Airport of Thailand

Airport of Thailand Plc (AOT) 

 

- B7.0bn cost reduction for Suvarnabhumi Phase 2 

AOT president Nitinai Sirismatthakarn revealed the progress on B62bn-worth Suvarnabhumi Airport Development Project Phase 2. Thanks to the government's economic policy, AOT could reduce the construction budget by B7.0bn to B55bn; there would be no additional budget cut since it may lower the quality. AOT has three work groups: 1) concourse building No. 1 (B27.9bn), 2) Attached bay terminal for 28 parking bays (B4.9bn), and 3) south tunnel extension and passenger transportation system (APM) (B7.9bn). AOT is expected to open an auction for APM project first because it takes 33 months, the longest to complete. 

- To reduce cost by over B200m 

AOT could reduce the construction budget for Suvarnabhumi Airport Development Project Phase 2 by B7bn, better than our assumption based on the initial budget. Thus, this is expected to decrease AOT's depreciation cost by B233m/year (30-year depreciation cost projected). The expansion plan would help AOT solve overcrowding problems (over 50 million passengers versus the current capacity of 45 million). If the construction starts in March 2016 and completes in 2019 as scheduled, the capacity would increase to 60 million. AOT also has an additional plan to build the second terminal to boost the capacity to 80 million passengers from 60 million (after Phase 2 completes), which has been submitted to the cabinet; the construction is expected to start in 2017 and complete in 2020. For short-term solution for overcrowding problems, AOT reduces bottlenecks by opening more passport control counters. The airport probably has enough capacity to handle more than 60 million passengers at present. Overall, AOT's earnings are projected to grow by over 10%p.a. 

- B5 added fair value 

As we include the initial budget for Suvarnabhumi Airport Development Project Phase 2 in our assumption, the budget cut means B5/share added value to the current fair value. Including the aforementioned added value, the new fair value is B349, showing 15% upside. We reiterate BUY.