Airports of Thailand

Airports of Thailand Plc (AOT)

Investment thesis
The key messages from the analyst meeting yesterday reaffirmed our positive view of AOT’s growth prospects. Ongoing 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 further service capacity expansion at Don Mueang and Phuket airports) and/or PSCs were to increase (subject to the approval of the Civil Aviation Commission).
Moreover, AOT currently trades at a forward PEG ratio of 0.5x, a deep discount to the regional average of 0.9x. BUY!  
Strong outlook for Thai aviation industry
Thailand has been a leading global travel destination for years and its popularity continues to rise. In 2012, foreign arrivals hit a new record of 22.3m people, driven by Asian tourists (up 31% YoY). The Tourism Council of Thailand (TCT) forecasts 26.1m arrivals this year (up 17% YoY). During 5M13, international visitor arrivals totaled 10.7m people, up 19% YoY. The People’s Republic of China was the fastest-growing region of origination for arrivals to Thailand—up 93% YoY in 5M13.
As such, AOT’s passenger throughput is rising swiftly—up 21% YoY to 57.9m for the first eight months of the fiscal-year 2013 (October 2012-September 2013). Momentum is expected to be sustained for years, supported after 2014 by an era of open skies, which will commence with the advent of the ASEAN Economic Community (AEC) in 2015.
Passenger growth has accelerated at Don Mueang Airport 
Don Mueang Airport’s (DMK) passenger throughput has increased substantially since it was brought back into service on October 1, 2012. The number of passengers is expected to reach 15-16m this year, up from 6m in 2012, which would be almost full capacity for Terminal 1 (currently the only terminal in use). As such, on June 26, the AOT board approved a renovation plan for Terminal 2 that will cost Bt3bn and should be completed in 3Q14. The second terminal will add another 10m/year of passenger capacity to DMK.    
Renovation of DMK Terminal 2 prompts profit forecast upgrade 
Accelerated passenger growth and capacity expansion at Don Meuang have prompted us to revise up our long-term passenger growth assumption to 12% per year from 9% previously and upgrade our long-term earnings forecast (post-2015) for AOT by 10% on average. As a result, our YE13 DCF-derived target price rises to Bt196 from Bt170.