Airports of Thailand

Airports of Thailand Plc (AOT)

EARNINGS RESULTS Above estimates: AOT posted a 1Q12 (Oct-Dec 2011) net profit of Bt1,257m, up by 84% YoY and 688% QoQ. Stripping out a deferred tax provision of Bt260m, a loss on the impairment of assets of Bt7m and an FX loss of Bt40m, core profit would be Bt1,563m, up by 64% YoY and 14% QoQ. Core earnings were somewhat above both our estimate and the consensus, due mainly to lower-than-expected depreciation.
Results highlights: Core profit growth was driven by lower depreciation (down by 44% YoY and 26% QoQ to Bt1,171m), as some assets at Suvarnabhumi Airport had been allocated their useful lifespans. Other contributors were higher landing & parking charges (with the expiry of aiding measures) and air traffic growth—passenger numbers inched up 0.4% YoY (but dipped 3% QoQ) to 16.2m people and aircraft movement rose 7% YoY (and 3% QoQ) to 114,555 flights.
Outlook: 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) strengthened during Jan 1-29—passenger numbers grew 13% YoY, while aircraft movement rose 23% YoY. However, the bottom-line may be dampened by extra expenses for repairs to Don Muang Airport.
What’s changed? We have revised up our FY12 net profit forecast by 10% to Bt4,484m to reflect a lower depreciation assumption. Moreover, 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 effect of extra expenses for repairs to Don Muang Airport (the portion not covered by insurance is expected to be less than Bt1bn).
Recommendation: We think that the current share price has already priced in the recovery of air traffic growth momentum with the end of the flooding. AOT now trades at a high season valuation—a PBV of 1.0x (0.5SD above its long-term average PBV of 0.9x). Even though, there is scope for upside to its long-term earnings profile if passenger service charges [PSC] are increased, recent concerns about terrorism may cap its share price performance. We have, therefore, downgraded our rating to HOLD from BUY with a revised YE12 DCF-derived target price of Bt53.