Airports of Thailand

Airports of Thailand Plc (AOT) 

 

Investment thesis

In our view, the recent share price rally has already priced in the expectations of strong air traffic statistics and robust earnings growth through March. However, we do not expect to see flows of an earnings upgrade in the near term, as the firm’s YTD air traffic growth is as expected. Also, we think that there will be no obvious catalyst for the share price going forward, as tourism’s low season is approaching. AOT’s current valuation is stressed—the stock trades at an end-Sep 2016 PER of 30.1x, an 8% premium to the regional average of 28.0x. We therefore downgrade our rating to HOLD from BUY. 

Resilient earnings growth expected for Oct-Dec 2015 quarter

We expect AOT to post a 1Q16 (Oct-Dec 2015) net profit of Bt4,530m, up 16% YoY but down 23% QoQ. Stripping out an assumed FX gain of Bt6m, 1Q16 core profit would be Bt4,524m, up 20% YoY and 46% QoQ. The drivers for the core earnings growth were: 1) greater passenger numbers, 2) higher aircraft movement, 3) higher concession revenue, 4) lower personnel expenses QoQ and 5) lower interest expenses YoY. 

AOT’s total passenger numbers for 1Q16 grew 12% YoY and 9% QoQ to 28.9m, while total aircraft movements rose 12% YoY and 7% QoQ to 191,356 flights, brought about by the high season of Thai tourism. In addition, the concession revenue is expected to expand 16% YoY and 2% QoQ in tandem with a rebound in international passenger numbers (up 8% both YoY and QoQ to 16.2m in 1Q16). Also, the 1Q16 personnel expenses are expected to normalize, as the firm booked the staff bonus in 4Q15.   

Peak tourism season to drive earnings growth further 

Demand for travel to and within Thailand has continued to strengthen in 2015—AOT’s total passenger number surged 22% YoY to 107m in fiscal year 2015 (Oct 2014-Sep 2015). The strong growth momentum has sustained in fiscal year 2016 to date—its statistics for Oct 2015-Jan 2016) expanded further—total passenger numbers advanced 2% YoY to 40m, while aircraft movement strengthened 11% YoY to 259,049 flights. Furthermore, the Jan-Mar quarter is typically a peak season for Thai tourism. Given that, AOT’s air traffic numbers are also expected to climb both YoY and QoQ. We therefore expect strong core profit growth (both YoY and QoQ) to sustain through the Jan-Mar quarter (2Q16). 

YTD traffic growth as expected; low season is approaching  

AOT’s passenger traffic growth of 12% in fiscal year 2016 to date (Oct 2015-Jan 2016) is still in line with our FY16 assumption. Moreover, its statistics for 1-3 Feb came in as expected—total passenger numbers lifted 12% YoY, while aircraft movement surged 10% YoY. We think that no earnings upgrade will be coming into land in the near term. In addition, the low season for Thai tourism during Apr-Jun is approaching, during which AOT passenger traffic normally descends 11% QoQ on average in 3Q16 (Apr-Jun). In light of that, the firm’s 3Q16 profit is expected to weaken QoQ.