Airports of Thailand

Airports of Thailand Plc (AOT)

Above all estimates: AOT posted a 4Q11 net profit of Bt160m, a reversal from net losses of Bt20m for 4Q10 and Bt27m for 3Q11. Excluding an FX loss of Bt879m and an asset impairment of Bt333m, 4Q11 core profit would be Bt1,369m, a reversal from the core loss of Bt41m for 4Q10 and up 54% QoQ. Core earnings were somewhat above our forecast and the consensus, led by surprisingly good revenue and lower-than-expected depreciation and tax expenses. AOT also reported an FY11 net profit of Bt2,528m, up 24% YoY.
Results highlights: The drivers of the strong core earnings growth were: 1) solid air traffic expansion and 2) higher landing and parking charges with the expiry of aiding measures in Dec 2010. In 4Q11, air traffic rose QoQ—passenger numbers increased by 21% YoY and 8% QoQ to 16.7m people, while aircraft movement increased by 18% YoY and 2% QoQ to 111,502 flights.
Outlook: AOT’s 1Q12 (Oct-Dec) core earnings are expected to weaken both YoY and QoQ, as foreign tourists canceled visits as a result of the flooding. Air traffic statistics for Nov reflected the inundation—passenger numbers declined 9% YoY to 4.7m people (international passengers dropped 17% YoY, but domestic passengers rose 5% YoY) compared to 18% growth during the previous 10 months of this calendar year.
What’s changed? We maintain our FY12 net profit forecast of Bt4,083m unchanged, as we have already factored in a lower air traffic growth assumption of 1% (from 7%)—the Ministry of Tourism & Sports recently revised down its 2012 foreign tourist target to 18.7m people from 19.5m, implying only 1% YoY growth.
Recommendation: Concerns about lower visitor numbers, due to the recent flooding in Thailand and weak US and EU economies, may generate negative sentiment toward the stock in the near-term. However, we expect air traffic growth to resume momentum now that the flooding has ended. AOT’s earnings should be sustained strong going forward (with scope for future upside if passenger service charges [PSC] are increased). As such, we expect a re-rating. The stock is also deeply discounted to regional peers—a YE12 PBV of only 0.8x versus an Asian average of 1.3x and a long-term mean of 0.9x.