Airports of Thailand

Airports of Thailand Plc (AOT) 

 

Although AOT’s share price has outperformed the market by 30% QTD to soar to its highest ever, we expect a further rally given the expected 17% earnings growth in FY2016 with upside from strong passenger growth and more concession revenue. AOT’s valuation is not expensive at 1.6x 2016PE to earnings growth, below the 1.8x regional peer average. We maintain our BUY on AOT with new end-2016 TP at Bt390/share (rolled over from mid-2016 TP of Bt360/share).  

Stronger passenger growth. A conversation with the company left us positive toward passenger growth, which is 12% YoY QTD (+12% in October, +13% in November and +12% in December 1-12). This growth beats our FY2016 (October 2015 – September 2016) assumption of total passenger growth of 10% YoY. The momentum is expected to continue in 1Q16 backed by robust Thai tourism. This is further strengthened by a check with AAV that reveals it is seeing YoY growth in forward bookings for its China routes for January–February (China’s Golden Week is February 7-13). Our earnings sensitivity suggests that each 1% growth in AOT’s passengers above our FY2016 assumption raises AOT’s revenue by 0.5% and core profit by 1.6%.  

More terminals = more concession revenue. AOT opened Terminal 2 for domestic passengers at Don Mueang airport on December 24; this will become fully operational in February. New terminals not only reduce passenger congestion, but, importantly for AOT’s revenue, open up more commercial area and thus raise high-margin concession revenue. AOT expects Terminal 2 at Don Mueang to add ~Bt1.0bn in concession revenue per year – more than our estimate of Bt300mn – which could give ~3% upside to our FY2016 forecast. Then in February Terminal 2 will open at Phuket Airport, which will add more concession revenue (amount of commercial area was not disclosed).  

Suvarnbhumi expansion moving ahead. AOT plans to separate construction of the Suvarnabhumi airport expansion (value ~Bt51bn) into seven projects. Of these, TORs for three will be released and contractors finalized in early 2016. Documents are being prepared for the four remaining projects and will be sent to the government’s budget review committee and AOT’s board for approval. AOT believes Suvarnabhumi expansion will wind up in 2019 and boost passenger capacity to 60mn/year from 45mn/year now. 

BUY with new end-2016 TP at Bt390/share. We maintain our BUY call on AOT with new end-2016 TP at Bt390/share (rolling over from mid-2016 TP of Bt360/share). AOT’s share price has outperformed the market by 30% QTD and recently reached its all-time high. However, we expect a further rally backed by healthy 17% growth in FY2016 and upside from strong passenger growth and more concession revenue from new terminals. AOT’s valuation is not stretched, trading at 1.6x 2016PE to earnings growth (PEG), which is below regional peer average; our new TP implies 1.8x PEG, on par with regional peer average.