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Bangkok Aviation Fuel Services
Kim Eng Securities (Thailand) has changed its recommendation on Bangkok Aviation Fuel Services' (BAFS) stock from "buy on weakness" to "long-term buy", with a fair value of Bt11.70.
The brokerage has a more positive view on BAFS' earnings for this year. The key earnings driver will not only come from higher volume and service fees, but also from lower depreciation expenses, which have decreased by around Bt100 million per year from the broker's previous forecast. This is due to the company changing the method of calculating depreciation, from each asset to an overall project calculation. This results in a lower depreciation charge of about Bt100 million. As a result, the 2007 earnings projection is revised up to Bt598 million - annual growth of 30 per cent. The brokerage also expects BAFS' 2008 earnings to see further growth of 10.3 per cent to Bt660 million. Despite the impact of the strong baht on profitability - BAFS receives all revenues in US dollars - the company's policy of hedging baht revenue by 50 per cent can relieve this effect. Besides the baht risk, the broker believes the company has several other things going for it: volume uplift has ongoing growth of 5 per cent, there is strong earnings growth of 30 per cent, a high dividend yield of 5.8 per cent, plus a cheap valuation. The broker does not believe BAFS' Don Mueang earnings will be significant, as volume at the recently reopened airport accounts for only 10 per cent of total volume. This is because domestic flights consume only 3,000-4,000 litres of fuel per flight, while flights to Europe use 160,000-170,000 litres.
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