Air Transportation

Air Transportation

Recent indicators suggest solid 1Q13F core earnings. The first quarter of each year is
typically the high season for tourism. Recent positive indicators suggest solid 1Q13 core
operations for players in the air transportation arena. In Jan-Feb 2013, AOT’s aircraft
movement was 47,000 (+15.6% YoY and +5.6% QoQ) and its passenger movement was 7.5mn
(+15.8% YoY and 8.7% QoQ). AAV’s cabin factor was 84-85% (vs 87% in 1Q12 and 82% in 4Q12)
and THAI’s cabin factor was 79.6% (vs 78.2% in 1Q12 and 76.3% in 4Q12). Both had stable
passenger yields. On the cost side, jet fuel cost was relatively unchanged at US$129/barrel,
-2.0% YoY but +1.8% QoQ.
Huge FX gains in 1Q13F as net beneficiaries from THB appreciation. All players in the air
transportation sector are going to reap a fine reward from the baht appreciation, mainly off
their foreign currency-denominated debt. In terms of core operations, the appreciation of
the baht against foreign currencies will be negative for THAI but positive for AAV. However,
when looking at their debt, a strong baht is a plus for all. At the end of 2012, foreign
currency-denominated loans (after swap) were Bt79bn (EUR at Bt57bn, JPY at Bt21bn, and
US$ at Bt1bn) for THAI, Bt10bn (JPY) for AOT, and Bt1bn (US$) for AAV. Based on the
appreciation of the baht against JYP at 13%, EUR at 6% and US$ at 5% in 1Q13 to date, we
expect THAI to gain the most, followed by AOT, and AAV.
BUY the sector: THAI is our top pick. All players are set to deliver strong 1Q13 net profit,
backed by robust core earnings amid high season and huge FX gains from THB appreciation
against foreign currencies. While we maintain our BUY stance on all counters, THAI is our top
pick from: 1) being the most laggard play in the tourism-related industry: In the past 12
months, THAI’s share price slid 3%, vs. air transport players (AOT at +100% and AAV at +92%),
hotel operators (CENTEL +189%, ERW +94%, MINT +98%) and the SET (+24%). 2) It is one of the cheapest airlines in the region, trading at 0.8x 13PBV vs. peers at 1.2x and 7x 13EV/EBITDA vs. peers at 8x. 3) It has ST catalysts from solid 1Q13F results and the listing of Nok Air.