Airport of Thailand

Avoid investment after passenger service charge cut proposed Rec BUY

Airport of Thailand Plc (AOT)

- Proposing to boost tourism by lowering passenger service charge

Prachin Chantong, the Minister of Transportation, has assigned Banjong

Klainasut (the advisor to the Minister of Transportation) to study the effect of

cutting passenger service charge of six international airports under AOT's

ownership (Suvarnabhumi, Don Muang, Phuket, Chiang Mai, Hat Yai, and Mae

Fah Luang) by 50% from B700 to B350. However, this projects needs to be

reconsidered because it would have a serious negative impact on AOT.

-Short-term measure to press FY2015 earnings

We expected passenger service charge to be cut for the short term (from

three months to one year) to revive tourism. Because passenger service

charge (departure tax) makes up 40% of AOT's earnings, the cut would have

negative sentiment on AOT. In case that passenger service charge is slashed,

every three months of passenger service charge cut would depress FY2015

net profit (end in September 2015) by 11% from the current forecast (See

page 2). We maintain our FY2014 earnings forecast, waiting for the

government's clear conclusion; AOT's net profit is still estimated to grow 29%

in 2014 and 21% in 2015.

- Avoid AOT for the short term

Passenger service charge cut would directly depress AOT's FY2015 net profit

and decrease the fair value by B3-15 (currently B265). AOT's share price

would drop for the short term until the government's clear conclusion is

made. Although we recommend BUY, it is advisable to avoid investment on

AOT for now.