Airports of Thailand

Investment thesis

Expectations of strong earnings growth through to March 2015, buoyed by tourism high season and a broad recovery in visitor arrivals should boost the share price going forward. Moreover, AOT’s strong core profit expansion profile (an FY14-16 CAGR of 16% against 11% for the SET) will make for further share price appreciation, we believe. The stock currently trades at a forward PEG ratio of 1.7x, on a par with the regional average.    

YoY core earnings improvement expected for 4Q14 (July-Sept)

We estimate a 4Q14 (July-Sept) net profit of Bt2,256m, down by 57% YoY and 9% QoQ. The assumed YoY bottom-line contraction was due to the booking of an extra gain in 4Q13. Stripping out an assumed FX loss of Bt17m, 4Q14 core profit would be Bt2,273m, up 27% YoY but down 11% QoQ. The drivers of the YoY core profit growth were: 1) lower personnel expenses, 2) lower operating expenses and 3) lower interest expenses. Note that passenger numbers dipped 1% YoY to 21.4m. 

The key factors behind the assumed QoQ core earnings contraction were: 1) higher personnel expenses (the payment of staff bonuses), 2) higher operating expenses and 3) higher repair & maintenance expenses. Note that total passenger numbers for 4Q14 rose 6% QoQ, fueled by 7% QoQ growth in international passengers and 10% QoQ growth in domestic passengers. As such, concession revenue is expected to post a QoQ rise. Strong air traffic growth at other airports (Don Muang and provincial airports) during the July-Sept quarter would have outweighed the effect of lower QoQ numbers at Suvarnabhumi and Phuket airports.    

Strong air traffic rebound to drive 1Q15 (Oct-Dec) earnings growth  

As it is now tourism high season, we expect AOT’s air traffic statistics—both passenger numbers and aircraft movement—to improve further in 1Q15 (Oct-Dec), both YoY and QoQ, driven by a better political climate and seasonality. The recovery has clearly continued into November-to-date—AOT reported that total passenger throughput during Nov 1-20 rose 11% YoY, following 11% YoY growth in Oct. Apart from air traffic growth, the firm’s personnel expenses should normalize in 1Q15. We, therefore, expect YoY and QoQ core earnings growth for 1Q15.

Strong concession revenue prompts profit forecast upgrade

Even though, total passenger numbers for FY14 (Oct 2013-Sept 2014) grew only 2% YoY to 87.6m, concession revenue is expected to increase 5%. Historical data indicate that concession revenue growth is typically 1.9x passenger growth. Hence, we have revised up our long-term concession revenue assumption by an average of 8% and raised our long-term earnings forecast by 9%. Our upgraded end-Sept 2015 DCF-derived target price is now Bt295 (it was previously Bt265).