Airports of Thailand

Airports of Thailand Plc (AOT) 

 

Investment thesis

In our view, the recent share price rally has already priced in the expectations of strong air traffic statistics and strong earnings growth throughout 1Q16. However, we do not expect to see flow of an earnings upgrade in the near term, as YTD air traffic growth is as expected. Also, we think that there will be no obvious catalyst for the share price going forward, as the tourism low season is approaching. Valuation-wise, AOT currently trades at an end-Sep 2016 PEG of 2.3x, a premium to the regional average of 1.2x. 

Air traffic growth decelerated in March

The air travel demand to and within Thailand has manifested sustained resilience in 2016 to date. Department of Tourism statistics reveal that international tourist arrivals climbed 15.5% YoY to 6.1m in 2M16, led by substantial growth in Chinese and Asean tourists. Meanwhile, AOT’s air traffic statistics have expanded at the same pace during 2M16—passenger numbers expanded 15.5% YoY to 22m, while aircraft movements rose 11.3% YoY to 132,318 flights, driven by both international and domestic traffic. 

However, the firm’s air traffic growth has decelerated in Mar (1-30 Mar) with a passenger growth rate of 10.2% YoY (flat MoM) and an aircraft movement growth rate of 5.9% YoY (and 1.5% MoM), as the peak season of Thai tourism will soon come to an end. These numbers represent the slowest growth rates in the past 18 months.

Thai tourism entering lowest season through June  

The peak season of Thai tourism is now behind us and we are entering the low season, which normally starts from the second quarter (the lowest) and continues through the third quarter of each calendar year. Historically, the international tourist arrivals typically reduce 15% QoQ on average in the Apr-Jun quarter. Furthermore, historical data suggests that AOT’s passenger traffic sees a dropping off of around 11% QoQ in the second quarter. Despite expectation of YoY earnings growth for the Apr-Jun quarter, we expect AOT to post a QoQ profit contraction during that period.

YTD traffic growth as expected … limited scope for upside 

AOT’s passenger traffic growth of 13% and aircraft movement growth of 11% in fiscal year 2016 to date (Oct 2015-March 2016) is still pretty much in line with our FY16 assumptions (passenger growth of 12% YoY and aircraft movement growth of 12% YoY). We think that scope for upside to the firm’s earnings is limited.