Airports of Thailand (AOT) "Buy"

In our view, the recent share price correction on concerns over the impact from the Ratchaprasong bombing and the diminishing expectation for growth outlook of concession revenue is overblown. We believe the impact from the bombing will be short-lived and the potential impact from the lower concession revenue will be minimal. We think the current share price, which trades at an end-September 2015 price to earnings ratio of 23.7 times, close to 2014 trough (when there was a martial law enforcement and the passenger numbers were 30 per cent lower) and a deep discount to the regional average of 31.7x – offers a good opportunity for investors to accumulate the stock ahead of the upcoming high season in October. The broad demand recovery for travel to and within Thailand has driven the strong air-traffic-growth momentum. AOT’s air traffic statistics for the first 10 months (October 2014-July 2015) posted substantial growth year on year (YoY). Passenger numbers rose 22 per cent YoY to 89 million while aircraft movement rose 15 per cent YoY to 588,800 flights. This strong momentum continued through August before the Ratchaprasong bombing. AOT posted a substantial passenger growth of 27 per cent YoY from August 1-17. However, air traffic numbers weakened in the week after the bombing. International passenger numbers decreased 15 per cent compared to the numbers in early August, while domestic passenger numbers declined 8 per cent. Despite that, passenger growth remained strong at 25.8 per cent YoY during the period. Our scenario analysis suggests that in the worst-case scenario, which assumes no growth in concession revenue from 2016-2024, AOT’s bottom-line will decrease 4 per cent on average from our base-case forecast and the discounted cash flow-derived target price will decline to Bt314/share (from our base case target price of Bt330/share). We think that the recent share price correction (down 17 per cent over the past two months) is overblown.