Airports of Thailand
Despite floods and macroeconomic woes, we believe traffic at AOT's airports could overtake its most recent record high. Share price weakness means high-potential airport assets are now available at a bargain.
The stock remains a firm OUTPERFORM. Nevertheless, our target price is trimmed (DCF-based, 9.2% WACC, 5% long-term traffic growth) as we temper our forecasts, factoring in some measure of impact from the floods and global economic fragility.
AOT has released its Sept air traffic data, which show a 19% yoy increase in the number of passengers travelling through its six airports. This brings FY11 (Oct 2010-Sep 2011) growth to 15% or 66.3m pax vs. the prior FY08 record of 58.3m pax. We expected 64.7m for FY11. All of its six airports reported double-digit growth rates (Figure 3).
We remain bullish on the long-term growth prospects of air traffic at AOT’s airports. Two key drivers are the rising Asian middle class and the increase in low-cost flights.
Despite better-than-expected traffic, we trim our FY11 profit forecast to factor in potentially higher bonus payments in 4QFY11. With this adjustment, we expect AOT to report core profit of THB680m (Figure 4). We also lower our 2012 core profit
forecast to reflect 1) a lower traffic growth estimate of 7% vs. 8% given the potential impact of the floods, and 2) a higher operating cost ratio of 75%. These offset our lower tax rate assumption of 23%.
A source expects tourist arrivals to Thailand to plunge 20% during and following the ongoing floods. If we factor in these negatives for Oct-Nov, our traffic growth target in FY12 would fall to 3% and our core profit forecast shrink to THB4.2bn, which is too extreme, in our view. We also believe the market has overestimated the impact of floods on AOT.
History shows that tourism always emerges stronger after disruptive events, which are an opportunity to buy quality assets. Through AOT, high-potential airport assets are available at a bargain.
