Airports of Thailand

Airports of Thailand Plc (AOT)

In line with estimate
AOT posted a 4Q13 (July-Sept 2013) net profit of Bt5,254m, up by 240% YoY and 67% QoQ. Stripping out the reversal of an asset impairment of Bt3,409m, an FX gain of Bt45m, and a Bt6m gain on sales of assets, core earnings would be Bt1,794m, up 15% YoY but down 35% QoQ. The bottom-line was in line with our estimate and the consensus, but the core profit was 26% below our projection and 29% short of the street number, due to higher-than-expected operating expenses and higher-than-modeled repair & maintenance expenses.
Results highlights
The strong YoY core profit growth was driven by: 1) greater air traffic numbers (passengers up by 18% YoY to 21.7m people and aircraft movement by 17% YoY to 143,570 flights), 2) lower repair and maintenance expenses (down 14% YoY) and 3) lower interest expenses (down 2% YoY). The QoQ core earnings contraction was due to: 1) an 88% jump in personnel expenses, as staff bonuses were paid during the quarter, 2) higher operating expenses (up 23% QoQ) and 3) higher repair & maintenance expenses (up 63% QoQ). Note that air traffic rose QoQ—passenger numbers increased by 5% and aircraft movement by 3% QoQ.
Outlook
Strong earnings growth momentum will continue through 1Q14 (Oct-Dec), fueled by high season for Thai tourism. Historical data indicate that air traffic numbers typically rise by about 13% QoQ in the Oct-Dec quarter. AOT reported passenger traffic growth of 14% YoY for Oct and 11% YoY for Nov 1-20. Apart from the air traffic growth, operating expenses should normalize in 1Q14. We, therefore, expect the firm to post strong earnings growth for 1Q14, both YoY and QoQ. However, there is downside risk to the numbers for the quarter because of the current political unrest.
What’s changed?
We maintain our FY14 net profit forecast unchanged at Bt11,726m.
Recommendation
The political conflict may generate negative sentiment toward the stock in the near-term. However, we expect the share price to regain momentum once the confrontation eases. Anticipation of strong earnings growth through 1H14 fueled by high season for Thai tourism should continue to boost the stock price going forward. Over the long-term, the good prospects for AOT’s core profit expansion (an FY13-15 CAGR of 24% against 14% for the SET) will make for further share price growth. There would be scope for upside to our earnings forecast if PSCs were to increase. AOT currently trades at a forward PEG ratio of 1x, a discount to the regional average of 1.1x.