Airports of Thailand

Airports of Thailand Plc (AOT)

 

AOT’s share price has risen 5% over the past two weeks, indicating the market has put the bomb Erawan Shrine in mid-August behind it. We believe strong 4QFY15 earnings and the onset of tourism high season will support a further rally in AOT’s share price. AOT’s valuation is undemanding at 1.4x 2016PE to earnings growth, below the regional peer average of 1.6x. BUY with TP of Bt360/share.  

4QFY15 preview. We expect AOT to report 4QFY15 (July–September) core profit of Bt3.0bn, up 40% YoY (but down 27% QoQ on seasonal year-end adjustments). The YoY growth was fostered by two factors. 1) Total passengers grew 24% YoY and 3% QoQ to 26.6mn, consisting of 15.0mn international passengers (up 24% YoY and 1% QoQ) and 11.6mn domestic passengers (up 25% YoY and 5% QoQ). 2) Aircraft movement grew 23% YoY and 2% QoQ to 179K flights. The bomb at Erawan Shrine in mid-August put a dent in AOT’s international passenger traffic but only for a short time. Domestic passenger traffic in 4QFY15 is slightly better than our estimate and brings total FY2015 passengers to 106.8mn (+22% YoY) vs. our assumption of 104.4mn (+19% YoY). However, the earnings impact is negligible and we leave our FY2015 (October 2014 – September 2015) core profit estimate unchanged at Bt15.6bn, up 30% YoY. AOT will release its 4QFY15 results in late November.  

Strong passenger growth in high season. AOT is basking in the high season for Thai tourism, with a strong influx of Chinese tourists during China’s Golden Week. Total passenger traffic for October 1-10 grew 13% YoY; +10% YoY for international passengers and +17% YoY for domestic passengers. This is a good reflection of the strength of international passenger growth since this double digit YoY growth comes off a high base after Thai tourism began to recover from the political turmoil in October last year. For FY2016 (October 2015 – September 2016), we estimate total passenger growth at 10% YoY. 

Expansion update. Local newspapers report that AOT plans to release the terms of reference (TOR) for the expansion of Suvarnabhumi airport in November–December and will finalize the contractors in February 2016, with construction to start in March 2016 and finishing in February 2019. Terminal 2 at Don Mueang airport will open in December 2015 and become fully operational in February 2016 after a system test run. Terminal 2 at Phuket airport will also start operations in February 2016. The new terminals will not only boost passenger capacity, but will open up more commercial area and bring in higher concession revenue down the road.  

Maintain BUY with TP of Bt360/share. AOT’s share price has increased by 5% over the past two weeks, indicating the market has overcome its concern over the impact of the bomb on Thai tourism. We expect share price to rally further given the entry into the high season and the good 4QFY15 earnings. AOT’s valuation is undemanding at 1.4x 2016PE to earnings growth, below the regional peer average of 1.6x. BUY with a TP of Bt360/share.