1% 18.9x 18.9x 16.7x 12.4x 12.6x 52.7% 8.9x N.M.

VJC 120,000 1.4% 24.9% 18.4% 12.5x 12.5x 10.0x 8.4x 8.2x 43.4% 4.7x 0.2x

AST 70,500 -21.3% 28.3% 11.4% 15.8x 15.8x 12.4x 11.2x 9.4x 35.3% 4.6x N.M.

KBC 16,000 27.9% 0.7% 7.0% 9.3x 9.3x 9.2x 8.6x 5.4x 8.2% 0.7x 0.2x

HVN 40,500 -3.6% -19.5% 6.1% 31.6x 31.6x 39.2x 37.0x 9.2x 11.3% 2.7x 1.6x

ACV 87,900 49.1% 7.6% 2.0% 34.3x 34.3x 30.0x 29.4x 14.9x 21.5% 6.3x N.M.

Source: Bloomberg, VCSC; Note: Share prices as at March 01, 2019 30

VCSC Contacts

RESEARCH INSTITUTIONAL SALES

Head of Research Head of Institutional Sales
Alastair Macdonald, CFA Dung Nguyen
alastair.macdonald@vcsc.com.vn dung.nguyen@vcsc.com.vn
(8428) 3914 3588 ext. 105 (8428) 3914 3588 ext. 136

Senior Manager, Industrials & Transportation Corporate Access

Lucy Huynh, CFA ca@vcsc.com.vn
lucy.huynh@vcsc.com.vn
(8428) 3914 3588 ext. 130

Analyst, Industrials & Transportation

Phu Pham
phu.pham@vcsc.com.vn

Analyst, Industrials & Transportation

Dang Thai
dang.thai@vcsc.com.vn
(8428) 3914 3588 ext. 149

31
Mobile World Investment Corp (HSX: MWG)
Title of presentation

Glossary

32
Glossary

Abbreviation Full name or description

Pax Passenger
Number of passengers which enter and exit domestic passenger terminals (i.e. one
Domestic pax
passenger is counted twice)
Number of passengers which enter and exit international passenger terminals (i.e. one
International pax Vietnam
passenger is counted twice)
Number of passengers which enter and exit international passenger terminals (i.e. one
passenger is counted twice) which are majority controlled by ACV. This excludes DAD
International pax ACV
international passenger terminal from Q3 2017 and CXR international passenger
terminal from Q3 2018.

Number of passengers which enter and exit international passenger terminals (i.e. one
International pax ACV underlying passenger is counted twice) excluding DAD and CXR international passenger
terminals for the entire period.
International arrivals by air Number of inbound foreign passengers by air.
Source market arrival by all
Number of inbound foreign passengers travelling by air, sea and land.
modes
SGN airport Tan Son Nhat airport (Ho Chi Minh City)
HAN airport Noi Bai airport (Hanoi)
DAD airport Da Nang airport (Da Nang)
CXR airport Cam Ranh airport (Nha Trang)
PQC airport Phu Quoc airport (Phu Quoc)
HPH airport Cat Bi airport (Hai Phong)

Source: VCSC 33
Glossary (cont…)

Abbreviation Full name or description

Available Seat Kilometers is the number of seats available for passengers multiplied
ASK
by the distance in kilometers flown and reflects the airline’s seat capacity.

CASK Cost per ASK is the unit cost of production (ASK).

Earnings Before Interest and Tax Depreciation Amortization Rental is the value of
EBITDAR revenue before interest expense and tax added before depreciation, amortization and
aircraft rental expenses.

FSC Full Service Carrier

HVN The Group/Vietnam Airlines JSC

LCC Low Cost Carrier

OTP On Time Performance is a measure of flight punctuality.
Passenger Yield/Yield Scheduled passenger revenue per RPK.
Revenue Passenger Kilometers is passenger revenue derived from the number of
RPK
flights multiplied by the distance (kilometers) flown.

Source: VCSC 34
Glossary (cont…)

Abbreviation Full name or description

HN Highway Hanoi Highway Expansion BOT project

PR-TC 1 Phan Rang - Thap Cham phase 1 BOT project

PR-TC 2 Phan Rang - Thap Cham phase 2 BOT project

RM 1 Rach Mieu Phase 1 BOT project

RM 2 Rach Mieu Phase 2 BOT project

BTr 2 Binh Trieu Phase 2 BOT project

DT 741 DT741 BOT project
Co Chien Co Chien BOT project
TL-MT Trung Luong - My Thuan Expressway BOT project

Source: VCSC 35