Transportation

Transportation sector

3Q13A recap. Earnings in 3Q13A, excluding AOT whose 4QFY13 earnings will be released at
the end of Nov, were mixed. BTS showed the most core earnings improvement at +208% YoY,
mainly on higher interest income from the proceeds from the setup of BTSGIF, followed by
AAV (+43% YoY) and NOK (+16% YoY) from fleet expansion, and BECL (+30% YoY) from better
traffic and equity income from associates (CKP and TTW). On the other side of the coin, core
losses were reported by BMCL, with high operating costs offsetting higher ridership and THAI
(turning from core profit) from lower cabin factor and passenger yield after adding planes.
Airport. In 1Q14, traffic will come up QoQ from high season and lower adverse effect from
removal of zero dollar tours. Traffic is set to continue to rise throughout 2014, on: 1) growing
travel demand in both regional and domestic markets; 2) aggressive fleet and route
expansion by airlines in Thailand, at both existing (THAI: +5% to 103 planes, AAV: +23% to 43
planes, NOK: +28% to 27 planes at end-2014) and new airlines (Thai Lion Air: +600% to 12
planes at end 2014F); 3) expansion of congested airports with a new terminal at Phuket,
raising capacity by 4-5mn passengers/year (+75%), and the reopening of terminal 2 at Don
Muang in 2Q14, raising capacity by 9mn passengers/year (+50%).
Airlines. In 1Q14, high season will push cabin factor and passenger yield up QoQ. In 2014, the
rise in traffic and fleet expansion will support improvement. Key risks are potentially higher
competition from fleet expansion by both existing and new airlines (Thai Lion Air starts flying
in Dec 2013), the volatility of the baht against foreign currencies and oil price. Our sensitivity
analysis suggests that each 1% depreciation in the baht hurts THAI the most (-10%), followed
by NOK (-4%) and AAV (-3%). Meanwhile, each US$1/barrel rise in jet fuel price hits THAI the
hardest (-7%), followed by AAV (-4%) and NOK (-2%).
Mass transit. In 1Q14, traffic will edge up QoQ from seasonality. In 2014, ridership and O&M
revenue will be supported by the full effect of the opening of Green Line extensions -
Wongwianyai-Wutthakat in Jan-Feb 2013 and Wutthakat-Bangwa in Dec 2013 - and the
delivery of 20 new carriages (+11%) as of Dec 2013. 2014 will also bring bidding for new mass
transit lines, including extensions of the Green Lines in 1Q14 and the Pink Line in mid-2014.
BTS will also state whether or not it will bid for overseas projects in mid-2014. This will
provide LT support, directly from new concessions granted for mass transit operators and
indirectly from an increase in ridership.
Tollways. In 1Q14, traffic will continue to rise QoQ from seasonality. In 2014, traffic will
continue to show a moderate rise and the company will also enjoy the full effect of the
Bt5/vehicle rise in toll rate on Sept 1, 2013.
Top picks: BTS and AOT. We like the sector, poised to enjoy its high season in 1Q14. We
prefer BTS for its high committed dividend yield of 6-8% p.a. in FY2014-16 and potential
upside from new projects (bidding in 1Q14 at the earliest). We like AOT for its strong traffic,
supported by rapid expansion by current LCCs and addition of new airlines, and potential
upside from the additional concession revenue from more terminals.