Airports of Thailand

Airports of Thailand Plc (AOT)

Investment thesis: The resumption of air traffic growth momentum should boost AOT’s share price and its earnings will be sustained strong going forward (with scope for upside if passenger service charges [PSC] are increased and/or the govt pays compensation for operational disruptions caused by politics). As such, we expect a further share price re-rating. The stock price normally ascends during high season—typically to a PBV of 1.0x (0.5SD above its long-term average PBV of 0.9x). AOT is deeply discounted to regional peers—a YE12 PBV of only 0.9x versus an Asian mean of 1.3x.
1Q12 earnings to be impacted by flooding: We anticipate that AOT will post a 1Q12 (Oct-Dec 2011) net profit of Bt929m, up by 36% YoY and 482% QoQ. Stripping out an FX loss of Bt52m, core profit would be Bt981m, up 3% YoY but down 28% QoQ. The slight YoY rise in core earnings is due to modest air traffic growth (passenger numbers inched up YoY to 16.2m people and aircraft movement rose 7% YoY to 114,555 flights). The expected QoQ core earnings contraction is attributable to a 3% QoQ dip in passenger numbers.
Expect QoQ core earnings growth in 2Q12: AOT’s 2Q12 (Jan-March) core profit should rise QoQ, as air traffic rebounded with the end of the flooding. Traffic at Suvarnabhumi Airport (including the operations of Nok Air and One-To-Go) during 1-15 Jan strengthened—passenger numbers grew 10% YoY, while aircraft movement rose 22% YoY. However, the bottom-line may be dampened by extra expenses incurred for repairs to Don Muang Airport.
FY12 profit upside from govt compensation & strong air traffic: There is scope for upside to AOT’s FY12 earnings, as the firm expects the govt to pay it Bt1.5bn in compensation for revenue losses resulting from political unrest during the past few years. This should more than offset the extra expenses incurred for repairs to Don Muang Airport (the portion not covered by insurance). However, the actual expenses aren’t yet clear (expected to be less than Bt1bn). There would also be earnings upside if FY12 air traffic growth were to beat our conservative assumption of 1%.
Upward adjustment of PSC in progress: In Feb, AOT plans to recommend to the board that the PSC be increased. Management will proposed that the international PSC rise from Bt700 to Bt800 and the domestic PSC from Bt100 to Bt250. However, the proposed PSC adjustments will be subject to the approval of the Civil Aviation Commission (perhaps by June or July 2012). If approved, the new charges would be implemented in June 2013.