Airport Thailand

Airport Thailand Plc (AOT)

- Expense falls qoq, boosting 1Q14 profit
AOT reported 1Q14 (ended December 2014) net profit at B3.7bn, falling
27%qoq, as extraordinary income (the reversal of estimated loss on the
impaired assets of Don Muang Airport) was booked in 4Q13 but not in
1Q14. However, 1Q14 normalized profit grew by 114%qoq, as one-time
employee bonuses were booked in 4Q13 but not in 1Q14. 1Q14
operating expense dropped 24.7%qoq, lowering cost of service by
26%qoq. Despite tourism season, service income grew only 3.5%qoq,
and 1Q14 passenger volume in every airport (Suvarnabhumi, Don
Muang, Chiang Mai, Chiang Rai, Phuket, Hat Yai) rose by only 5.9%qoq
or 10%yoy (versus 18%yoy in 4Q13) as a result of the political turmoil
starting from November 2013.

- Profit to decline in 2Q14-4Q14
Profit is projected to decline in 2Q14-4Q14, especially in 2Q14 (ending
March 2014). AOT is likely to be pressed by the political turmoil for a full
quarter. 2Q14 passenger volume in every airport is likely to stay flat
from 1Q14 (growing by 5-7%yoy). January passenger volume grew by
only 7%yoy, decelerating from 10% in 1Q14. As 3Q-4Q is a low season
for tourism, profit is not likely to be strong. 4M14 passenger volume in
every airport grew by 9.5%yoy, higher than our projection for 2014,
which is unchanged from 2013. However, it is likely to be pressed by the
political turmoil during the remainder of the year, so passenger volume
would weaken yoy. We maintain our previous assumption and earnings
forecast, projecting FY2014 net profit to grow by 14% to B11.3bn, and
growing by 18% in 2015.

- Dim profit and sentiment for short term
We might revise up earnings forecast and fair value if the political
turmoil subsides. Every 1% of passenger volume that grows beyond our
assumption would increase net profit and fair value from our forecast by
1.7% and B2-3, respectively (see Page 2). We project net profit to
decline during the three remaining quarters in FY2014. Sentiment has
been dull as a result of the prolonged political turmoil. Also, current fair
value implies only 5.5% upside. Overall, we recommend "HOLD".