Thai Airways International

Thai Airway International Plc (THAI)

Norm profit to rebound in 3Q12 as projected, standing at
B815m

Fuel surcharge revised up, likely to pressure 4Q12 profit
from shining in high season

Share price reflects tendency of profit to flip back,
resulting in limited upside. Downgrade to “HOLD”

Norm profit to rebound in 3Q12 as projected, standing at B815m
THAI’s 3Q12 fare revenue is projected to return to grow around 10% QoQ to
B43bn due mainly to the marketing acceleration that has raised the
passenger volume to recover by 7.3% QoQ (considered 76.7% of the cabin
factor). Combined with the benefits from low cost ticket promotion during the
flood crisis that had gone invalid in the first half of the year, the passenger
yield has increased by 2% QoQ to B2.68, urging the company’s total revenue
to recover by 9% QoQ. For the cost of service, it has risen at a lower rate by
only 3% QoQ due to the main cost of fuel that has stabilized along with the
global oil price. Accordingly, THAI’s loss would flip to norm profit as projected
B815m. Net profit would stand at B1.6bn (rebounding from B1.5m of loss in
2Q12) if the extraordinary profit of around B831m is included, which is
mainly from net FX loss and profit from compensation (due to delayed arrival
of planes); the reverse of provision to help employees who had faced flood
crisis and the provision for loss in lawsuit.


Fuel surcharge revised up, likely to pressure 4Q12 profit from shining in high season
Although the high season is approaching, THAI’s business might not be so
bright as expected since the company has revised up the fuel surcharge since
1 October 2012. Though this has helped compensate the fuel expense, the
passenger volume has been suppressed in the first 2 months of 4Q12 which
is lower than projected. This has been reflected from the cabin factor in
October and November at 74% and 74% respectively, so 4Q12 cabin factor is
likely to stand at 75-76% which is slightly higher than the cabin factor at
break-even point around 74-75%. Accordingly, we believe that 4Q12 profit
would be only at approx B500m. Although 9M12 profit is considered 98% of
FY2012 forecast, we still hold on to our conservative method maintaining
2012 forecast at B3.8bn. We’re likely to revise down 2013 profit forecast to
B4.8bn after the announcement of 3Q12 earnings result.
Although the company might benefit from the depreciation cost that has
dropped by B1.0bn from our projection (after the study on the revisal of
depreciation method for the long-distance plane price from the current direct
line that is extended to 20 years from 15 years, beginning in 2013), this
preliminarily might not help compensate the passenger yield in 2013 that
tends to be lower than projected due to the competition that is still
aggressive and the cost from increasing the number of planes (such as plane
rental fee and the financial cost that are likely to go beyond our projection).


Share price reflects tendency of profit to flip back, resulting in limited upside. Downgrade to “HOLD”
Earlier, THAI’s share price has soared 18% from the record low, believing to
already reflect the rebound of profit in 3Q12. However, 4Q12 profit might not
turn bright as projected. Moreover, there’re risks from the fuel price which is
the fixed cost increasing from plane expansion. Under the upside that is
becoming limited due to the current share price, we downgrade our
recommendation from “BUY” to “HOLD”.