Nok Airlines

Nok Airlines Plc (NOK)

4Q14 net profit was Bt19mn (Bt0.03/share), enormously better than 3Q14’s huge loss of Bt372mn but lower than the Bt145mn net profit in 4Q13. This beat our estimated loss of Bt80mn as it carried more passengers than we had expected. The improvement QoQ came from higher revenue and lower operating cost and the drop YoY from lower fares. 2014 was a net loss of Bt472mn, a steep fall from 2013’s net profit of Bt1.1bn. 

 

4Q14 and 2014 highlights: 

 

Cabin factor was 83% in 4Q14, up from 79% in 4Q13 but down from 84% in 3Q14. In 4Q14, Revenue Passenger Kilometer (RPK, mn seat-km) increased more than Available Seat Kilometer (ASK, mn seat-km). RPK rose 33% YoY on the 40% YoY rise in passengers carried, which reached 2.2mn. ASK increased by 26% YoY from expansion to 24 aircraft in 4Q14 from 16 in 4Q13. In 2014, NOK’s cabin factor was 81%, down from 84% in 2014, and it carried 7.62 passengers, up 29% YoY. 

 

Fare pressure appears to have eased in 4Q14, with average fare at Bt1,436/pax, down 20% YoY but up 8% QoQ. The YoY drop was less than 3Q14’s -24% YoY. This gave an average fare of Bt1,474/pax in 2014, down 18% YoY. 

 

 RASK-CASK spread was at par in 4Q14, better than the -Bt0.30 in 3Q14 but still lower than Bt0.08 in 4Q13. QoQ better spread between RASK and CASK was provided by rising revenue and lower cost, largely from cheaper jet fuel (35% of total cost). In 2014, RASK-CASK spread was negative at Bt0.10, down from +Bt0.24. 

 

 NOK booked a Bt43mn startup cost for NOKScoot, a mid- to long-haul, low-cost airline, in 4Q14. In 2014, NOK booked Bt61mn in losses from NOKScoot.  

 

Plans to issue Bt3.0bn debenture. NOK plans to issue a debenture of a maximum of Bt3.0bn, denominated in baht or other currency, with an eye to obtaining funding for future business expansion. NOK plans to add four new aircraft: two Q400s and two B737-800s. It plans to cross Thailand’s borders more, opening three to four new routes to China in mid-February and two new routes to Vietnam (expected in October). 

 

Maintain BUY at TP of Bt25/share. We stand by our BUY call on NOK with a TP of Bt25/share. We see the poor 2014 as an aberration and expect a strong turnaround in 2015. Fares should be under less pressure this year in the environment of better Thai tourism and a stronger economy. NOK should also enjoy a windfall from the fall in jet fuel price with hedging low at ~20-25%, which we expect to see in 1Q15 earnings.