Airports of Thailand

Airports of Thailand Plc (AOT)
 
Q2 2013 earnings as expected; YoY growth momentum to continue In line with estimate
AOT posted a 2Q13 (Jan-March 2013) net profit of Bt4,509m, up by 50% YoY and 31% QoQ. Stripping out an FX gain of Bt1,335m and an asset impairment of Bt68m, core earnings would be Bt3,237m, up by 66% YoY and 50% QoQ. The result was in line with our estimate, but was 17% above the consensus, due to a larger FX gain than assumed by the street.
Results highlights
The strong core profit growth was driven by: 1) greater air traffic numbers (passenger numbers increased by 17% YoY and 11% QoQ to 23m people and aircraft movement by 15% YoY and 7% QoQ to 142,917 flights), 2) lower repair and maintenance expenses (down 8% QoQ), 3) lower interest expenses (down by 10% YoY and 5% QoQ) and 4) a lower effective tax rate (to 30.9% from 39.2% in 2Q12 and 37.2% in 1Q13).
Outlook
As the April-June quarter is normally low season for both Thai tourism and AOT, we expect the firm’s 3Q13 core profit to decline QoQ. Historical data indicate that air traffic numbers normally soften by about 3% QoQ in the April-June quarter. However, AOT’s 3Q13 core earnings are expected to post YoY growth, driven by broadly rising demand for air travel. Passenger traffic expanded by 22% YoY to 43.8m people in 1H13 (Oct 2012-March 2013). 
What’s changed?
Air traffic has grown strongly in financial year 2013-to-date (as mentioned above) and we expect this momentum to continue throughout the year. We have, therefore, upgraded our air traffic growth assumption for financial year 2013 to 16% from 9.5% previously and our FY13 core profit forecast by 12% to Bt9,670m. Furthermore, we have revised up our long-term earnings projection by 16% to reflect a higher base effect. Our end-Sept 2013 DCF-derived target price rises to Bt170 from Bt125.
Recommendation
In our view, expectations of strong YoY earnings growth momentum through 3Q13 should continue to boost the share price in the near-term. Over the long-term, the good prospects for air traffic growth together with hefty core profit expansion of 47% this year (against 18% for the broad SET) will make for further share price appreciation. There would be scope for upside to our earnings forecast if passenger numbers were to rise faster than we assume (with the relocation of low-cost carriers to Don Mueang Airport and potential service capacity expansion at Don Mueang Airport) and/or PSCs were to increase (subject to the approval of the Civil Aviation Commission).
AOT currently trades at a forward PEG ratio of 0.5x, a deep discount to the regional average of 1.0x.