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Airports of Thailand

CEO outlines ambitious plans BUY

Airports of Thailand Plc

Event: We attended AOT's analyst meeting yesterday, chaired by the CEO, Khun Makin Petplai, and the CFO, Khun Poolsiri Virojanapa. The overall tone was positive and analysts were provided with updates on AOT's plans and operations. We maintain BUY on AOT. As the only listed airport operator serving more than 80% of total passengers traveling by air, it is ideally positioned to benefit from Thai tourism recovery in 2H14-2015. AOT is also one of our top picks in the tourism sector. The risk and concern at this point centers on the Ebola epidemic and the effect it may have on arrivals, and uncertainty about some of its investment plans that may affect its growth outlook.

Key message from management:

- Plans for the future. AOT plans to spend Bt134bn on airport development over FY2015-22. The plan is divided into three sections: 1) Bt72bn for projects that have been approved (Don Mueang Phase 2, new terminal at Phuket and Suvarnabhumi Phase 2), 2) Bt44bn to expand capacity and 3) Bt18bn for what it terms "strategic projects for future growth" (Figure 1).

The second and third sections are not as yet approved, but AOT expects to get approval from the National Council for Peace and Order (NCPO) for #2 in September 2014 and for #3 in Dec 2014. Using both its own cash and debt for these, funding should pose no problem given its strong financial health with low interest-bearing debt to equity at 0.4x as of June 2014. We are a bit cautious on the timing of this ambitious plan given the huge amounts of funds needed and the necessity of careful study, which may take longer than anticipated.

Sections #1 and #2 will increase AOT's passenger capacity from 83.5mn in FY2014 to 146mn in FY2017 and 166.5mn in FY2022. It plans to leverage what it gains from more passenger pass-through by developing #3, non-aero business such as "airport cities" at Don Mueang and Phuket airports that have offices and retail spaces for rent. These would carry a high margin and diversify revenue and profit.

Operational update. Total passengers fell 11% YoY in June after the declaration of martial law in late May but then began to claw back with a lower contraction of -3% in July and then positive growth of 1.5% during August 1-6. In 9MFY14, 66.2mn passengers passed through its airports, up 3% YoY. AOT expects passenger growth of 3% YoY in FY2014, implying growth of 4% YoY and 12% QoQ in 4QFY14. For the longer-term, AOT expects growth of ~10% p.a. in passengers. We forecast 6% Y:oY growth in FY2014 - but we expect the downside to this will be offset by upside from cost controls. We thus maintain FY2014 core profit at Bt12.4bn.

- Studying giving privileges to THAI. THAI has requested lower landing and parking fees because of the poor tourism this year. AOT is studying this and expects to make a decision within this year. It expects one measure will be to give THAI - and all airlines in order to be fair - a discount on landing and parking fees, based on the number of passengers. Thus, the more passengers the planes bring in, the greater their discount. AOT expects the reduction to its income from this discount to be offset by greater passenger numbers.

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