Thai Airways International

Hold; Bt19.20;

Price Target : Bt20.50 (Prev: Bt30.00); THAI TB

- Expect Bt2.4bn net profit in 3Q11, led by extra gains and reversal of provision

-Expect very weak cabin factor in 4Q11

-Cut FY11-12F earnings, and TP to Bt20.50; reiterate HOLD for limited upside potential

Expect weak operations in 3Q11. THAI is expected to turn in only Bt584m core profit in 3Q11F vs Bt3.4bn in 3Q10, on weak cabin factor and yield amid rising competition, decelerating global economic growth, and a spike in jet fuel prices. Its operations would be loss-making if we exclude the anticipated write-back of (i) Bt1.5bn provision for 1-month employees’ bonus that was booked in 2H11, and (ii) Bt1bn provision for an anti-trust lawsuit. Including Bt2.3bn forex (extra) gain, we expect THAI to turn in Bt2.4bn net profit for 3Q11F against Bt7.9bn loss a quarter ago and Bt136m breakeven profit in 3Q10.

Will remain weak in 4Q11. Flooding in Thailand since the start of the quarter will deter international visitors. The fragile global economy is also expected to reduce travel demand, while competition continues to heat up in the airlines industry. Oct11 passenger cabin factor tumbled to 66% vs 74% in Oct10. Advanced bookings also remain weak with Nov11 and Dec11 bookings at only 60% and 53%, respectively, against 72-75% cabin factor in Nov-Dec10.

Maintain Hold, TP cut to Bt20.50. Given weaker-than-expected traffic ahead, we raised FY11F net loss to Bt5.5bn (from Bt1.7bn) and slashed FY12F profit by 42% to Bt2.9bn. And with negative sentiment towards tourism and related counters now, we reduced FY12F target PBV multiple to 0.7x (from 1x), or -1SD of THAI’s 7-year mean.