Thai Airways International

Thai Airways International Plc (THAI)

Expect net and core loss in 2Q13F. We expect a net loss in 2Q13F, on both a core
loss from low season and an FX loss. THAI estimates 2Q13 cabin factor at ~70% (vs. 75%
in 2Q12 and 80% in 1Q13), based on cabin factor of 75.8% in April and 66.4% in May plus
forward bookings of 67.3% in June. Passenger yield tends to soften during low season.
On the positive side, jet fuel costs are poised to decline by 4-5% YoY and QoQ. We
expect THAI to record an FX loss of roughly Bt3-4bn from its debt denominated in
foreign currencies after the baht began depreciating in 2Q13. Note that at the end of
1Q13 THAI had debt (after swap) of Bt156bn. Of this, 49% (Bt76bn) is denominated in
baht, 36% (Bt56bn) in the euro, 14% (Bt22bn) in yen, and 1% (Bt2bn) in US$.
Expect operational improvement in 2H13F. Earnings will get back to normal and
bring in a profit in 2H13, undergirded by more passengers and higher cabin factor from
seasonality plus lower jet fuel costs. Forward bookings are 70.0% for July, improving
from 67.3% in June. THAI has locked in jet fuel costs at 90% of fuel usage in 2H13 (vs.
66-67% in 1H13) at a cost ~8% lower than 1H13 and 2H12.
Plans. THAI will continue to focus on route adjustment by switching from some lossmaking
routes to more profitable routes in regional markets (42% of its routes in 2012
vs. 39% in 2011), notably to Japan, China, Russia and India. THAI plans to open a new
Sendai route in late 3Q13, after the success of the new Sapporo route. THAI Smile
(100% held by THAI), its cost-effective full-service carrier, will focus on secondary
regional routes (i.e. Macau, Myanmar, India, and China, where it will be looking for new
routes) and domestic routes, coordinating with THAI’s own network. THAI also plans
to improve its ticket selling system, chiefly boosting internet sales from 8% of sales to
15% in 2013-14 and 20-25% within the next three years.
Maintain BUY. Taking into account its FX loss in 2Q13, we cut our 2013 earnings to
Bt6bn from Bt10bn. This gives a new 12-month PT of Bt35 (from Bt38), based on 1.05x
PBV (its 10-year average). Despite the dip in earnings, we like THAI: 1) a laggard play in
the tourism-related industry (THAI +31% vs AOT +167%, AAV +72%, and SET +27%); 2) an
attractive valuation (trading at 0.8x 2013PBV vs. peers at 1.1x and 6x 2013 EV/EBITDA vs.
peers at 9x); 3) a short-term catalyst from the listing of its associate on June 20, 2013.