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Thai Airway International

Profit might emerge in 4Q14 SELL

Thai Airway International Plc (THAI)

- Dreadful loss in 1Q14 due to political unrest

1Q14 net loss equated to B2.6bn, improving 54%qoq as projected.

However, excluding net extraordinary income of B906m (mainly Fx gain)

that reversed from a net expense in 4Q13 (details on next page), the

normalized loss was as much as B3.5bn or an increase of 26%qoq.

Although cabin factor decreased from 71% in 4Q13 to 70% ( because

service capacity was reduced 5.8%qoq but passenger volume decreased at

a greater rate of 7%qoq as a result of the political situation), a decrease in

the proportion of low-price tickets made passenger yield increase

1.4%qoq. Consequently, total revenue dropped 6%qoq to B49bn, whereas

total operating cost decreased at a lower rate of 5%qoq to B52bn because

fixed cost made up around 50% of its total cost.

- Loss to continue at least in 3Q14

Apart from a low season waiting in 2Q14 - 3Q14, the protracted political

unrest is another important factor that has held back the tourism industry

in Thailand. For 2Q14, cabin factor in April and May - June (booking) has

been weak at 71.4%, 60%, and 43%, respectively, so 2Q14-3Q14 cabin

factor is projected below 70%. Moreover, because a low priced ticket

promotion in the low season would lower passenger yield, the cabin factor

that will be a breakeven point is around 75% (up from 72% during the

high season in 1Q and 4Q). Consequently, a normalized loss of over B2bn

a quarter is foreseen in 2Q14 and 3Q14. Nevertheless, the profit would

turnaround again in 4Q14, the high season, because the ongoing political

turmoil should have already ended by then. Therefore, we maintain our

forecast for a net loss of B7.0bn in 2014, with a net profit expected in

2015.

- Ready to up forecast if political turmoil ends

We believe THAI has substantially absorbed the adverse effects from

politics, reflecting from the share price that has fallen by 32percent since the

beginning of the recent political strife. If the political conflict eases off, we

are likely to revise up the fair value and recommendation. For now, we

reiterate to sell THAI. Fair value is B10.5 (PBV band - 1 S.D. of 0.5x).


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