Airports of Thailand
Let the profits run OUTPERFORM - Maintained Share price: Bt65.50 Target price: Bt90.00
Airports of Thailand Plc (AOT)
Investors seem to have priced in strong air-traffic growth and rising earnings for AOT but not a potential passenger-fee hike. We believe chances of regulatory approval are good, potentially providing catalysts for its earnings and share price. We build in an estimated passenger- fee hike from THB700 to THB800 for international travel and THB100 to THB150 for domestic travel. This boosts our FY14 core net profit by 23% and our DCF target (9.8% WACC, 5% long-term traffic growth). Maintain Outperform.
Good chance of a fee rise
AOT had submitted a request for a passenger-fee hike at all its airports to the authorities in Mar. Management targets Sep 13 for implementation. This implies getting the regulatory green light by this September,considering that AOT would need to give 12 months’ notice to airlines. An argument for the fee increase could be cost inflation. The last time AOT raised its passenger fees was in Feb 07 following the opening of the Suvarnabhumi Airport. With an average inflation rate of 3% p.a. in the past five years, international passenger fees adjusted for inflation should be around THB820 today. Its proposed new fee of THB800 will still keep AOT’s airport fees below those at the two regional hubs of Hong Kong (THB910) and Singapore (to be raised to THB860 from Apr next year).
Major milestone
We believe AOT’s profitability will continue to improve. Before any implementation of higher passenger fees in FY14, we expect solid core profit growth of 48% this year (on lower depreciation expenses) and 26% next year (strong traffic growth and lower tax rate). Higher passenger
fees could then kick in to lift core profit by 40% in FY14. This would translate into a 3-year EPS CAGR of 38%, which should drive its ROE from a pedestrian 5.7% in FY11 to 12.2% in FY14.
Still an asset to own Despite its recent share-price run-up, AOT is still worth owning. The risk is
a delay in the passenger-fee hike. We estimate that any 12-month delay will shave THB1.40/share off our valuation. This seems a tolerable risk to bear, in our view.
