Air Transportation
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High season arriving. Time to accumulate AAV and THAI NEUTRAL Sector Index 109.88 SET 1,272.86 Passenger volume brightens in 3Q12 before peaking in 4Q12 on seasonal effect Seasonal effect and operation transfer to Don Muang Airport will make pro
Passenger volume brightens in 3Q12 before peaking in 4Q12 on
seasonal effect
After passing an off-season, we have seen a sign of recovering growth in the
passenger volume in 3Q12. Average passenger volume/month for THAI has grown
12%qoq, while for AOT (July – August) the growth is 9.2%qoq and 5%qoq for
AAV(July – August). All these reflected the robust tourism industry in Thailand this
year. Plus with an arrival of tourism high season in 4Q12, we believe the quarterly
growth would continue constantly. Based on the passenger volume in the 4th
quarter of 2009-2010 (excluding 2011 in which there was a flood crisis), most
stocks in the sector had been with growth qoq, led by AOT of which the passenger
volume grew average by 16.4%qoq, followed by AAV (2010) and THAI of which the
passenger volume grew respectively by 13.8%qoq and 5.6%qoq. Moreover, there
is also an issue about AOT’s re-opening of Don Muang Airport since October 2012
which will not only help reduce congestion at Suvarnabhumi Airport but there will
also be a benefit from renting of space at the Don Muang Airport to private
companies, which will generate additional revenue by B956m a year and up 10%
every year under a 10-year contract.
Seasonal effect and operation transfer to Don Muang Airport will
make profit peak in 4Q12
Due to the above-mentioned benefit, we believe THAI would return to make profit
again in 3Q12; cabin factor tends to rise above the breakeven point in this quarter
at 75%. For AAV, we foresee a recovery in both revenue from passenger charges
and revenue from additional services. This is because in the previous quarter AAV
implemented a strategy of a price reduction for additional services but it didn’t
work, so it has returned to use a normal price since June. Overall, we believe that
profit of AAV and THAI will help compensate profit of AOT which is projected to
decline qoq because 3Q12 is 4Q12 of AOT in which the company’s expenses are
usually higher than other quarters. Consequently, we are convinced that norm
profit of the sector would grow qoq again in 3Q12. In addition, earnings of stocks
in the sector would peak in 4Q12 as a result of seasonal effect and the following
reasons. Firstly, the use of 2 airports in Bangkok at the same time will benefit AAV
as it will help save the company’s expense by almost 2% of the cost from fuel
consumption efficiency (46% of the cost) which will improved at least by 1%.
Moreover, AAV will also benefit from AOT’s aid measure that will help reduce
airport activity-related expenses (around 5% of the cost as shown in the table on
page 2). Secondly, AOT will benefit from the re-opening of rental space at Don
Muang Airport. Net from related expenses such as the aid measure and
depreciation of the airport which will be booked again (AOT is now under an
estimation process), AOT will get a benefit of around B100m each quarter (still not
included in our forecast). Finally, for THAI, there will be a benefit from lower
congestion at Suvarnabhumi Airport, both in terms of fuel usage (which means
shorter period of aircrafts’ queuing before taking off and landing) and a more free
flight slot of AAV.
Maintain NEUTRAL. Buy THAI and AAV
Considered PBV and expected ROE of worldwide aviation stocks (see chart of page
2), under ROE forecast of 5.9% this year THAI ([email protected]) is still cheap and
should be traded at PBV of 0.95x (our fair value bases on 0.85x PBV). So we
reiterate to buy. Similarly, for AAV ([email protected]) we also reiterate to buy. Although
the current share price has limited upside from this year’s fair value, the benefit
from airport operation transfer for a full year next year and a continuous aircraft
number increase will make the fair value in 2013 stand at B5.3. For
AOT([email protected]), we reiterate to hold. Despite combining with additional B4-5 from
the airport operation transfer in the fair value, the upside is already limited
compared with the current price.
