Airports of Thailand

Airports of Thailand Plc (AOT)   

 

Earnings season is coming and we highlight AOT as a strong earnings play. We expect it to continue to show strong earnings with superb YoY growth in 3QFY15 (Apr – Jun 2015) backed by robust passenger traffic and off last year’s low base. We Buy AOT with DCF TP at Bt350/share. 

 

Robust passenger traffic despite the low season. In 3QFY15 (Apr – Jun 2015), AOT reported total passenger pass-through at its six airports of 25.9mn, up 29% YoY; this was down 9% QoQ on seasonality. Of these, 14.9mn were international (57% of total passengers), jumping 31% YoY (down 9% QoQ) and 11mn were domestic (43% of total passengers), up 26% YoY (down 8% QoQ). Despite being the low season for Thai tourism, the accelerating YoY growth of passengers at 29% YoY in 3QFY15 vs. 23% YoY in 2QFY15 (Jan – Mar 2015) confirms the uptrend of Thai tourism, but note also that it is off last year’s low base in May when Thailand was put under martial law. Strong passenger traffic is continuing as AOT’s total passengers for July 1-11 grew 28% YoY: +34% YoY for international and +21% YoY for domestic. 

 

3QFY15 preview: Net profit at Bt3.8bn, up 54% YoY. Strong passenger growth, particularly international, is good for AOT’s operations, as revenue from international passenger service charges contributes ~40% of AOT’s total revenue. We estimate it will report net profit of Bt3.8bn, up 54% YoY (-22% QoQ on seasonality). 

 

Expansion to increase capacity. AOT is moving ahead with its plan to increase capacity at Suvarnabhumi and will invest Bt110bn over FY2015-20. This will be divided into 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; the search for contractors will take place in 4Q15-1Q16 and completion is targeted for 2019. 

 

2) Bt20bn for a reserve runway. The Environmental and Health Impact Assessment (EHIA) is being conducted, after which it will go to the cabinet for approval. 

 

3) Bt28bn for a north passenger terminal (Terminal 2) that will add 20mn to passenger capacity. This also requires an Environmental Impact Assessment (EIA), after which it will be submitted for cabinet approval. 

 

AOT plans to 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 believe it will have any difficulty financing given its solid financial standing with low interest-bearing debt to equity at 0.3x as of March 2015. 

 

Maintain BUY with TP of Bt350/share. AOT’s share has outperformed the SET by 11% YTD and we expect this performance to continue, supported by the expected outstanding earnings in its 3QFY15 and growing Thai tourism. We maintain BUY on AOT with DCF TP at Bt350/share.