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Transportation

Political unrest. "UNDERWEIGHT". Avoid investing

Transportation

- Political unrest more heated. PDRC seizes government offices and clashes with police

This weekend (30 November - 1 December 2013), the political unrest

became violent, as the People’s Democratic Reform Committee (PDRC) has

continued rallying against the government and seizing government offices

and clashed with police, whereas United Front of Democracy Against

Dictatorship (UDD) collided against students from Ramkhamhaeng

University. Five were killed and 53 were injured in the incident.


- Political unrest presses air transportation sector as demand bases on tourism

The political conflicts have a negative sentiment on air transportation

sector, as the demand depends on tourism sector. Despite tourism season,

embassies of 32 countries (e.g. Singapore, China, South Korea, the UK, the

Netherlands, India, Israel and Slovakia) have given warnings at level two

and three, preventing their people from visiting Thailand. If the violence

continues, other countries will prevent their people from visiting Thailand as

well. Overall, air transportation sector will be severely affected by slowing

tourism. The political situation needs to be monitored closely. If the

situation can be relieved early and foreigners regain trust in Thailand, the

effect would last just for a few months, and air transportation sector would

be pressed for only one quarter and then make a recovery. If the unrest

continues, air transportation sector’s FY2014 profit would be affected.


- Negative sentiment. "UNDERWEIGHT". Avoid investing

Political unrest would be pressing air transportation sector (negative

sentiment for a short term, pressing earnings result for a long term),

having a negative sentiment in high season. Thus, we downgrade from

"OVERWEIGHT" to "UNDERWEIGHT" and recommend avoiding investing in a

short term. Considering the listed companies under our coverage (AAV,

AOT, THAI), air transportation might be greatly affected. The companies

have been expanding their capacity and flights, so their expenses would

increase (impairment, interest expense). Moreover, their revenue would be

pressed by the political turmoil, so it would not be able to compensate for

the expenses. For THAI(FV@B15.0), we recommend "SELL". For

AAV(FV@5.45), we recommend "HOLD", as it is likely to recover from the

pressure more rapidly than THAI. AAV has the lowest cost, so it can lower

its fare to promote sales if the political unrest escalates. For AOT, we

recommend "HOLD" to reduce risk from the political unrest that might lead

to down revision of earnings forecast.



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