Airports of Thailand

Airport of Thailand Plc (AOT)

- Strong 2Q14 profit. Profit sharing grows qoq
2Q14 net profit and normalized profit (ended March 2014) was
reported at B3.7bn (6.2% beyond expectation), staying high qoq.
Income sharing rose by 14%qoq; revenue sharing from King
Power's duty-free business under a concession increased from 15%
to 16% (starting in March 2014). In terms of core income, overall
passenger service charge and landing charge remained flat qoq.
Though passenger volume stayed flat and number of full-service
flight dropped because the political turmoil continued for a full
quarter, total flight volume grew by 2%qoq thanks to low-cost
airlines. Still, total landing charge remained flat qoq because landing
charge for smaller aircrafts was lower than large aircrafts. 1Q14
total revenue grew from 4Q13 by B420m, similar to 1Q14 operating
cost. Thus, AOT's net profit remained high.

- 3Q14-4Q14 normalized profit to fall in low season, but grow yoy
Despite low season and the possibly prolonged political turmoil in
3Q14 (ending June 2014) and 4Q14 (ending September 2014),
many countries have cancelled their warnings on visiting Thailand
after the emergency decree was revoked, so tourism in Thailand is
likely to improve. AOT's 3Q14 - 4Q14 passenger volume is not likely
to drop significantly from low passenger base in 2Q14, as tourism
sector has possibly passed its lowest already. 3Q14 earnings result
is expected to weaken slightly qoq (but grow remarkably yoy thanks
to increasing income sharing). Positive factors in 3Q14 are likely to
be booked in 4Q14 as well, but 4Q14 net profit would drop and
make the lowest of 2014 because of personnel bonus expense.
2H14 earnings result is likely to weaken from 1H14. However, as
1H14 net profit has already made up 58% of AOT's FY2014 earnings
forecast, we maintain FY2014-2015 earnings forecast, projecting
AOT's normalized profit to grow by 13% (to B12bn) in 2014 and
21% in 2015.

- Fair value implies 20% upside. Buy
AOT has passed its lowest after 2Q14 net profit was affected by the
political tension for a full quarter. Net profit is likely to grow strongly
yoy from 3Q14 on. As FY2014 fair value implies 20% upside, we
recommend buying.