Airports of Thailand

Airports of Thailand Plc (AOT)

In line with estimate
AOT posted a 3Q13 (April-June 2013) net profit of Bt3,152m, up 349% YoY but down 30% QoQ. Stripping out an FX gain of Bt437m, a gain on sales of assets of Bt6m and an impairment on assets of Bt31m, core earnings would be Bt2,740m, up 57% YoY but down 15% QoQ. The result was in line with our model, but 23% above the consensus.
Results highlights
The strong YoY core profit growth was driven by: 1) greater air traffic numbers (passenger numbers increased by 19% YoY to 21m people and aircraft movement by 17% YoY to 139,185 flights), 2) lower personnel expenses (down 12% YoY ) and 3) lower repair and maintenance expenses (down 25% YoY). The QoQ core earnings contraction was mainly due to low season. The passenger numbers declined 10% QoQ, while aircraft movement dipped 3% QoQ.
Outlook
Even though, the July-Sept quarter is also low season for both Thai tourism and AOT, historical data indicate that air traffic numbers during the quarter normally increase by about 7% QoQ. Having said that, we expect core profit to soften QoQ in 4Q13, as personnel expenses normally rise in the July-Sept period on the payment of staff bonuses. However, AOT’s core earnings should post YoY growth, driven by broadly rising demand for air travel. 
What’s changed?
Air traffic has grown strongly during the first nine months of financial-year 2013—passenger numbers jumped 21% YoY to 64m—and we expect this momentum to continue through 4Q13. As such, we have upgraded our air traffic growth assumption for FY13 to 21% from 16% and our FY13 core profit forecast by 10% to Bt10,610m. We have also raised our FY13 net profit forecast by 42% to Bt13,700m to reflect extra gains booked during 9M13. Furthermore, we have revised up our long-term earnings projection by 10% to reflect a higher base effect. Our end-Sept 2013 DCF-derived target price rises to Bt210 from Bt190.
Recommendation
In our view, the upcoming high season for Thai tourism together with expectations of strong YoY earnings growth through 4Q13 should continue to boost the share price going forward. Over the long-term, the good prospects for air traffic and attendant core profit expansion (an FY13-15 CAGR of 24% against 8% for the broad SET) will make for further share price appreciation. There would be scope for upside to our earnings forecast if passenger numbers were to rise faster than we assume and/or PSCs were to increase (subject to the approval of the Civil Aviation Commission). AOT currently trades at a forward PEG ratio of 0.8x, a deep discount to the regional average of 1.0x.