Transportation

Transportation

- Political unrest more heated. PDRC seizes government offices and clashes with police
This weekend (30 November - 1 December 2013), the political unrest
became violent, as the People's Democratic Reform Committee (PDRC) has
continued rallying against the government and seizing government offices
and clashed with police, whereas United Front of Democracy Against
Dictatorship (UDD) collided against students from Ramkhamhaeng
University. Five were killed and 53 were injured in the incident.

- Political unrest presses air transportation sector as demand bases on tourism
The political conflicts have a negative sentiment on air transportation
sector, as the demand depends on tourism sector. Despite tourism season,
embassies of 32 countries (e.g. Singapore, China, South Korea, the UK, the
Netherlands, India, Israel and Slovakia) have given warnings at level two
and three, preventing their people from visiting Thailand. If the violence
continues, other countries will prevent their people from visiting Thailand as
well. Overall, air transportation sector will be severely affected by slowing
tourism. The political situation needs to be monitored closely. If the
situation can be relieved early and foreigners regain trust in Thailand, the
effect would last just for a few months, and air transportation sector would
be pressed for only one quarter and then make a recovery. If the unrest
continues, air transportation sector's FY2014 profit would be affected.

- Negative sentiment. “UNDERWEIGHT”. Avoid investing
Political unrest would be pressing air transportation sector (negative
sentiment for a short term, pressing earnings result for a long term),
having a negative sentiment in high season. Thus, we downgrade from
"OVERWEIGHT" to "UNDERWEIGHT" and recommend avoiding investing in a
short term. Considering the listed companies under our coverage (AAV,
AOT, THAI), air transportation might be greatly affected. The companies
have been expanding their capacity and flights, so their expenses would
increase (impairment, interest expense). Moreover, their revenue would be
pressed by the political turmoil, so it would not be able to compensate for
the expenses. For THAI([email protected]), we recommend "SELL". For
AAV([email protected]), we recommend "HOLD", as it is likely to recover from the
pressure more rapidly than THAI. AAV has the lowest cost, so it can lower
its fare to promote sales if the political unrest escalates. For AOT, we
recommend "HOLD" to reduce risk from the political unrest that might lead
to down revision of earnings forecast.