Airports of Thailand
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Revitalising DMK at what cost? Outperform - maintained Share price: Bt57.00 Target price: Bt74.00
Airports of Thailand Plc (AOT)
The plan to relocate LCCs from BKK to DMK could be finalised within this week. An incentive package, including discounts on landing and parking and rental charges, is our and the market’s base case. However, an unexpected discount on PSC would be negative news. We maintain our forecast and target price (DCF at 9.5% WACC, 2% LTG), which has built in discounts on L&P and rents, but not PSC. Factoring in this unexpected discount will lower our target price to THB67. Our Outperform call is intact.
We maintain our forecast and target price (DCF at 9.5% WACC, 2% LTG), which has built in discounts on L&P and rents, but not PSC. Factoring in this unexpected discount will lower our target price to THB67. Our Outperform call is intact.
What Happened
AOT’s board of directors is meeting mid-week to finalise the scheme for relocating low-cost airlines to the old Bangkok airport Don Muang (DMK), in a bid to free up space at the jampacked Suvarnabhumi Airport (BKK)
It looks almost certain that the AirAsia group (8m pax/year) will join Nok Air (4m) at DMK.
The key things to watch are the incentives for relocation. Our base case is that AOT gives a 30% discount on landing & parking (L&P) charges and a 10% discount on office rent to
those opting for DMK as their hub. As long as discounts are not extended to
airport fees charged to passengers (PSC), the impact of relocation on AOT’s near-term earnings will likely be contained.
Assuming a 30% discount is also applied for international PSC (from THB700 to THB500/pax) and domestic PSC (from THB100 to THB70), we estimate a 7% impact to
AOT’s FY13F EPS (from THB5.25 to THB4.88). If this discount remains in
place for 18 months, our existing THB74 target price would be reduced
to THB73. If the discount stays permanently, our target price falls to THB67.
We do not expect the discount to be extended to PSC. Nok Air has been operating at DMK for some years at normal PSC rates. Other airlines like Thai Airways and its new
budget-carrier unit Thai Smile will likely voice strong disagreement with the disparity.
What you should do?
We should soon get clarity on the relocation issue, after which investors can refocus their attention on AOT’s business outlook, which is great. If the unexpected happens, there could be some 10% share price down-move but the stock is still a good investment.
An unexpected discount on PSC would be negative news. We maintain our forecast and target price (DCF at 9.5% WACC, 2% LTG), which has built in discounts on L&P and rents, but not PSC. Factoring in this unexpected discount will lower our target price to THB67. Our Outperform call is intact.
