Thai Airways International

Thai Airways International Plc (THAI)

Q1 2013 net profit of Bt8.3bn. 1Q13 net profit was Bt8.3bn, leaping from Bt5.2bn in 1Q12 and Bt782mn in 4Q12. Excluding extra gains of Bt4bn (FX gains Bt6.1bn and gain on reclassified investment of Bt300mn, offsetting impairment loss on assets/aircraft of Bt2.3bn), its normalized profit was Bt4.2bn, +28% YoY and turning up from -Bt386mn in 4Q12. The results were far above our estimate and consensus for net profit of Bt6.0-6.5bn and this outperformance was grounded in a strong cabin factor and yield plus lower depreciation expenses (Bt640mn) after an extension in the useful life of aircraft.
Highlights: 
Cabin factor was 79.8% in 1Q13 from 78.2% in 1Q12 and 76.3% in 4Q12, backed by:
1) switching from some loss-making routes to more profitable routes and
2) stronger demand in regional and Australian routes (55% of its routes), going by cabin factor of 78.6% (+5.6% YoY) for regional and 75.8% (+2.9% YoY), for Australian routes. 
  Passenger yield was Bt2.79/RPK, +1.5ppts YoY, in tandem with strong cabin factor.
  Jet fuel price was relatively stable YoY and QoQ at US$135/barrel. 
  THAI has extended the useful life of its planes from 15 years to 20 years, cutting depreciation expenses to Bt4.8bn (-7% YoY and -11% QoQ).
Maintain BUY. We raised our 2013 earnings by 25% to reflect the rise in cabin factor and lower jet fuel cost. Our new end-203 PT is Bt38 (from Bt35), based on 1.1x PBV (its 10-year average). THAI is still the most laggard play in the tourism-related industry. In the past 12 months, THAI’s share price rose by 23%, much less than other air transport players (AOT +145% and AAV +89%), hotel operators (CENTEL +201%, ERW +75%, MINT +65%) and the SET (+36%). Against regional full service carrier peers, THAI is one of the cheapest airlines, trading at 0.9x 2013PBV vs. peers at 1.0x and 12x 2013 core PE vs peers at 14x. Another ST catalyst is the listing of Nok Air (49% currently held by THAI).