Airports of Thailand
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Airports of Thailand Plc (AOT)
AOT share price hit a new high in September and is up 51% YTD versus
22% for the SET index. We believe AOT’s share price has outperformed
because its earnings are more resilient than other tourism plays and
because the market has begun to factor in a tourism recovery scenario.
Despite AOT’s stellar performance, we see catalysts and fundamental
reasons for further upside (stimulus measures, lifting of marital law
and lower capex). AOT is trading close to our target price of
Bt245/share but the new capex plan in discussion could raise our target
price to Bt265/share.
Record-high share price ahead of full-fledged tourism recovery. AOT’s share
price hit a new high in September and is up 51% YTD versus the 22% for the SET index.
This is in spite of the poorer climate for tourism and declining international tourist
arrivals witnessed thus far this year. We see two reasons for AOT’s outperformance.
Firstly, its earnings are relatively resilient, as 42% of revenues are non-aero (e.g.,
concessions) and it is still able to squeeze out gains from cost control. We note AOT’s
core earnings rose 4% YoY during Jan-Jun 2014 (2QFY14-3QFY14) despite a 9% YoY
reduction in international tourist arrivals. Secondly, we believe the market has started
to factor in tourism recovery.
Tourism outlook looks stronger than ever. The slump in tourism so far this year
was due to exceptional events, thus a recovery is highly probable after an end to
Thailand’s political deadlock. Indeed, Chinese tourists, making up 17% of Thailand’s
inbound visitors, already hit an 11-month high in August. Yet, this recovery is likely to
gain even more momentum with visa fee waivers for Chinese and Taiwanese tourists
effective from Aug 9 to Nov 8, 2014. The lifting of martial law would provide an even
stronger boost. We expect a new record high at 29.5mn tourist arrivals in 2015.
Potential for cheaper capex. AOT’s board has put Bt62bn Suvarnabhumi Phase 2
project on hold and is considering a new Bt24bn multi-function passenger terminal
instead. Details of this new terminal are expected to be drawn up and ready for board
consideration in October before being forwarded to the cabinet for final approval. Both
projects would increase Suvarnabhumi airport capacity by 33-44% from 45mn
passengers/year to 60-65mn, but Phase 2 is more expensive as it includes the laying of
foundations for further expansion in the future.
Earnings and valuation upside. We expect AOT’s core earnings to jump 17% YoY in
FY2015 based on total passenger growth of 15% YoY, bouncing up from only 2% YoY
growth in FY2014. Our sensitivity analysis suggests 5% incremental growth in AOT’s
passengers from our FY2015 assumption increases AOT’s core profit by 7%. Our current
DCF-based target price of Bt245/share incorporates Suvarnabhumi Phase 2 and could
be raised to Bt265/share if the company goes for the new terminal instead.
