Thai Airways International

Q4 2012A: Above estimates on extra items BUY

Thai Airways International Plc (THAI)

Q4 2012 net profit of Bt2.3bn. Q4 2012A net profit was Bt2.3bn, turning up from a net loss of Bt5.4bn in 4Q11 and improving from net profit of Bt1.8bn in 3Q12. Stripping out extra items of Bt2.8bn gives a normalized loss of Bt445mn, better than the normalized loss of Bt5.8bn in 4Q11 but lower than normalized profit of Bt1.5bn in 3Q12. The net profit beat both SCBS and consensus estimates of Bt1.3bn. Though we had anticipated the FX gain of Bt1.5bn, what was unexpected was the gain on acquiring shares of Nok Air of Bt1.6bn and the asset impairment loss of Bt323mn, and this led to the discrepancy between estimates and actual. The low base from the floods last year was behind the earnings rise YoY, while the earnings drop QoQ was due to the recording of one-month bonus expenses (Bt1.3bn) in 4Q12, higher depreciation expenses (Bt400mn or +8% QoQ) from the delivery of new aircraft and higher tax expense (+Bt260mn).

Highlights:

Cabin factor was 76.3% in 4Q12 vs. 65% in 4Q11 (flood effect) and 76.7% in 3Q12.

Passenger yield was Bt2.92/RPK, +2ppts YoY (flood effect) and +3ppts QoQ (seasonal effect)

Jet fuel price rose 5% QoQ to US$135/barrel.

Maintain BUY. Our 12-month PT is unchanged at Bt30, based on 0.9x PBV (-0.5 SD vs. its 10-year historical PBV at 1.1x). THAI is the most laggard play in the tourism-related industry: In the past 12 months, THAI's share price declined by 6%, compared to air transport players (AOT +123% and AAV +84%), hotel operators (CENTEL +232%, ERW +138%, MINT +121%) and the SET (+33%). Against regional airline peers, THAI is one of the cheapest airlines, trading at 0.7x 13PBV vs. peers at 1.2x and 6.6x 13EV/EBITDA vs. peers at 7.8x. ST catalysts include high season in 1Q13F and the listing of Nok Air.