Transportation

Transportation
- Air: Positives from continued strong traffic and a dip in jet fuel costs
- Land: Traffic to rise from the opening of extension line and new carriages (mass
  transit) and solid local car sales (tollway) plus hike in fare/toll rates
- Top pick: BTS as a laggard play, strongest quarterly earnings and highest yield
1Q13 recap. All players demonstrated core earnings improvement in 1Q13, mainly off
stronger traffic. AOT reported the highest growth (+39% YoY) on robust traffic and better cost
control after the reopening of Don Muang, followed by BECL (+27% YoY) from solid traffic and
higher contribution from associates, then AAV and THAI (+26% YoY) from better load factor
and lower jet fuel costs in baht terms, and finally BTS (+24% YoY) on higher contribution from
all units (mass transit, media and property). BMCL showed some improvement (+10% YoY)
but remains in the red: though ridership continues to rise, it is still unable to offset the high
operating costs.
Air (Airport/Airline). The demand side continues to shine and we are now more positive on
the cost side as well thanks to a recent dip in jet fuel costs. Traffic in 3Q13 should grow YoY
upon a boom in tourists from East Asia and ASEAN (60% of foreign tourists) and improve
slightly QoQ from seasonality. A fall in fuel costs (40-45% of airlines’ costs) is another positive,
based on spot jet fuel price at US$114/barrel and average jet fuel price at US$123/barrel in
2013TD (vs. US$127/barrel on average in 2012A). The full reopening of Don Muang since Oct 1,
2012 gives players a boost from: 1) higher concession revenue and low operating costs (AOT)
and lower jet fuel costs and landing/parking fees (AAV) in 3Q13 compared to last year;
2) higher traffic on the alleviation of airport congestion for all players over the long term.
Land (Mass transit/Tollways). Key drivers will be the improved traffic movement bulked up
by an increase in fare/toll rates. In 3Q13, mass transit ridership is poised to rise YoY from the
opening of a new extension of the Green Line (Wongwianyai-Bangwa; two stations in Jan-
Feb 2013 and another two stations late 2013) and BTS’ gradual addition of carriages to bring
its total to 188 in March from 153 (+23%); on a QoQ basis, ridership will pick up on seasonality.
The opening of bidding for new extensions of the Green Line (Mo Chit - Saphan Mai – Kukot
and Bearing – Samutprakarn), earliest in Sep 2013, provides LT support, directly from new
concessions granted for mass transit operators and indirectly from an increase in ridership.
Traffic on tollways will continue to climb YoY, backed by delivery of the autos purchased last
year under the first-car buyer scheme and rise QoQ from seasonality. Effective fare/toll rates
will rise for both, with a rise in BTS’s average fare rate (+7%) taking effect on June 1 and the
hike in BECL’s toll rate (+11%) on September 1.
BTS is our top pick. We are positive on the sector in 3Q13 from strong traffic (all players), a
reduction in jet fuel costs (air transport), and the rise in average fare and toll rate (land
transport). BTS is our top pick: 1) the strongest upcoming 1QFY14 (Apr-Jun 13) earnings from
the Bt13bn extra gain on the sale of farebox revenue from its core skytrain system to an
infrastructure fund plus robust core earnings; 2) potential bidding for new extensions of the
Green Line (not yet included in valuation); 3) most laggard play in the sector (BTS +15% vs.
sector +38% and SET +9% in 2013TD); 4) downside cushioned by the highest dividend yield in
the sector at 6.4-8.6% p.a. based on its committed dividend payment at Bt6-8bn/year in
FY2014-16. Of the other players, we like THAI and BECL from ST catalysts as they list
associates in June 2013F. We see the share price pullback for AAV (-30% YoY from 2013’s peak)
and AOT (-14% YoY from 2013’s peak) as good entry points for LT investors.