Airports of Thailand

Airports of Thailand Plc (AOT) 

 

Investment thesis

Core profit in line with estimate

AOT posted a 4Q15 (Jul-Sep) net profit of Bt5,850m, up 157% YoY and 44% QoQ. Stripping out an FX loss of Bt45m, an Bt80m impairment loss of assets, a Bt48m gain on sales of assets and a Bt2,830m reversal of property tax, the 4Q15’s core profit would be Bt3,098m, up 46% YoY but down 24% QoQ. While the core profit was in line with our forecast and that of the consensus, the net profit was somewhat above our forecast and the consensus’, due to extra income.  

Results highlights

The drivers for the YoY core earnings growth were: 1) greater passenger numbers, 2) higher aircraft movement, 3) higher concession revenue, and 4) lower interest expenses. However, the QoQ core profit contraction was due to higher personnel expenses, as the firm booked its staff bonuses. It is worth noting that air traffic numbers expanded QoQ in 4Q15, spurred by improved demand for travel to and within Thailand. AOT’s total passenger numbers for 4Q15 rose 24% YoY and 3% QoQ to 26.6m, while total aircraft movements expanded 23% YoY and 2% QoQ to 179,225 flights. Moreover, concession revenue augmented 27% YoY and 5% QoQ to Bt3,082m in tandem with a rebound in international passenger numbers (up 24% YoY and 1% QoQ to 15.0m in 4Q15).    

Outlook

As demand for travel to and within Thailand has continued to rebound to date in 2015, we therefore expect AOT to post a strong YoY air traffic growth figure in the Oct-Dec quarter. In addition, the Oct-Dec quarter is typically a high season for Thai tourism. Given that, the air traffic numbers are also expected to rise QoQ. The air traffic numbers reported by AOT have expanded strongly since Oct to date—its statistics for 1-21 November increased further—total passenger numbers grew 12% YoY, while aircraft movements gained 13% YoY. Note that total passenger numbers improved 12% YoY and aircraft movement increased 14% YoY in October. We therefore expect strong core profit growth (both YoY and QoQ) to sustain through the Oct-Dec quarter (1Q16).

What’s changed?

We maintained our FY16 net profit forecast of Bt17,815m unchanged. 

Recommendation

In our view, the expectation of strong earnings growth through 1Q16 to be brought about by Thai tourism high season should be a near-term catalyst for the share price. Moreover, the strong core earnings growth profile of 21% CAGR during FY15-17, against a core profit growth of 9% CAGR for the broad SET, should support the share price going forward. AOT’s current valuation is attractive—the stock trades at an end-September 2016 PER of 24.5x, a discount to the regional average of 27.0x and a forward PBV/ROE of 0.23x, a discount to the regional mean of 0.28x.