ACV earnings surged from revised pricing
According to the 2019 financial statement of ACV, the company revenue and profit reached VND 17,770bn and VND 6,028bn, an increase of 19% YoY and 44% YoY, respectively. This is a surprise result as the number of clients have not increased much and the competition within the industry has been rising.
According to the company, the main reason that made ACV earnings surge significantly in 2018 was the change in service pricing which was revised based on Decision 2345 issued by the Ministry of Transportation. Accordingly, the price of several services like flight take-off and landing, aviation security service charge, and passenger service charge increased significantly. The new service pricing helped ACV revenue increase by VND 1,081bn/year.
The Decision 2345 is expected to continue being the earning driver for ACV in 2019. Although ACV has to face many challenges this year (as mentioned above), the company has still set a remarkable growth target for 2019. ACV targets to serve 98.4mn clients in 2019, an increase of 3.5% YoY. The company plans to reach VND 19,127bn (plus 19% YoY) in revenue and VND 8,190bn (plus 7% YoY) in profit. This profit target does not include the profitability from FX activities.
Based on the first half result which the company achieved by way of profit before tax of VND 4,500 (plus 18% YoY), the 2019 plan is achievable.
Ministry of Transportation is major stakeholder
Although the business performance of ACV in 6M/2018 was very good, the company shareholders are still worrying about the future plans of the company. At the Annual General Meeting (AGM), the Board of Directors did not answer clearly the shareholders’ questions about the government divestment plan and the plan to move the stock listing from UPCOM to HOSE.
According to Lai Xuan Thanh, Chairman of ACV, the movement of ACV from UPCOM to HOSE is dependent on the process to resolve the problems which remain from privatization, especially in determining privatization value. To list on HOSE, the company needs to determine the government’s stake in ACV. The company is currently processing these procedures.
Notably, while the listing movement is dependent on the process of resolving problems which remain from privatization, the government divestment progress from ACV is relied on the listing process. This goes round in a circle. The Ministry of Transportation plans to divest 20% shares of ACV right after listing on HOSE, and sell another 10% the following year. However, the government will keep the ownership above 65% to keep its control in the company.
ACV borrowed JPY 70bn from ODA budget for constructing the T2 terminal at Noi Bai Airport and Tan Son Nhat Airport. The debt maturity is 40 years, in which the grace period is 10 years. ACV will have to pay debt from 11th year. According to the 2019 plan, the provision for FX loss is VND 600bn.
Practically speaking, the process to resolve the problems is not fully controlled by Board of Management at ACV. It is dependent on the plans and strategies of the government to list on HOSE or to implement the divestment plan.
The other bottleneck in this process are the policies and mechanism set for operating of runway areas. Previously, when doing privatization, the value of these assets was excluded from enterprise value. However, recently the Ministry of Transportation proposed to the government to allow ACV to manage and operate this area.
Furthermore, ACV also has to remove bottlenecks which relate to settlement in the state capital at ACV and tax responsibility.
Violations and Frauds
Besides the above two issues, the company shareholders were also surprised by the conclusion of government investigation which revealed many violations and frauds in operations of ACV.
Accordingly, the management of account receivables of the parent company and four other subsidiaries (Southern Airports Services, Air Cargo Services of Vietnam, Sai Gon Ground Services) showed many irregularities. At the end of 2017, the total account receivables of these five companies was VND 8,020bn, however, VND 943bn (11.8% of receivable) was not reconciled. The investigators from the Ministry of Finance also required ACV to pay another VND 321.8bn to the state budget.
Previously, according to the conclusion of the government investigation on the application of government policies and legal documents, the management of state capital and assets, the implementation of privatization, divestment and restructuring process of ACV, the company had violated the regulations with the money amount to the tune of 903bn. ACV was required to pay the tax amount of VND 692bn.
In the past, ACV missed transferring VND 297bn to Da Nang Airport. The receiving of 7.63ha land to expand the airplane parking area without the approval of Ho Chi Minh City People’s Committee also violated the regulations of the Land Law.
Lastly but most significantly, ACV has wrongly calculated the construction price, and double billed the cost in some maintenance and expansion projects of the company.