Transport (Air) Sector

Transport (Air) Sector

Negative factors to press tourism for short term
As a result of the coup d'etat, AOT's passenger volume at all airports declined by
2.1%yoy in 4M14, possibly dropping further in May (not revealed by AOT yet),
and THAI and AVV's cabin factor dropped from 70% and 80% in 4M14 to 55%
and 78% in May - June (reservation), respectively. However, according to our
interview, this is probably a short-term negative factor. Air transportation sector
is expected to make its lowest in June. NCPO has been promoting tourism by
lifting curfew in tourist areas and considering declaring that August 11 is a public
holiday (making a four-day long weekend). Thus, passenger volume is projected
to rebound rapidly from June on. According to the statistics, AOT and THAI's
passenger volume contracted by 16%mom and 7.3%mom in the month that the
previous revolution took place. However, their passenger volume rebounded by
11%mom and 3.3%mom in the next month, then returned to normal one month
after that. Meanwhile, it took only one month for AAV's passenger volume to
return to normal.
- To rebound before high season in 4Q14
Air transportation sector's net profit is projected to make the lowest in 2Q14
(3Q14 for AOT). AOT and AAV are expected to still book normalized profit in
2Q14, while THAI would face B3.5bn normalized loss in 2Q14, close to the
previous quarter (Cabin factor would drop, but passenger yield is likely to
improve yoy thanks to a decrease in low-price tickets). However, NCPO's tourism
promotion would boost passenger volume. THAI is projected to rebound most in
3Q14; normalized loss is expected to drop from 2Q14 because foreigners tend to
visit Thailand in late-3Q. AAV's 3Q14 net profit is expected to stay flat qoq as a
result of strong profit base in 2Q14 (Songkran). Similarly, AOT's 4Q14 (July -
September is 4Q14 for AOT) net profit is expected to stay flat qoq; increasing
revenue would be negated by personnel bonus expense. We expect political
negative effects to disappear before high season. The sector's 4Q14 net profit is
projected make the highest of 2014. THAI is expected to reverse from net loss to
net profit in 4Q14. Under the assumption that there would be no political
turmoil, THAI's normalized profit might reach B1-2bn/year and AOT and AVV
would grow stably from now on.
- Share prices already absorbed negative factors. NEUTRAL
Share prices has declined by 10% since the political turmoil started, probably
absorbed the negative factors already. As the political tension has receded, the
sector's net profit would improve continuously. We upgrade our recommendation
on air transportation sector from UNDERWEIGHT to NEUTRAL to reflect the
positive sentiment. We revise up THAI and AAV's air values (increasing THAI's
PBV from 0.5x to 0.7 and AAV's PBV from 0.7x to 0.8x) to B15.3 and B4.6,
respectively. We reiterate HOLD for AAV, but upgrade our recommendation from
SELL to HOLD for THAI (its new fair value is close to the current share price).
Top pick is AOT(FV@B230).