The Nation





Role of politics to be short-lived

4-month political protests a plus for mass transit, negative for airlines, tollways

Lack of political resolution would push this into 2Q14

Historically, traffic revives sharply after political calm is restored

Top picks are BTS and AOT

4Q13 recap. BTS showed the greatest core earnings improvement at +264% YoY, mainly on higher interest income from the proceeds from the setup of BTSGIF, followed by AOT (+72% YoY) from good traffic and better cost control and BECL (+11% YoY) from the toll rate hike since Sep 2013. Airlines all reported weak earnings, hit by the effect of political unrest on cabin factor and yield: THAI had a deeper loss, NOK fell 66% YoY and AAV fell 52% YoY. BMCL also reported a wider loss from higher interest expenses outpacing better ridership growth.

Impact from politics only ST. The political problems that began in November 2013 and have yet to be resolved have had a mixed effect on the transportation sectors. Based on traffic over the past 4 months (Figure 1), there are those that benefit: BTS has seen a 13% YoY rise in riders (vs. 9% over the past 12 months) and riders on BMCL's subway have risen 16% YoY (vs. 10% over the past 12 months). And there are those that suffer: the airport play, AOT saw passenger growth slowing to 5% YoY (vs. 21% over the past 12 months). Also hit were the tollway operator and airlines. BECL's traffic growth contracted 4% (vs. +3% over the past 12 months). All airlines experienced a weaker cabin factor in 1Q14TD: THAI's was 70% (vs. 74% in 2013), AAV's 78-79% (vs. 84% in 2013), and NOK's 79% (vs. 84% in 2013). If there is no resolution, this trend will continue into 2Q14. However, history shows that traffic and demand recover sharply once calm is restored.

Airport/airlines. Seasonally, 2Q14 will see lower demand QoQ and YoY from the political protests. Longer term, we are positive towards airport traffic growth, backed by:

1) rising travel demand; 2) aggressive fleet expansion by airlines in Thailand; 3) expansion of congested airports at Phuket in 1Q14 and Don Muang in 2Q14. For airlines, key long-term concerns are higher competition and the adverse impact of the depreciation of the baht.

Mass transit. Traffic will subside seasonally QoQ in 2Q14, but will rise YoY from: 1) the positive effect of the political protests, 2) the full effect of two more stations on the Wutthakart-Bangwa extension in Dec 2013 and the delivery of 20 new skytrain carriages (+11%) in Dec 2013; and 3) earlier service hours for some skytrain stations at 5:30 a.m. (from 6:00 a.m.) as of March 1. As for expansions, though local bids are on hold without a sitting government, there should be progress on bids overseas for BTS. It expects to be notified of the results of its bid for Beijing subway line 16 by May 2014.

Tollways. Also looking at a QoQ fall on seasonality, traffic will slip in 2Q14, with a YoY fall from the protests. Meanwhile, it will have an offset in the toll rate hike as of Sep 2013.

Top picks: BTS and AOT. We prefer BTS for its stronger 1Q14 earnings (up YoY and QoQ from higher ridership and lower tax expenses), high committed dividend yield of 6-8% p.a. in FY2014-16 and potential upside from new projects. We also like AOT for its good cost control, beneficiary on LT aggressive fleet expansion from airlines, together with potential upside from the additional concession revenue from more terminals.

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