Airports of Thailand

Airports of Thailand Plc (AOT)

In line with our model: AOT posted a 3Q12 (April-June 2012) net profit of Bt702m, a turnaround from a net loss of Bt27m in 3Q11, but down 74% QoQ. Stripping out an FX loss of Bt813m and assumed extra repair expenses for Don Muang Airport (due to flooding damage) of Bt230m, core earnings would be Bt1,744m, up by 97% YoY but down 11% QoQ. The net profit was in line with both our estimate and the consensus. Core earnings were in line with our estimate, but much better than the consensus number of Bt1.1bn.
Results highlights: The strong YoY core profit growth was driven by: 1) greater air traffic numbers—passenger numbers increased by 13% YoY to 17.4m people and aircraft movement rose by 9% YoY to 119,395 flights, 2) lower depreciation expenses (down 46% YoY) and 3) reduced interest expenses (down 8% YoY). The QoQ core earnings contraction was due to lower air traffic numbers—passenger numbers dropped 12% QoQ, while aircraft movement declined 4% QoQ, due to tourism low season.
Outlook: AOT’s 4Q12 core profit should expand both YoY and QoQ, driven by air traffic growth. Traffic at Suvarnabhumi Airport during July 1-29 strengthened—passenger numbers rose 7% YoY, while aircraft movement also increased 7% YoY. Note that air traffic numbers normally rise QoQ in the fourth-quarter.
What’s changed? 9M12 net profit represents 83% of our FY12 forecast of Bt5,965m, which we maintain unchanged.
Recommendation: The market currently appears to have a wait-and-see stance on the stock. We think that the approval of an upward adjustment to passenger service charges (PSC) would prompt a consensus earnings upgrade and a further share price re-rating. Furthermore, there should be scope for earnings upside from the relocation of low-cost carriers to Don Muang Airport. Valuation-wise, AOT currently trades at a YE12 PBV of 1.3x (1.5SDs above its long-term average of 0.9x), roughly level with the regional mean.