Airports of Thailand

Airports of Thailand Plc (AOT)
Robust traffic in Aug 2013. August passenger movement grew a high 18% YoY, in double digits for the eleventh month in a row. In 11MFY13 (Oct 12-Aug 13), AOT’s passenger pass-through jumped 20.4% YoY, slightly above our FY2013 estimate of 19.2% YoY. Passengers on low-cost carriers (LCCs) grew 31% YoY in Aug 2013 and 30% YoY in 11MFY13, accounting for 31% of AOT traffic in 11MFY13, up from 28% in 11MFY12.
Strong traffic ahead. AOT’s traffic growth has been in the double digits since FY2010 (with a hiccup in FY2012 from the floods). We expect traffic to continue strong, backed by: 1) solid travel demand in regional and domestic markets; 2) aggressive fleet expansion by airlines in Thailand; 3) capacity expansion in FY2014. AOT will reopen Terminal 2 at Don Muang in mid-FY2014, raising handling capacity by 50% or 9mn passengers, at CAPEX of Bt3bn. It will also build a new terminal at Phuket Airport in early FY2014, making it able to handle 4-5mn more passengers/year (+75%) with CAPEX of only Bt100mn.
Upside from new terminals. We have not yet included upside from additional concession revenue from the commercial area in the new terminals, waiting for details on space allocation for various activities and the bids by prospective concessionaires. We note that upon fully opening Terminal 1 at Don Muang on October 1, 2012, AOT gave a 10-year concession for duty-free space (1,100 sqm) to King Power and retail area (2,700 sqm) to The Mall, with a minimum guarantee of Bt956mn/year, with the minimum guarantee to increase by 10% every year.
Progress on PSC hike. AOT has officially proposed a rise in passenger service charges (PSC), raising domestic PSC to Bt150/person from Bt100/person and international PSC to Bt800/person from Bt700/person. New ministerial regulations related to PSC were published in the Government Gazette in July 2013 and the increase is now waiting for the DCA (Department of Civil Aviation) approval. Based on recent news, it is now waiting for the Cabinet to appoint a new committee (seven persons) for the DCA, which means that the earliest a new PSC will be approved is January 1, 2014. AOT needs to give 6-12 months advance notice to airlines before the new PSC takes effect. Using this as a guide, we estimate the rise in PSC will add 14% to FY2015 earnings and 20% to FY2016. We roughly estimate the incremental value from the PSC hike at ~Bt30/share, not yet in our PT.
Maintain BUY. We maintain BUY with mid-14 DCF PT of Bt235. Apart from solid traffic growth in the near term, the potential for additional concession revenue from new terminals and a PSC hike will be positive catalysts for the share price. Key risks are changes in traffic movement and expenses/investments related to new terminals.