Airports of Thailand

Airports of Thailand Plc (AOT)
 

Investment thesis: The key messages from the analyst meeting on Friday reaffirmed our positive view on FY12 air traffic growth. Moreover, there would be scope for upside if passenger service charges [PSC] were increased and/or low-cost carriers relocated to Don Mueang. As such, we expect a further valuation re-rating. The stock currently trades at a YE12 PBV of 1.1x (1SD above its long-term average of 0.9x), a discount to the 1.3x regional mean.
Strong YoY air traffic growth in 3Q12: Even though 3Q12 air traffic is expected to soften QoQ, due to seasonality, YoY air traffic growth momentum has been sustained QTD. Passenger numbers grew 12% YoY, while aircraft movement rose 8% YoY during April-May. Traffic at Suvarnabhumi Airport during June 1-17 strengthened further YoY—growth in international passengers of 14% and domestic passengers of 36%—despite a runway maintenance shutdown. As such, 3Q12 core profit is expected to post strong YoY expansion. Note, however, that extra expenses incurred for repairs to Don Mueang Airport may dampen the 3Q12 bottom-line.
PSC rises in progress: AOT has already proposed PSC increases (from Bt700 to Bt800 for international passengers and from Bt100 to Bt150 for domestic passengers) to the Civil Aviation Commission for approval (perhaps by 4Q12). Management expects the charges to be implemented in 4Q13 (fiscal year ends Sept), if approved, a slight delay from its earlier expectation of 3Q13.
Earnings upside from the relocation of LCCs to Don Mueang: The firm has offered incentives (discounts to landing & parking charges and rental fees) to low-cost carriers (LCCs) to return to Don Mueang Airport. Management guided that earnings would decline by Bt245m during FY13-15 under the worst-case scenario where no additional traffic uses the freed up capacity at Suvarnabhumi Airport. That would be much shallower than our assumption of a Bt900m profit fall. Don Mueang’s soft opening is slated for Aug; it is expected to start a full-scale service by Oct.
If all the LCCs were to relocate, passenger capacity at Suvarnabhumi Airport equal to 11m people would be freed up. The potential earnings accretion would more than offset the impact of the discounts offered. Don Mueang could potentially cater to more 21.5m people after the relocation of LCCs. This plan would reduce CAPEX needs of Bt12bn for the construction of domestic terminal at Suvarnabhumi Airport.