Thai Airway International

Thai Airway International Plc (THAI)
- Discount tickets to continuously press 3Q13 earnings result
THAI's most sales in 3Q13 were from discount tickets sold in 2Q13 to
promote sales to go along with an increase of service capacity from new
aircrafts. Thus, 3Q13 cabin factor is likely to rise from 70.5% in 2Q13 to
74%. However, 3Q13 passenger yield is likely to be as low as B2.55 in
2Q13 due to aforementioned pressure, lower than expected to slightly
increase from 2Q13 (averagely B2.7). Thus, though THAI has been
through its lowest in 2Q13, the effect would still press THAI to face B3bn
norm loss. Discount tickets would be expired in 4Q13, likely to improve
passenger yield, as well as rise in passenger volume due to seasonal
effect. However, 4Q13 earnings result would be partially pressed by
decelerating demand. Preliminarily, THAI's 4Q13 norm profit would be B2-
3bn. Thus. FY2013 earnings result would only make a breakeven.
- Revise down FY2013 earnings forecast. Norm profit at
breakeven
THAI's norm profit is likely to make only a breakeven, lower than expected
to make B4.9bn norm profit, mainly due to lower passenger yield than
expected. Passenger yield is likely to be pressed as well next year, as
THAI would acquire 14 additional airplanes. Thus, we revise down 2013
and 2014 passenger yield forecast, resulting in THAI's FY2013 and FY2014
norm profit forecast decreasing by 97% and 55%, respectively. Under new
forecast, THAI's FY2013 norm profit would be B101m, and rising to B2.2bn
in FY2014. The earnings forecast does not include loss from chance to
realize an impairment loss of 4 units of A340–500 unused airplanes (end-
2Q13 book value at B1.5bn each), which are likely to be permanently
dismissed. However, THAI guides that there will be no implicit loss from
impairment in 3Q13. However, THAI would compare the book value and
the market price in 4Q13. In worst-case scenario, if impairment is fully
recognized, THAI would face B6bn net loss this year.
- Low downside. “HOLD” and wait for seasonal recovery
Due to dreadful earnings report and airplane impairment, we derive
FY2013 fair value at 0.75x PBV with more conservative method. FY2013
book value per share (conservative value, subtracting impairment in
worst-case scenario) has the book value of B28.5, decreasing fair value to
B21.4. THAI is currently traded at 0.6x Expected PBV, the 4-year lowest,
so the downside might be very low. Current share price has 15% upside.
We reiterate "HOLD" and wait for the business to recover in tourism high
season, 4Q13-1Q14.