Thai Airway International

Thai Airway International Plc (THAI)

Thai tourism season boosts cabin factor in 1Q13 to almost 80% 
According to the analyst meeting, there are 2 interesting factors regarding
THAI. 1) THAI has projected its earnings in 1Q13 to rebound to a high profit
again due to 2 contributions, which are the Thai tourism season which is so
brighter than any other years that boosting the cabin factor to a record high in
4-5 years at 79-80%, and the Baht appreciation that would generate a
substantial foreign exchange gain for THAI as a result of lower debts after
exchanging from Yen and Euro to Baht (now THAI has Yen and Euro debts of
around 19% and 36% of total debts, respectively. 2) THAI believes that the
effect from a low season will lessen this year, reflecting from ticket bookings in
April and May 2013 that are 2-3% higher than those in the past (or a cabin
factor of 70% and 67%, respectively), because a competition with the Middle
East airlines, especially through ticket price reduction, has become less fierce
as the Middle East airlines have not increased their flights in Thailand due to
unmatched taking off and landing time slot supply from Suvarnabhumi Airport.

Full-year profit to come mainly from 1Q13’s peak profit of almost B6bn
We maintain our positive outlook toward THAI’s earnings performance in 1Q13
because of the cabin factor that is standing at almost 80%, substantially
exceeding the break even point of 74%-75% (under an assumption for the oil
price at US$132/bbl). Accordingly, we believe that THAI would be able to
rebound from a norm loss to a norm profit of B2.5-3.0bn again. Combined with
a projected FX gain of around B2.5-3.0bn, we estimate the net profit in 1Q13 to
peak at B5.0-6.0bn. However, the norm profit in FY2013 would come mainly
from 1Q13 since the 2nd and 3rd quarters of the year are a low season and
THAI might face loss despite the increasing cabin factor from the past. This is
because an average ticket price during the low season is usually lower than
that of the high season due to promotion campaigns so the break even point
will rise from during the high season to 76%. Nevertheless, the high season in
the 4th quarter would help boost the profit to compensate the loss in the 2
quarters. Overall, therefore, we maintain our norm profit forecast for FY2013 at
B4.9bn or the growth of 5.1x.

Still cheap. Profit to peak in 1Q13; chance to speculate
We believe THAI is being traded at an inexpensive level because the current
expected PER in 2013 is 12.6x and expected PBV in 2013 is 0.85x, which are
still lower than the global averages of 15.1x and 1.08x, respectively. Moreover,
the company has a great chance to reverse to generate remarkable profit again
in 1Q13. Consequently, we change to use PBV of 1.0x instead of 0.9x, which
results in a new fair value of B33 that implies 15.3% upside from the current
share price. Accordingly, this is a good opportunity to speculate for
1Q13’s profit before the earnings declaration in mid-May. However, as
the earnings in the 2Q13 and 3Q13 might face losses on seasonal effect, we
reiterate only “Hold”.