Tourism

SCBS Event: Thai Tourism Day 

 

Event: SCBS organized an event “Thai Tourism Day: Revving up in 2016” for local institutional investors. Presentations at the event were made by parties related to Thai tourism: AAV, AOT and CENTEL. Highlights are summarized below. 

Asia Aviation Plc (AAV)  

Presented by Khun Tassapon Bijleveld, Chief Executive Officer 

- AAV is positive towards next year, with expected higher load factor at 84% (vs. 83% this year) backed by route expansion, mainly international, to serve growing demand plus an increase in average fare.  

 

- In 2016, Thai AirAsia (55% held by AAV) will focus its expansion on international markets, with India in the spotlight as India has the second largest population in the world and disposable income is growing. Thai AirAsia has been in India for almost six years, initially serving Delhi, Kolkata and Chennai. However, the intense competition and its lack of experience led it to suspend flights except to Chennai. After taking time to study the nature of Indian travelers and improve distribution channels, the Chennai route is now profitable and Thai AirAsia is ready to get back into India with two more India destinations next year. Khun Tassapon expects revenue from India routes will increase to ~15% of total revenue (from only a small amount now), balancing revenue from China routes, now at ~20% of total revenue. 

 

- Beginning in 3Q15, U-Tapao airport (UTP) is its fifth hub (first is Don Mueang, followed by Phuket, Chiang Mai and Krabi). By end-2015, it will have five international routes (four to China and one to Singapore) flying from UTP and one domestic route, to Udon Thani. The government is hoping to make U-Tapao into a commercial airport serving more travelers, particularly international visitors heading for Pattaya, which is only ~45 km away. To this end, the government is expanding U-Tapao airport to lift passenger capacity from 870K/year now to 3mn/year in 2016 and to 5mn/year in 2020. 

 

- It will continue to expand its fleet, adding five more aircraft next year to bring it to a fleet of 50 planes by the end of 2016. 

 

- In 1H15, average fare increased by 2% YoY (Bt1,695/pax). AAV says the small growth in average fare represents lower fares on the domestic market (~40% of revenue) due to competition, while international fares (~60% of revenue) is growing. In 2016, AAV expects increasing average fare, backed by: 1) more international routes, its high-yield segment, and 2) less intense competition in the domestic market. After the Thai Department of Civil Aviation was flagged as having significant safety concerns by the International Civil Aviation Organization (ICAO), approval for new aircraft is more restrictive and applicants must have an appropriate marketing plan, sufficient funds and adequate pilots and aircrew. AAV believes this is going to slow fleet expansion by new competitors. 

 

- Average jet fuel hedging is at ~22-23% of total usage through the end of 2016 with an average hedging cost of ~US$66/bbl. Jet fuel spot price is ~US$60/bbl currently. 

 

- Since costs, including jet fuel expense and aircraft leases plus debt related to aircraft financing, are in dollar terms, AAV’s 3Q15 operations have felt the impact of the ~8% weakening of the baht against the US$ in 3Q15, which is expected to be larger than the Bt84mn foreign exchange loss in 2Q15. However, so far in 4Q15, things are better, with the baht appreciating against the US$ by 3%.  

 

- To underscore its high standards, AAV is in the process of voluntary certification by IATA Operational Safety Audit (IOSA), the global standard for safety and industry best practices and expects this to finish by the end of this year. 

 

- We rate BUY on AAV with TP of Bt7.5/share. 

 

Airports of Thailand Plc (AOT)  

 

Presented by Dr. Nitinai Sirismatthakarn, President 

 

- AOT believes tourism in the Asia-Pacific region is poised to grow strongly. There are ~8.9K unfilled aircraft orders globally, with the largest number of unfilled orders at ~2.5K in the Asia-

 

Pacific region, or 28% of total orders. This leads AOT to expect steadily strong passenger growth at its six airports through FY2016 (Oct 2015 – Sep 2016) from 22% YoY growth in FY2015 (Oct 2014 – Sep 2015). 

 

- Over the next eight years, through 2023, AOT will spend Bt142bn to boost capacity at all six airports. By the end of 2023, AOT’s passenger capacity will be 165mn/ year from 83.5mn/year currently. AOT’s financial health is not a concern given its solid financial standing with low interest-bearing debt to equity at 0.3x as of June 2015. 

 

- AOT’s long-term plan is to focus on raising its non-aeronautical business revenue (e.g. rental and concession revenue) to diversify its earnings risk. Currently, non-aeronautical business accounts for ~40% of total revenue. AOT expects rental and concession revenue to grow after the new passenger terminals at Don Mueang (Dec 2015) and Phuket (Feb 2016) airports open. While the space allotted to commercial area in those terminals has not yet been disclosed, AOT does not expect revenue per square meter to be less than what it charges now for other space. Expansion at Suvarnabhumi Airport (to open in 2019) will be designed with a greater proportion of commercial area to total area. 

 

- In line with the government’s proposal to reduce landing and parking fees in a bid to lure more airlines and tourists to Thailand, AOT expects to apply this at under-utilized airports such as Chiang Rai. Reducing landing and parking fee is not a new idea – it has used this in the past to bring flights back. At that time, the lower revenue from landing and parking fees (~13% of total revenue) was offset by higher passenger fee revenue (~45% of total revenue) and thus can be a positive to AOT’s earnings if passenger traffic is strong. In the past, AOT cut landing and parking fees at Don Mueang Airport during Oct 2012 – Sep 2015 to persuade low-cost carriers to move and the number of passengers at Don Mueang Airport leapt from 15.5mn in FY2013 to 27mn in FY2015. 

 

- We rate BUY on AOT with TP of Bt360/share and AOT is one of our 4Q15 top picks. 

 

Central Plaza Hotel Plc (CENTEL) 

 

Presented by Dr. Ronnachit Mahattanapreut, SVP of Finance and Administration and Khun Nanthawan Vatcharakomolpun, Group Asset Management Director 

 

- Management says CENTEL’s hotel business (~45% of total revenue) felt only limited impact from the bomb at the Erawan Shrine since it has only one hotel, Centara Grand at CentralWorld, nearby and in any case recovery was rapid. In 3Q15, average occupancy rate was 78%, higher than 3Q14’s 72%. This momentum is continuing in the 4Q15 high season with 82% occupancy rate for Oct 1-19, nicely above the 78% for the same period last year. 

 

- The first phase of renovation at Centara Grand Island Resort & Spa Maldives (~5% of total revenue) involving ~70% of total rooms has finished and the final phase will be done in the next low season (June –August 2016). After completion of all the renovation, the new rooms will allow CENTEL to increase average room rate by 8%. 

 

- CENTEL is developing its own economy hotel, COSI, in Samui and Pattaya, with plans for these to open in 2018. It is in the process of building two 4-star hotels in Maldives that will open their doors in 2019. We note that Centara Ras Fushi Resort & Spa Maldives, a 4-star hotel and CENTEL’s second hotel in Maldives, is doing well and was able to report net profit in its first full year of operations. CENTEL is expanding its hotel business overseas via both acquisitions and greenfield projects as opportunities arise. 

 

- The food business (~55% of total revenue) is doing less well, with same-store sales (SSS) actually contracting 1% for 9M15, dragged down by outlets in the provinces. However, some improvement has been seen since September, and SSS became a small positive in Oct 1-10. CENTEL believes the improved economic climate and consumer mood as the government gets going on its stimulus program will drive SSS in 4Q15 and it maintains its target of flat SSS this year.  

 

- The poor SSS leaves earnings growth to be driven by a wider EBITDA margin. The EBITDA margin of its food business jumped to 13% in 1H15 from 9% in 1H14 after closing loss-making outlets plus the benefit of lower raw material prices. The company expects 12.5-13% EBITDA margin in 2015, implying the good EBITDA margin will continue in 2H15. For 2016, CENTEL targets 14% EBITDA margin backed by pooling the purchases of its group and better SSS.  

 

- Yum Restaurants International (Thailand), the franchisor of leading quick-service chain KFC, is opening bidding for 100-120 of its KFC restaurants in Thailand. Thailand’s 546 KFC outlets are 

 

run by two operators: Yum Restaurants International (Thailand) (344 outlets or 63% of total KFC outlets in Thailand) and Central Restaurants Group (CRG) – the local franchisee and CENTEL’s subsidiary (202 outlets or 37%). The contract between Yum Restaurants International (Thailand) and CRG is non-exclusive, which means Yum Restaurants International (Thailand) can add another franchisee. CRG is interested in what YUM is offering and expects to arrive at some conclusion early in 2016.  

- We rate BUY on CENTEL with TP of Bt44/share.