Airport of Thailand

Airport of Thailand Plc 

 

We reiterate our Outperform rating on AOT and raise our TP to Bt360 from Bt320 after revising up the company’s earnings by 2-15% in 2015-20E and rolling over our valuation to mid-FY16 from end-FY15. Our earnings upgrade is based on higher passenger numbers and lower interest & depreciation expenses following the postponement of capex for BKK’s Terminal 2 and 3rd runway from 2018 to 2020.  

We are positive on the long-term outlook for the tourism industry, which will help fulfill airport capacity. Also non-aeronautical projects, which are under study and are expected to be announced in the next year, should be a catalyst to drive the share price. Maintain Outperform on AOT. 

Investment highlight 

- Pax growth revised up. We revised up PAX growth by 2-3% in FY15-17E due to the positive uptrend in int. and domestic tourist arrivals. We assume Pax growth at 20%, 10% and 8% YoY, respectively in FY15-18E. 8M15 Pax growth was strong at 19% YoY, driven by gains in int. Pax +17% YoY and in domestic Pax of 24% YoY.  

- Postponement of capex to lift earnings. AOT’s board adjusted its expansion plan for the completion of BKK’s Terminal 2 and 3rd runway from 2018 to 2020. Lower interest and depreciation expenses in 2018-19E lead us to revise up EPS by 12-15% in FY18-19E. In FY20, BKK’s Pax capacity will increase to 60m from 45m. 

-  Planning to expand non-aeronautical business. Management said yesterday at an analyst meeting that it is studying some non-aeronautical businesses, as they would help the company sustain its earnings in the long term due to their stable earnings flow and high margin. The company currently has over 1,000 rai of land on hand that is not being utilized. Some of the land belongs to the government and was expropriated for the AOT but the company needs to seek approval from the government to enter any non-aeronautical business. The company expects to know the results of its plan in one year. Management said it could not reveal details of the projects but said that they would be big in scale.  

-  PSC not expected to increase in the near term. Management does not expect the PSC to increase in the near term as the government believes that AOT still has good cashflow. As a result, management does not expect approval for a PSC increase until BKK’s Phase 2 starts up or until AOT faces a negative cashflow situation in 2018. Note that our forecast conservatively assumes the PSC will remain at Bt700 for int. routes and at Bt100 for domestic routes in 2015-2019. But we assume the PSC will increase to Bt1,000 for int. routes and Bt250 for domestic routes in 2020, which is the same year that BKK Phase 2 starts operations. 

- No plan for airport M&A. Management clearly stated that it is not easy to take over domestic airports that currently belong to the government. A clear bidding process is needed for the sake of transparency and it is not easy for AOT to win such bids, given its lower comparative advantage than local bidders. Also it has no plan to manage international airports, given the regulatory uncertainty in neighboring countries.  

Valuation 

- Our DCF TP of Bt360 equates to a PER multiple of 29x in 2016E. The stock is now trading at 25x PER in 2016E, implying upside of 15% to our TP. Maintain Outperform rating.