Airports of Thailand

Airports of Thailand Plc (AOT)  

 

The market is worried about the impact of a delay in opening Terminal 2 at Don Mueang. However, our workout of the worst-case scenario (no passenger growth at Don Mueang) shows a tiny 3% slice off AOT’s FY2016F earnings. Bomb at Erawan Shrine did damage its international passenger traffic but not as greatly as feared and recovery has been rapid. AOT is trading at 2% below pre-bomb level and 10% below its recent peak. We maintain BUY on AOT with TP of Bt360/share. 

 

Terminal 2 at Don Mueang opening in December, not September. Newspapers report that Terminal 2 at Don Mueang airport will not open in September as planned and will instead open in December as building renovation is not finished and systems such as ticketing and baggage belt conveyor are not ready. AOT says Terminal 2 will facilitate handling an additional 11.5mn passengers per year from the current 18.5mn at Terminal 1 (+62%). Once it opens, Terminal 2 will serve domestic flights and Terminal 1 only international. 26% of AOT’s total passengers passed through Don Mueang and it provided 19% of AOT’s earnings in 9MFY15. In 10MFY15 (Oct 14 – Jul 15), Don Mueang airport served 23.7mn passengers – 54% more than official capacity – 70% of which were domestic.  

 

Slice of 3% off earnings if we assume no growth at Don Mueang. The market worries that the delay in opening Terminal 2 may affect AOT’s future passenger growth. Assuming the worst case of no passenger growth at Don Mueang in FY2016 (from +15% YoY current assumption), there is only 3.5% downside to AOT’s total passengers (from +10% YoY current assumption) and a tiny earnings impact of 3%. In our view, the delay simply brings greater passenger congestion and some level of inconvenience, but not to the point that they would avoid flying. We feel Don Mueang can actually pass even more passengers through with good passenger flow management and available flight capacity. This is already in practice at Phuket airport, which is running double its official passenger capacity.  

 

Rapid recovery after the bomb. The bomb at Erawan Shrine on Monday August 17 hurt AOT’s international passenger traffic but only a little and only for a short time. Recovery has been rapid: AOT’s total international passenger traffic grew ~27% YoY August 1-17 and then decelerated to ~20% YoY after the bomb. Proof of recovery is seen in the resumption of the strong growth at ~28% YoY during September 3-4.  

 

Maintain BUY with TP of Bt360/share. We are maintaining our FY2015 full-year forecast, implying we expect strong earnings momentum to continue in 4QFY15 at 40% YoY (seasonally down 27% QoQ) and FY2016 estimate of 17% earnings growth. Despite the passenger traffic recovery after the bomb and the minimal earnings impact from the delay of opening Terminal 2 at Don Mueang, AOT’s share price is trading at 2% below pre-bomb level and 10% below its recent peak. We maintain BUY on AOT with TP of Bt360/share.