Airports of Thailand

Airports of Thailand Plc (AOT)

The best time for landing is when visibility is the clearest. AOT’s operating visibility is reaching such levels. Airport traffic is growing robustly.Planned tariff hikes have been largely priced in. The stock will soon be added to MSCI. Time for us to cut the stock to Underperform from Outperform, as upside no longer looks attractive despite our EPS upgrade to factor in higher traffic assumptions. Our DCF (9.8% WACC, 5% normalised traffic growth) target price rises accordingly. Stock de-rating catalysts are expected from any less-exciting traffic growth off a higher base (from Jan 13) and/or delays in passenger fee hikes. 

Optimism abounds
Traffic growth at AOT’s airports,which has been accelerating since the 2008/09 GFC, should retain its momentum. An influx of Asian tourists, particularly the Chinese, has more than made up for the slack from the Europeans. All the main airlines, LCCs in particular, at Thailand hubs are seeking growth. The newly refurbished Don Muang Airport has been brought on line to facilitate growth. Current share price implies that AOT will get the green light for planned hike in its airport tariffs.

Not much else to ask for
Plugging in higher traffic and lower depreciation charges, we raise our EPS forecasts by 6-8% for FY12-14. A raise in passenger fees remains our assumption for FY14. On the flip side,rising market optimism offers no buffer for negative surprises, which may come in the form of less-exciting traffic growth off a higher base (from Jan 13) and/or delays in the passenger fee hikes.

Signposts to turn bullish
AOT’s three key earnings drivers are traffic, airport tariffs and operating costs. Tariff hikes appear to be in the price. As for operating costs, there seems to be more upward than downward pressures, bearing in mind the company’s heavily-utilised airport assets and migration to dual airports (in Bangkok). As a result, traffic is left as the only area that could reinstall our bullish view on the stock. We now assume 9% pax growth for FY13 (vs. 8% for the flood-hit FY12). Near-term
growth is set to explode yoy from last year’s flood crisis, but growth that follows will be the main thing to watch.