Thai Airway International

Thai Airway International Plc (THAI)
- Loss projected due to increase in service capacity despite decreasing customer in low season
In 2Q13, THAI faced both effect from low season and wrong strategy, which is
keeping 2Q13 capacity equal to 1Q13, rising 11%yoy, partially due to
expansion of new flights implicitly decreasing cabin factor from 79.8% in 1Q13
to 70.5%. Moreover, THAI intensively encouraged sales promotion, pressing
passenger yield by 8.4%qoq to B2.56/passenger/km and decreasing 2Q13 total
income 15.6%qoq to B47bn. Operating cost is projected to drop 3%qoq due to
additional employee expenses, overtime working and bonus, despite decreasing
global jet fuel price between the quarters. THAI is projected to face 2Q13 norm
loss of B4.2bn. Moreover, THAI might have to book a Fx loss of B4.2bn in 2Q13
as a result of the BTH depreciation qoq against EUR and JPY, which would make
its debt increase when reversing to BTH. THAI is projected to face B8.4bn loss.
However, we have not included impairment of 4 unused A340-500 airplanes
(conclusion needed). Current book value of the 4 airplanes is B6bn (B1.5bn
each). In worst-case scenario, if impairment of the airplanes is included, there
would be additional loss of B6bn.
- Norm profit as expected, recognized depreciation might press FY2013 earnings only break even
Though 2Q13 is the year's lowest, there have currently been more passengers
in 3Q13, as July cabin factor rose to 75%, and total August and September
booking are at cabin factor level of 71% and 50%, respectively. 3Q13 cabin
factor is projected at 73-74%, lower than breakeven point of 75%, (under
assumption at B2.62 passenger yield and US$120/barrel fuel price.) We believe
that 3Q13 passenger yield would rise slightly due to 2Q13 massive sales
promotion tickets during the first 1-2 months, likely to cause loss in 3Q13.
However, THAI is likely to earn profit in 4Q13 at B4.0-5.0bn as high season
comes. We believe that THAI could make a norm profit of b4.9b. However,
there is still risk airplanes impairment. In worst-case scenario, if these items
are allowed, FY2013 earning forecast would reach only breakeven point. We will
revise our projection again after we know further clear information, probably
after 2Q13 earnings reports.
- Future not blissful, new fair value at B26, recommend "HOLD"
Earnings outlook does not seem blissful; risk in recognition of impairment of 4
A340-500 airplanes would press the earnings. To reflect this, we decrease
FY2013 fair value at 0.85x PBV from 1x (global mean) while 2013 booking
value per share (conservative value, subtracting impairment in worst-case
scenario) at B30.6, decreasing fair value to B26.0 with only 16% upside. We
reiterate "HOLD"