Thai Airway International

Thai Airway International Plc (THAI)

- 4Q13 loss decreases 9%qoq
THAI posted a net loss of B5.7bn in 4Q13, decreasing 9%qoq, from recognition
of extraordinary expenses of B2.8bn (see table on page 2); excluding the
extraordinary items, a normalized loss equated to B2.8bn, decreasing 13%qoq.
It was the first high-season loss since the flooding crisis (consistent with our
forecast) because, while THAI increased its service capacity in the quarter by
4%qoq as usual, passenger volume slumped 2.2%qoq as domestic political
protests had damaged tourism atmosphere (4Q13 cabin factor was 71%, down
from 75% in 3Q13). Nevertheless, as proportion of promotion tickets was
reduced substantially from the middle of the year, passenger yield improved
4.8%qoq, compensating for the lower passenger volume. Consequently, 4Q13
revenue still grew 3.7%qoq to B52bn. The loss decreased because operating
cost increased at a slower rate than revenue at 3.5%qoq, mostly fuel cost
(40% of cost) that rose 7.4%qoq following the weak Baht in 4Q13. For FY2013,
THAI faced a net loss of B12bn, reversing from a profit last year.
- To face constant loss this year
We are convinced that THAI would continue to face loss in 2014. Although
1Q14 is a high season, year-to-date cabin factor has stood at 70%, lower than
that of 4Q13, because passenger volume in 1Q14 has been depressed by the
political factors for a full quarter. Accordingly, the company might post a
greater loss than in 4Q13, different from a normal year in which the first
quarter usually generates the highest profit; passenger volume and ticket fares
would subsequently decrease during a low season in 2Q14 and 3Q14, resulting
in a loss like every year. Still, we project to see a profit again in 4Q14 when the
tourism season returns (under an assumption that the political unrest ends
before 4Q14), but it would not be able to negate the loss in 9M14, thus THAI
would still face a normalized loss of around B7bn in FY2014, increasing
25%qoq. Moreover, at end-2013, THAI had still not booked entire impairment
loss of four unused A340-500 aircrafts (book value of outstanding impairment
loss is US$30m for each aircraft). Under our assumption that THAI books
impairment loss by 50% of the book value of the four aircrafts at B2bn this
year, the net loss in 2014 including the extraordinary item would be B9.1bn.
- Dull sentiment and earnings. Reiterate SELL
With dull investment sentiment as a result of the inconclusive political conflicts,
a tendency that THAI would continue to suffer a loss until 3Q14, and the fair
value of B10.5 which implies 19% downside, we reiterate to sell THAI.