Asia Aviation

3Q14 net loss Bt209mn (Bt0.04/share), as expected. AAV reported 3Q14 net loss of Bt209mn, worse than the net loss of Bt176mn in 2Q14 and down from net profit of Bt158mn in 3Q13. Excluding FX gain gives a core loss of Bt255mn, worsening both from the core loss of Bt199mn in 2Q14 and core profit of Bt138mn in 3Q13. This loss was in line with SCBS but worse than the Bt206mn the market expected. This was its second quarter of red ink, pulled down by weak revenues from the poor tourism climate accompanied by higher cost brought by fleet expansion. In 9M14, AAV has a net loss of Bt246mn, down from the net profit of Bt820mn in 9M13.

Management positive for 4Q14 and 2015. At the analyst meeting, management stated its strong belief that 4Q14 will return to the black, upheld by the tourism high season, but particularly by the return of Chinese tourists, a high-yield segment and accounting for ~20% of AAV’s revenues. Its forward bookings are high, indicating more passengers – and this will help to ease fare pressure. Management expects average fare to grow 3-5% YoY in 4Q14 vs. -14% YoY in 9M14. For 2015, AAV expects: 1) 14mn passengers (up from 12.1mn in 2014), 2) average fare of Bt1,750-1,800 - better than 2014 but still lower than 2013’s Bt1,885 and 3) five additional aircraft.

4Q14 to turn to profit, giving a profit for 2014. Management guidance is in line with our view that AAV’s operations will be in the black in 4Q14 – which will also be the year’s best quarter. Industry statistics suggest strengthening tourism in 4Q14: October’s international tourist arrivals were 2.1mn, up 6% YoY, the first YoY growth since February 2014. The high point is the excellent recovery in Chinese tourists, with arrivals from China hitting a record high of 501,043 in October. We maintain our 2014 forecast of Bt60mn net profit, implying Bt306mn net profit in 4Q14. 

EGM for approval of share transfer. AAV announced an extraordinary meeting to approve the transfer of AAV shares to Mr. Tassapon Bijleveld by 1) Mr. Preechaya Rasametanin, 2) Mr. Pornanan Gerdprasert, 3) M.L. Bovornovadep Devakula, 4) Mr. Tanapat Ngamplang and 5) Mr. Santisuk Klongchaiya. This action was agreed upon previously in a Shareholders’ Agreement, to take place within five years of the IPO, which was undertaken in May 2012. 

This transfer will not require a tender offer but does need shareholder approval. AAV will hold an extraordinary general meeting of shareholders on 12 Dec 2014; XM date is 26 Nov 2014. The five shareholders now hold 26.4% of total shares while Mr. Tassapon, AAV’s CEO, is the largest shareholder at 28.1%. The reason for the transfer is that some shareholders would like to retire. Mr. Tassapon said this will result in no significant change to AAV’s operations or strategy as he remains a major shareholder.

Maintain BUY at TP of Bt5/share. AAV is our preferred airline stock and one of our top picks in the tourism sector. Positive backdrops such record-high Chinese arrivals and strong earnings recovery in 4Q14 and 2015 will be catalysts for the share price. We maintain BUY on AAV with mid-2015 TP at Bt5.0/share.