Airports of Thailand

Airports of Thailand Plc (AOT)
Investment thesis
Proposed PSC rate increases together with high season for tourism (Oct through March) should catalyze AOT’s share price in the near-term.  Over the long-term, strong air traffic growth momentum appears to be sustainable for years ahead, supported after 2014 by an era of open regional skies, which will commence with the advent of the AEC in 2015. AOT should be a prime beneficiary of this expected air travel demand growth, as it operates Thailand’s six major airports. The firm has an expansive core earnings CAGR of 24% for FY13-15 against 8% for the SET.
There would be scope for upside to our earnings forecasts if passenger numbers were to rise faster than we assume 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 1.1x, a discount to the regional average of 1.2x.   
Upward revision to proposed PSC adjustment
Yesterday, the AOT board approved a new PSC rate increase plan. The plan will be forwarded to the Civil Aviation Commission to consider. The details are as follow: 1) the PSC for international passengers will increase to Bt800/pax from Bt700/pax (the same rate as under the previous plan) and 2) the PSC for domestic passengers will rise to Bt200/pax from Bt100/pax (a Bt50 increase from the previous plan). The higher PSC increase includes CAPEX (for investment in facilities for passengers) for 2011-15, which wasn’t factored into the earlier plan.
AOT will offer additional facilities to passengers, such as free WiFi at every airport it operates and Airport Travel Guard (reimbursement for passengers affected by flight delays exceeding three hours). The additional costs for the firm will be minimal.
Implementation in mid 2014, at the earliest     
Management guides that the Civil Aviation Commission is likely to consider AOT’s PSC adjustment plan in January next year (at the earliest). If it were to be approved, actual implementation would be expected in mid 2014, as the firm needs to notify all the airlines using its facilities at least four months ahead of the new rates going into effect.
Significant scope for earnings upside     
Our sensitivity analysis indicates that if the Civil Aviation Commission were to approve the proposed PSC fees, AOT’s long-term core profit would jump 27%, on average, from our current projections and its target price would rise by Bt35/share. If the timeline were to follow the best-case scenario, AOT would start recognizing the new PSC rates in the July-Sept 2014 quarter.