Airports of Thailand

Airports of Thailand Plc (AOT)

Investment thesis: Anticipation of strong 2Q12 earnings growth should boost AOT’s share price. Moreover, there would be scope for upside if passenger service charges [PSC] were increased and/or low-cost carriers relocated to Don Muang. As such, we expect a further valuation re-rating. We have, therefore, upgraded our rating to TRADING BUY from HOLD. The stock currently trades at a YE12 PBV of 1.2x (1SD above its long-term average of 0.9x), a discount to the 1.4x regional average.
Expect strong 2Q12 earnings growth: We expect AOT to post a 2Q12 (Jan-March 2012) net profit of Bt2,175m, up by 27% YoY and 73% QoQ. Stripping out an FX gain of Bt882m and expected extra repair expenses for Don Muang Airport (due to flooding damage) of Bt600m, core earnings would be Bt1,893m, up by 22% YoY and 21% QoQ. The estimated 2Q12 profit growth was driven by strong air traffic growth—passenger numbers rose by 9% YoY and 21% QoQ to 19.6m people and aircraft movement by 9% YoY and 8% QoQ to 123,890 flights.
YoY profit growth momentum through 3Q12: Even thought 3Q12 core earnings are expected to slip QoQ (due to seasonality), core profit should post strong YoY expansion, driven by air traffic numbers. Traffic at Suvarnabhumi Airport during April 1-30 strengthened—passenger numbers rose 15% YoY, while aircraft movement increased 10% YoY. Note, however, that extra expenses incurred for repairs to Don Muang Airport may dampen the 3Q12 bottom-line.
Earnings and target price upgraded: We have revised up our FY12 net profit forecast by 33% to reflect a higher air traffic growth assumption (to 5% from 1%), lower depreciation expenses (as an IT system was fully depreciated) and an expected FX gain in 1H12. We have also upped our long-term earnings forecast by 11% to reflect a diminished depreciation assumption. As such, we have upgraded our end-Sept 2012 DCF-derived target price to Bt68 (from Bt53).
Further earnings upside on the card: Apart from the planned capacity expansion (Suvarnabhumi phase 2 and the Phuket airport expansion), there is scope for long-term capacity and earnings growth from the relocation of low-cost airlines to Don Muang (it would free up capacity at Suvarnabhumi) and lower CAPEX. A plan of action should be unveiled in 2H12. In addition, an upward adjustment to the PSC would augment earnings. AOT has proposed PSC rises to the Civil Aviation Commission for approval (perhaps by July 2012). If approved, the new charges would be implemented in July 2013.  Key Ratios & Statistics