Airports of Thailand

Impressive traffic growth in June. Despite market concerns about the closure of the eastern runway from June 11 to August 2, AOT was able to report strong passenger movement growth of 13.2% YoY and aircraft movement growth of 9.3% YoY in June – the third month in a row for double-digit growth. In FY2012 to date, passenger movement growth is 7.3% YoY and aircraft movement growth 8.5% YoY, well above our estimate of 6.0% YoY. If this double-digit growth continues until yearend, there will be earnings upside of 4-5% and PT upside of Bt2/sh.
Expect 3QFY12 at Bt530mn. We estimate 3QFY12 (Apr-Jun 2012) net profit at Bt530mn (vs. net loss of Bt27mn in 3QFY11 and net profit of Bt3bn in 2QFY12). Excluding ~Bt800mn in FX losses from its yen-denominated loan gives 3QFY12 core earnings of Bt1.3bn (vs. Bt537mn in 3QFY11 and Bt2.3bn in 2QFY12). The YoY jump is provided by: 1) strong traffic (+9% YoY for aircraft and +13% YoY for passengers);
2) lower depreciation expenses (-40% YoY) after some Suvarnabhumi assets reached full depreciation in 1QFY12. The QoQ decline comes from: 1) seasonally weaker traffic
(-4% for aircraft and -11% for passengers); 2) expenses related to repairing Don Muang after the floods, conservatively assumed at ~Bt800mn. AOT has not yet confirmed whether it will record the entire amount in 3QFY12 or in 4QFY12.
4QFY12 earnings to improve. We expect earnings to bottom in 3QFY12 and improve in 4QFY12. Backing the improvement in earnings is the absence of FX loss and expenses related to repairing Don Muang recorded in 3QFY12 that will more than offset the recording of bonus expenses in 4QFY12. AOT recorded Bt4bn impairment cost at Don Muang in FY2009. With the reopening of Don Muang in 4QFY12, it may be able to reverse up to Bt2.5bn of this (Bt4bn minus depreciation of Bt500mn/year in FY2010-12), depending on the cash flow from the number of passengers/airlines and the length of time that Don Muang will continue to operate.
Maintain BUY. We maintain BUY with mid-13 DCF-PT of Bt67. The share price outperformance relative to the SET (+23% in 2012TD) will continue in the near term, supported by three potential upsides that should be finalized this quarter. First is the confirmation of a PSC hike after CAC approval, expected by Sep 2012 (taking effect by Sep 2013) (+Bt10/sh), followed by the move of low cost carriers to Don Muang (+Bt1/sh), and the upside risk from a return of double-digit traffic growth post-flooding (+Bt2/sh). Factoring these items in would raise our PT by 19% to Bt80.