Airports of Thailand

Airports of Thailand Plc (AOT)

Investment thesis: Concerns about lower tourist numbers, due to the current flooding in Thailand and weak US and EU economies, may generate negative sentiment toward the stock in the near-term. However, we expect air traffic growth to resume momentum once the flooding situation improves. AOT’s earnings profile is expected to sustain an uptrend during the next two years (with scope for future earnings upside if passenger service charges [PSC] are increased). As such, we expect a share price re-rating. The stock is also deeply discounted to regional peers—a YE12 PBV of only 0.8x versus an Asian average of 1.3x and a long-term mean of 0.9x.
Expect core YoY earnings turnaround in 4Q11: We anticipate that AOT will post a 4Q11 (July-Sept) net loss of Bt188m, versus net losses of Bt644m in 4Q10 and Bt27m in 3Q11. Stripping out an FX loss of Bt834m, core profit would be Bt646m, compared to a core loss of Bt682m in 4Q10 and a core profit of Bt887m in 3Q11. The key drivers of the YoY earnings turnaround were: 1) strong air traffic growth and 2) lower interest expenses. The factors behind the expected QoQ earnings contraction were additional employee bonuses and early retirement benefits, which were booked in 4Q11. Note that air traffic rose QoQ—passenger numbers increased by 21% YoY and 8% QoQ to 16.7m people, while aircraft movement rose by 18% YoY and 2% QoQ to 111,502 flights in 4Q11.
1Q12 earnings to be impacted by flooding: AOT’s 1Q12 (Oct-Dec) core earnings are expected to weaken QoQ, as foreign tourists have cancelled visits as a result of the flooding. Air traffic statistics for Oct started to reflect the inundation—passenger numbers rose only 9% YoY to 5.5m people compared to 19% growth during the previous nine months of this calendar year. Furthermore, passenger numbers at Suvarnabhumi Airport during 1-13 Nov were even weaker—down 7% YoY (international passengers dropped 22% YoY, while domestic passengers rose 49% YoY). 
The flooding prompted cuts to projections: We have slashed our FY11 net profit forecast 21% to Bt2,181m to fine-tune for our adjusted 4Q11 earnings projection (we factored in an expected FX loss). Furthermore, we have cut our FY12 projection 14% to Bt4,083m to reflect a lower air traffic growth assumption of 1% (from 7%)—the Ministry of Tourism & Sports recently revised down its 2012 foreign tourist target to 18.7m people from 19.5m, implying only 1% YoY growth. We have also downgraded our YE12 DCF-derived target price to Bt52 (from Bt55) in order to reflect our forecast cuts.