Thai Airway International

Thai Airway International Plc (THAI)

- Dreadful loss in 1Q14 due to political unrest
1Q14 net loss equated to B2.6bn, improving 54%qoq as projected.
However, excluding net extraordinary income of B906m (mainly Fx gain)
that reversed from a net expense in 4Q13 (details on next page), the
normalized loss was as much as B3.5bn or an increase of 26%qoq.
Although cabin factor decreased from 71% in 4Q13 to 70% ( because
service capacity was reduced 5.8%qoq but passenger volume decreased at
a greater rate of 7%qoq as a result of the political situation), a decrease in
the proportion of low-price tickets made passenger yield increase
1.4%qoq. Consequently, total revenue dropped 6%qoq to B49bn, whereas
total operating cost decreased at a lower rate of 5%qoq to B52bn because
fixed cost made up around 50% of its total cost.
- Loss to continue at least in 3Q14
Apart from a low season waiting in 2Q14 – 3Q14, the protracted political
unrest is another important factor that has held back the tourism industry
in Thailand. For 2Q14, cabin factor in April and May – June (booking) has
been weak at 71.4%, 60%, and 43%, respectively, so 2Q14-3Q14 cabin
factor is projected below 70%. Moreover, because a low priced ticket
promotion in the low season would lower passenger yield, the cabin factor
that will be a breakeven point is around 75% (up from 72% during the
high season in 1Q and 4Q). Consequently, a normalized loss of over B2bn
a quarter is foreseen in 2Q14 and 3Q14. Nevertheless, the profit would
turnaround again in 4Q14, the high season, because the ongoing political
turmoil should have already ended by then. Therefore, we maintain our
forecast for a net loss of B7.0bn in 2014, with a net profit expected in
2015.
- Ready to up forecast if political turmoil ends
We believe THAI has substantially absorbed the adverse effects from
politics, reflecting from the share price that has fallen by 32% since the
beginning of the recent political strife. If the political conflict eases off, we
are likely to revise up the fair value and recommendation. For now, we
reiterate to sell THAI. Fair value is B10.5 (PBV band – 1 S.D. of 0.5x).