Airports of Thailand

Airports of Thailand Plc (AOT) 

 

Taking the helm in April, AOT’s new president, Mr. Nitinai Sirismatthakarn yesterday met with analysts. Positives include rising passenger traffic and clearer expansion roadmap as it works to ensure long-term growth. In response, we raised our forecasts for FY2015-16 by 3% and this raises our DCF-based TP to Bt350/share. BUY maintained.  

Bt110bn CAPEX in FY2015-20. Less concern on liquidity shortfall. AOT’s president says AOT plans to invest Bt110bn over FY2015-20 into expanding Suvarnbhumi. This investment consists of three parts. 1) Bt61.7bn over 2011-17: midfield satellite building #1 and an east passenger terminal that will boost passenger capacity to 60mn/year from 45mn/year now. This project has been approved by the cabinet. Construction will start in March 2016 and is expected to wind up in 2019. 2) Bt20bn for a reserve runway. 3) Bt28bn for a north passenger terminal (Terminal 2) that will add 20mn to passenger capacity. Project 2 is waiting for its Environmental and Health Impact Assessment (EHIA) and Project 3 its Environmental Impact Assessment (EIA) approval, after which they must go to the cabinet for an approval. AOT will use Bt43bn of its own cash to fund the projects. This should last until 2018, at which time it will need more cash. However, we do not feel this will be a problem since AOT is very healthy financially with low interest-bearing debt to equity at 0.3x. 

Ambitious goals in FY2015. AOT is doing well off the V-shaped recovery of Thai tourism. From October 2014 through May 2015 (2015 fiscal year to date), AOT’s aircraft movement grew by 12% YoY and total passengers pass-through at its six airports increased by 19% YoY. Chinese passengers are the largest group, at ~25% of total passengers. In FY2015, AOT expects 20% YoY total passenger growth, implying this high ~20% YoY growth will continue through the remainder of its FY2015. We believe this is achievable given the expectation of strong Chinese tourist influx even in low season. A talk with AAV reveals that forward bookings for China routes in June–August are high – possibly reflecting a shift of travelers from South Korea to other destinations, including Thailand, on concerns over the MERS outbreak.  

Earnings rise by 3% in FY2015-16. We raise AOT’s core earnings by 3% for FY2015-16 with the main change being a higher passenger growth assumption of 19% YoY in FY2015 from 15% YoY previously. After the revision, core earnings are forecast to grow 30% YoY in FY2015 and 17% in FY2016.  

Maintain BUY at new DCF TP of Bt350/share. Our new DCF-based TP is increased to Bt350/share from Bt330/share based on WACC at 8.9%. Despite a 11% share price increase YTD vs. the 1% for the SET, we stand by our BUY call and believe AOT’s share price will continue to outperform as it is positioned as a good, safe play on the Thai tourism sector, backed by strong passenger growth and healthy earnings. AOT is trading at 1.0x 15PE-to-earnings growth, below 1.4x of regional peer average.