thailand aviation neutral (maintained) · aviation 16 january 2015 see important disclosures at the...

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Sector Update, 16 January 2015

Thailand Aviation Neutral (Maintained)

Be Selective In Picking Winners

Macro Risks Growth Value

Travel demand and supply dynamics

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To ta l sup ply (YoY % ch g) To ta l d ema nd (YoY % chg )

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Ahmad Maghfur Usman 603 9207 7654

[email protected]

Veena Naidu License No. 24418, 66 2862 9752

[email protected]

Competition in Thailand’s aviation landscape may rise on new carriers’ entrance, which could cap the upside on yield recovery as players fight for market share. Despite stronger earnings prospects, Thai aviation stocks have priced in earnings perfection, notably Asia Aviation and AOT given their lofty valuations. Nok Airlines is our only BUY while Thai Airways is a TRADING BUY. We remain NEUTRAL on the sector.

Intensifying competition would cap yield growth. In our view,

Thailand’s aviation landscape is bound to be more competitive in 2015 on the back of new carriers being set up in Thailand and around the region. This could cap the yield recovery for Thai carriers, as they fight for market share. As such, we estimate overall yield growth for the Thai carriers to be at 2.6-3.6% YoY in 2015, which implies that yields are unlikely to recover in a significant way to 2013 levels.

Jet fuel price slump a bonus. The slump in jet fuel prices offers a big

boost to earnings despite the sub-par growth in yields. A USD1 change in jet fuel prices from our base case assumptions could inversely impact earnings in FY15/FY16 respectively by 5%/3% for Nok Airlines (NOK TB, BUY, TP: THB15.96) and 3%/3% for Asia Aviation (AAV TB, NEUTRAL, TP: THB4.73). Given the smaller base in earnings, the impact on Thai Airways (THAI TB, TRADING BUY, TP:THB20.64) would be much larger, at 91%/13% respectively. Carriers with low breakeven load factors, given their low-cost structure, could possibly take advantage of this, ie lowering their air fares to win more market share. Asia Aviation has the lowest cost structure amongst the aviation stocks we cover, and may have the upper hand in raking in a bigger share of the pie. However, Nok Airlines has the least hedging position, which gives it a significant advantage in the current low jet fuel price environment. In addition, with room to gear its balance sheet (no borrowings), it could aggressively hedge jet fuel costs beyond FY15.

Forecasts. The downward revision on jet fuel price assumptions to a

range of USD90-100/bbl in 2015 and USD100-110/bbl in 2016 (by a reduction of USD15/bbl for 2015 and 2016) may boost our earnings forecasts for Asia Aviation and Nok Airlines. The upward revision in earnings leads us to upgrade Asia Aviation to NEUTRAL (from Sell) and Nok Airlines to BUY (from Neutral). Thai Airways remains a TRADING BUY and our TAKE PROFIT call on Airport of Thailand (AOT) (AOT TB, TAKE PROFIT, TP: THB251.00) is also intact.

NEUTRAL maintained. Despite the stronger earnings prospects, stocks

in the Thai aviation sector have priced in perfection in earnings, notably Asia Aviation and AOT given its lofty valuation. Nok Airlines is our only BUY, given its attractive FY15 P/E and dividend yields. We also like Thai Airways as its earnings turnaround could gain traction on its commitment to cut costs and boost productivity. We remain NEUTRAL on the Thailand aviation sector citing the competitive landscape.

P/E (x) P/B (x) Yield (%)

Company Name Price Target Dec-FY15 Dec-FY15 Dec-FY15 Rating

Airports of Thailand 284 251.00 25.5 3.8 1.6% TAKE PROFIT

Asia Aviation 4.64 4.73 12.8 1.1 - NEUTRAL

Nok Airlines Co Ltd 13.9 15.96 11.3 1.8 4.4% BUY

Thai Airways International 15.8 20.64 50.7 0.6 - TRADING BUY

Source: Company data, RHB, Closing prices as of 14 Jan

See important disclosures at the end of this report Powered by EFATM

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Aviation 16 January 2015

See important disclosures at the end of this report 2

Table of Contents

2014 In Short… 3

Competition And Yield Expectations 7

Industry Growth Guidance And Expectations 9

Slump In Oil Prices Leads To Earnings Bonuses 10

Assumptions 11

Valuation And Recommendation 15

Asia Aviation 19

Nok Airlines 27

Thai Airways 35

Airports of Thailand 43



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2014 In Short…

Figure 1: A gauge of demand and supply in Thailand for passenger travel

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Figure 2: Yearly passenger trend

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measured by a YoY % change in passenger numbers handled. As figures from AOT are up to Nov 2014, Dec 2014 numbers are forecast numbers.

Source: AOT

Source: AOT

Tourist arrival slump in 2014 dents the sector

Thailand’s aviation sector kicked off 2014 in a shaky manner, being hit by the political conflict between the Yellow Shirts and Red Shirts. Martial law in Thailand was also imposed on 20 May 2014, and is still in effect. The collapse of the Russian ruble has also deterred Russian tourists – one of the key groups driving up tourism traffic to the country and ranked third after Chinese and Malaysian tourists – from visiting Thailand of late.

Figure 3: Tourist arrivals from the top 5 nationalities Figure 4: Tourist arrivals from the top 5 nationalities (YoY %

change)

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This led to a 6.6% drop in tourist arrivals in 2014 to 24.7m tourists. In 2013, tourist arrivals grew strongly by 18.7% YoY to 26.7m. Due to the decline in tourists last year, passengers handled by AOT are estimated to only grow by 2.4% in 2014 (Jan-Dec period) vs 16% in 2013.



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Figure 5: Foreign tourist arrivals (monthly) Figure 6: Foreign tourist arrivals (yearly)

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Source: RHB, Bank of Thailand Source: RHB, Companies data

It was the first time since 2011 that supply growth (as measured by the percentage change in aircraft movements) outstripped demand growth (as measured by the percentage change in passenger numbers), which consequently led to the drop in passenger yields and load factors across the airlines we cover in Thailand and dented margins. Some carriers also incurred losses.

Furthermore, the already-poor sentiment on travel was also eroded by the aviation tragedies suffered by Malaysian-linked carriers (notably Malaysia Airlines’ MH317 and MH17). As a result of the drop in tourism activities in Thailand, Thai-listed carriers suffered a drop in load factor and yields – which led to substantially lower earnings. Some carriers also reported losses.

Figure 7: Passenger yields of Thai carriers (THB) Figure 8: Passenger yields of Thai carriers (YoY % change)

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Source: RHB, Companies data Source: RHB, Companies data



9MFY13 9MFY14 % chg YoY FY13 FY14F FY15F Asia Aviation 773 (307) nm 1,097 (26) 1,765 Thai Airways (3,095) (15,459) 399.5% (801) (10,280) 680 Nok Air 912 (481) nm 1,063 (99) 767

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Figure 9: ASEAN-based full-service (FS) vs low-cost carriers’

(LCC) yield trend (YoY % chg) Figure 10: 9M earnings reported thus far by Thai-based carriers

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Carriers grew but load factors waned on political turmoil

2014 also marked aggressive capacity additions for new carriers such as Thai Lion Air, Thai AirAsia X (the long-haul low-cost carrier and a sister company of Asia Aviation). Additionally, existing carriers such as Nok Airlines and Asia Aviation were also in an expansion mode, as they were listed recently, ie in 2013 and 2012 respectively. Thai Airways was the only carrier that had scaled back its capacity last year.

As tourist arrivals dropped from the political conflict, the carriers’ load factors also dropped sharply.

Figure 11: Available service kilometer (ASK) (m) trend Figure 12: Load factor trend

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Domestic demand cushions downside impact

As seen in the figures below, domestic demand remains encouraging even though international tourist arrivals declined by 6.6% YoY in 2014. We expect domestic passenger traffic to grow 15.9% YoY in 2014 vs the estimated 5.7% YoY drop in international passengers handled. Domestic demand would mostly be boosted by low air fares – as most of the Thailand-based carriers increase their routes or either add more flights to existing routes.

Figure 13: Domestic passenger and domestic aircraft movement trend

Figure 14: International passengers and international aircraft movement trend

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Relaxed visa requirements inbound and outbound air travel

Aside from the routine marketing roadshows by the Tourism Authority of Thailand (TAT), the Government attempted to lift tourist arrivals by waiving visa fees for Chinese and Taiwanese passport holders for three months, from 9 Aug 2014 onwards. Aside from that, the Immigration Bureau has also allowed citizens of 48 countries to obtain 30-day extensions after the expiry of their allowed periods of stay in Thailand. TAT also launched a special online insurance scheme for tourists’ ease of mind. Meanwhile, other governments also launched similar campaigns to attract more Thais to their respective countries – which helped to stimulate outbound air travel as well. For instance, India relaxed visa requirements for Thais travelling into the country last year, by facilitating online applications vs visiting a local consulate to obtain the necessary papers. In Jul 2013, Japan also introduced a visa fee waiver for tourists for the period of 15 days, in an attempt to promote tourist arrivals from Thailand into Japan.

The implementation of visa fee waivers by countries neighbouring Thailand may indirectly benefit inbound tourism arrivals into Thailand, such as the recent waiver introduced by Vietnam for tourists from seven countries – Russia, Japan, South Korea, Denmark, Norway, Sweden and Finland – starting 1 Jan.

The Government also announced a tax incentive in Oct 2014 for Thai locals, whereby travel package costs (at a maximum of THB15,000 per annum) can be claimed in order to offset the individual income tax levied – which could further stimulate demand for domestic travel. This incentive is in effect until 31 Dec 2015. We believe low-cost carriers would benefit the most from this, given their relative cheaper air fares.

Other initiatives by TAT to boost domestic tourism include proposing to mandate public and private bodies to encourage their employees to take more vacation days. According to the law, employees in public and private organisations can take up to 15 days of vacation leave per year, although this has not been strictly enforced by many organisations.



Competition And Yield Expectations

Being a tourism epicenter, the Thailand aviation landscape is bound to be more competitive in the year ahead on the proliferation of more new carriers being set up in Thailand and the region. The number of locally-based Thai low cost carriers will amount to 4 in 2015, which comprises of Asia Aviation, Nok Airlines, Thai Lion Air and the upcoming Thai VietJet.

Below is the list of the new carriers in Thailand that were recently set up in 2014 and upcoming ones that are due to commence operations in 2015, which we have compiled from the news flows out of Bangkokpost.com:

Low cost carriers:

1) Thai AirAsia X – is the long haul low cost carrier based out of Bangkok operating on the two routes to Japan (Osaka and Tokyo) and South Korea (Seoul) out of Bangkok. It currently operates a fleet of two aircraft and for 2015, we understand that Thai AirAsia X will increase its fleet size to five aircraft. We expect another additional two aircraft to subsequently enter the fleet in 2016. Management plans to expand routes to China and potentially

Australia in the next two years. Thai AirAsia X is expected to have carried 200,000 passengers in 2014 and by 2015, management expects this to increase to 500,000. Thai AirAsia X is an associate company of AirAsia X, with Tassapon Bijleveld, Asia Aviation’s CEO as its local Thai partner.

2) Nok Airlines Scoot – a JV setup with Nok Airlines and Scoot, where Nok Airlines holds a 47.5% associate stake. This long haul low cost carrier is expected to commence operation some time in 1Q2015. The carrier has plans to kick off operations with two aircrafts (777-200s) from Singapore Airlines connecting to Japan (rumoured to be Narita) out of Bangkok. By end-FY15, the JV is expected to have a fleet size of 4 aircraft.

3) Thai VietJet Air – a low-cost carrier (LCC) JV between VietJet Air (49%) and 51% owned by Thailand’s Kannithi Aviation had obtained its Air Operating Certificate (AOC) last month with two routes planned from Bangkok to

Chiang Mai and Phuket. Thai VietJet Air has taken delivery of one aircraft last November and the carrier expects to take delivery of eight aircraft a year up to 2024 as part of its expansion plans. In 2015, three of these aircraft will be delivered to its fleet, followed by another 3-5 aircraft in 2016. Note that VietJet is eying on ambitious plans given its 100 aircraft orders with Airbus in Feb 2014. The routes planned are Bangkok-Phuket, Chiang Mai, Hat Yai and Udon Thani. Subsequently, after expanding its domestic routes, on the international front it intends to expand connectivity to China, India, South Korea, Myanmar, Singapore and Malaysia from its Thailand hub at Suvarnabhumi airport. Thai VietJet Air targets 1m passengers in 2015.

4) V-Air, a Taiwan-based LCC has also expanded its route network to Bangkok and Chiang Mai from Taipei.

Full-service carriers:

1) Jet Airways (JETIN IN, NR) is reportedly eyeing on Bangkok as a mini hub to extend its network to East Asia. It currently connects to Bangkok from India (Mumbai and New Delhi) by transiting through Ho Chi Minh. Jet Airways also leverages on its network connectivity with Etihad Airways, which in turn also owns a 24% stake in the former.

2) Jet Asia Airways, which is a charter-based Thai carrier is also increasing its number of scheduled service on its international route. This is part of its transition plan to become a full service carrier. The carrier has recently started flying out to Jakarta and Jeddah, Saudi Arabia from Suvarnabhumi airport. Prior to this, it had commenced scheduled services to Narita, Tokyo out of Suvarnabhumi airport. Jet Asia Airways is also looking to expand its scheduled services to Beijing, Shengyang and Cheung Chau from Bangkok.

3) A boutique-based carrier with a premium offering, Bangkok Airways has planned not to add in any new routes but instead grow its international code sharing partners and increase frequencies as more traffic feeds are added from its code share partners. The carrier is already in talks to add Korean Airlines (003490 KR, NR) and Emirates as code sharing partners. The airline is likely to finish 2014 by carrying 4.8m passengers, from 4.1m passengers handled in 2013. It targets to hit a 15% passenger growth rate in 2015.



Competition intensifies

Routes that are bound to be overcrowded with heated competition will notably be the Bangkok - Chiang Mai, Bangkok – Chiang Rai and the Bangkok – Phuket domestic trunk routes. Some of the domestic routes which were previously solely operated by Nok Airlines will also see the entry of Asia Aviation competing for passenger share such as routes to Sakhon Nakhon and Roi Et out of Bangkok. We expect competition between Nok Airlines and Asia Aviation on these overlapping domestic routes to further intensify ahead. As a result, this could further cap the upside on Nok Airlines’ yield recovery.

On the international side, Bangkok – Tokyo and Bangkok – South Korea are also bound to be overcrowded with competition, with the entry of Nok Airlines Scoot competing against Thai AirAsia X. This will be negative for full service carriers such as Thai Airways. On the short haul international routes, Asia Aviation has the highest exposure to international routes where other LCCs do not operate in. This gives Asia Aviation an upper-hand advantage to grow its market share and load factor. However, this could change ahead as Nok Airlines has indicated its intention to expand its new route offerings into South China, a market where Asia Aviation is currently free from competition.

Such pressure on some overcrowded routes would potentially cap the upside in yields, which are currently at an inflection point to recovery in 2015. However, on a positive note, the proliferation of new carriers and the expansion of existing ones bode positively for AOT, as they enable it to grow its revenue base further. This is because travel demand may continue to be strong since airfares will likely remain competitive as carriers compete for market share.

Figure 15: Overall domestic market share Figure 16: Low-cost carrier domestic market share

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Figure 17: Market share split between low-cost and full-service carriers

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Industry Growth Guidance And Expectations

What did the AOT say?

AOT expects passenger growth to grow by 12% YoY in FY15 (FYE Sep), hitting 98.1m passengers handled from its six airports. The airport operator, however, anticipates that aircraft movement will only move by 5% YoY, which is lower than the 9% YoY increase it recorded in FY14. This indicates that the increase in passenger

growth will be better attributed to improved load factor, which we think will be mostly from the mid to long haul sectors, noting our expectations of overcapacity to be prevalent in the short haul space.

We expect AOT to record a passenger growth of 13.3% YoY in FY15 to hit 99.2m passengers handled, while aircraft movement is staged to grow by only 14% YoY on the aggressive expansion and additional frequencies by the regional carriers. The passenger growth of AOT in FY15 will be driven by a 12.9% YoY domestic passenger growth and a 16% YoY international passenger growth, as tourist arrivals recover, coupled with competitive airfares stimulating demand and tax incentives for the Thai locals.

What did the Tourism Authority of Thailand (TAT) say?

On the backdrop of sluggish growth in the global economy, TAT has toned down its 2015 forecasts for tourism revenue to THB2.15trn vs its earlier forecast of THB2.25trn. International arrivals in 2015 is also expected to increase by 13% YoY to

28m, generating a total revenue of THB1.35tn alone from foreign tourists. Foreign tourist arrivals were down by 6.6% last year. TAT’s 13% YoY growth projection in tourist arrivals tallies well with AOT/our forecast of 13%/13.3% respectively for FY15.

By country, TAT expects weakness from Russian arrivals, owing to the collapse of the Russian ruble while Japan continues to suffer a deeper-than-expected recession. Markets such as ASEAN, Europe, the Americas and the Middle East show potential for growth.

For domestic trips, TAT expects a 9% increase driven by new route launches and tax deduction incentives, perking up local travel demand.

Plane crash incidents only a knee-jerk scare

We extend our deepest condolences and prayers to the victims of MH370, MH17 and QZ8501, as well as their families and friends.

To some degree, the three crash incidents that occurred to Malaysia-related carriers last year sparked concerns on air travel safety – putting a dent on the demand for air travel. However, we think the effect could be short-term in nature, depending on how the crisis was handled.

This is exemplified by the QZ8501 crash incident on 28 Dec 2014, which we applaud AirAsia Group’s CEO Tony Fernandes for managing the crisis effectively.

With the black box now recovered, this could present the only clue as to what had transpired, giving proper closure to the incident. As the result of the black box will take weeks to be analysed, it remains to be seen how the world would react to air travel safety and the competency of pilots.



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Slump In Oil Prices Leads To Earnings Bonuses

Oil price slump a saving grace for carriers

With the compounded negative news flow throughout 2014, things took a positive turn for the aviation sector as the crude oil price has slumped by 56% from its 2014 peak (52% for jet fuel spot) and continues to trend lower. This would likely bode well for the aviation sectors’ earnings, which would move towards an inflection point as the yields recover. Fuel costs represent a significant chunk of airlines’ operating costs and we believe that this could provide a double whammy in terms of an earnings upside, in addition to the recovery in yields. On the flipside, however, the downtrend in fuel prices has consequently weakened the THB against the USD, which will put pressure on maintenance and USD-denominated borrowing costs as well as capex. These are typically transacted in the USD. Fortunately, the sharp drop in jet fuel prices has clearly outweighed the negative impact arising from the depreciation of the THB against the greenback. We have a base case assumption on jet fuel price of USD95/bbl in FY15 and USD105/bbl in FY16. As jet fuel currently stands at USD60/bbl, there is further room for earnings uplift should oil prices continue to stay at depressed levels.

Figure 18: Jet fuel spot price (USD/bbl) Figure 19: Brent and jet fuel price trend

150

140

130

120

110

100

90

80

70

60

50

160 140 120 100

80

60

40

20

0

Brent oil (USD/bbl) Jet fuel (USD/bbl)

Source: Bloomberg Source: RHB, Bloomberg

Figure 20: USD/THB exchange rate (THB)

34

33

32

31

30

29

28

27

26

Source: Bloomberg



Assumptions

Fleet deliveries

Below are our assumptions on fleet deliveries as per management’s latest guidance. The incoming fleet deliveries for Nok Airlines (of six aircraft) will all be on operational leases, and therefore capex will be fairly minimal. Thai AirAsia X will also see four out of five incoming aircraft deliveries as operating leases. For Thai Airways, we understand that of the incoming eight aircraft, two will be under operating lease, with the rest as financial lease.

Figure 21: Net change in fleet Figure 22: Total fleet FY13 FY14F FY15F FY16F

Thai AirAsia (Asia Aviation) 8.0 5.0 5.0 5.0

Thai Airways 7.1 2.5 2.0 1.5

Nok Air 2.9 4.0 8.8 4.0

FY13 FY14F FY15F FY16F


Thai Airways 97.5 100.5 102.5 104.0

Nok Air 16.0 24.0 28.0 31.0 Source: RHB, Companies data Source: RHB, Companies data

Based on the above fleet deliveries, we expect Asia Aviation to be the most aggressive in its expansion plan, recording an 18.5% YoY capacity growth, with Thai Airways posting a marginal growth of only 2.1% YoY while Nok Airlines will achieve only a 10% YoY capacity growth. As competition intensifies, Nok Airlines has scaled back on its 2015 capacity plan from an incoming delivery of six aircraft to four aircraft. We believe this is due to Asia Aviation encroaching on some of its routes where Nok Airlines had initially served as the only carrier earlier.

Though we expect load factor to improve across the board in 2015, we do not expect the load factor to recover to its 2013 peak owing to intensifying competition. Based on the available seat kilometre’s (ASK) percentage change and load factors below, we foresee Asia Aviation to record the strongest growth of 18.5% in revenue passenger kilometer (RPK) in 2015 on the back of new route launches and added frequencies.

Figure 23: ASK growth YoY (% change) Figure 24: Load factor (RPK/ASK) FY13 FY14F FY15F FY16F


Thai Airways 8.1 -2.6 2.1 1.5

Nok Air 45.7 52.6 10.0 13.9


Thai AirAsia (Asia Aviation) 83.6% 81.0% 81.0% 82.0%

Thai Airways 74.1% 70.5% 72.0% 73.0%

Nok Air 84.0% 78.0% 80.0% 80.0% Source: RHB, Companies data Source: RHB, Companies data

Figure 25: RPK growth YoY (% change)

FY13 FY14F FY15F FY16F Thai AirAsia (Asia Aviation) 25.7 10.2 18.5 13.1 Thai Airways 4.6 -7.3 4.2 2.9 Nok Air 45.3 41.7 12.8 13.9 Source: RHB, Companies data



Yield expectations

We expect yield recovery to be more balanced between the LCC carriers in our coverage, noting the intensifying competitive landscape. We expect the rivalry between Nok Airlines and Asia Aviation to further intensify as Asia Aviation launches and increases frequencies on the routes that were previously solely operated by Nok Airlines.

While Thai Airways will likely see its yields suffer from the proliferation of LCCs, thankfully, the depreciating THB will offset this impact and as such, a 2.6% overall yield growth in 2015 is likely to be achieved.

The downside risk to yields must also not be ruled out. This is because the slump in jet fuel prices will give more headroom to carriers with low breakeven factors to aggressively lower their air fares to grow market share.

Figure 26: Yield growth

Underlying yield growth (% YoY

chg)

Ancillary income per pax growth

(% YoY chg)

Overall yield growth (% YoY chg)

FY13 FY14F FY15F FY16F FY13 FY14F FY15F FY16F FY13 FY14F FY15F FY16F Thai AirAsia (Asia Aviation) -5.9 -9.0 4.0 2.0 6.0 4.7 0.2 3.0 -3.4 -6.0 3.1 2.2 Thai Airways na na na na na na na na -2.6 0.8 2.6 0.7 Nok Air -6.6 -15.3 6.2 2.5 13.7 0.0 0.0 0.0 -6.3 -8.8 3.6 2.5 Source: RHB, Companies data

Figure 27: Passenger yields of Thai carriers (THB) Figure 28: Passenger yields of Thai carriers (YoY % change)

4.0 15%

3.5

3.0

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2.0

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1.0

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-

10%

5%

0%

-5%

-10%

-15%

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Nok Air Thai Airways Thai AirAsia (Asia Aviation) Nok Air Thai Airways Thai AirAsia (Asia Aviation)




FY13 FY14F FY15F FY16F FY13 FY14F FY15F FY16F FY13 FY14F FY15F FY16F Thai AirAsia (Asia Aviation) 74.9% 81.4% 71.5% 74.0% 83.6% 81.0% 81.0% 82.0% 8.7% -0.4% 9.5% 8.0% Thai Airways 66.9% 66.3% 64.1% 63.7% 65.9% 62.7% 64.0% 64.9% -1.0% -3.6% -0.1% 1.3% Nok Air 76.7% 80.4% 75.8% 74.8% 84.0% 78.0% 80.0% 80.0% 7.2% -2.4% 4.2% 5.2% Source: RHB, Companies data

Cost assumptions

Our revised base case scenario for jet fuel prices in FY15 and FY16 stands at USD95/bbl and USD105/bbl respectively.

While carriers benefit from lower jet fuel costs, not all companies would be able to capture the full advantage of lower jet fuel prices given their hedging positions. We

believe Thai Airways’ aggressive hedging position (currently at 73% of its budgeted

fuel required in FY15, at USD90/bbl) puts it at a disadvantage given the significantly

lower jet fuel environment currently, compared against the average hedged price position. This could be reversed should Thai Airways aggressively hedge ahead its

jet fuel costs at substantially lower prices.

Below are the latest hedging positions of the Thai carriers in our coverage.

Figure 29: Latest hedging positions on jet fuel and our assumptions

Nok Air - date as of 6 Jan 2015, Source: Investor relations

4Q14: 43% budgeted fuel required hedged at an average jet fuel price of USD115/bbl. Its effective average jet fuel cost stands at USD100/bbl

1Q15: 37% budgeted fuel required hedged at an average jet fuel price of USD105/bbl



FY16: None. Tenure of hedging position is maximum 12 months. But this strategy could change.

Thai AirAsia (Asia Aviation) – date as of 7 Jan 2015, Source: Investor relations

FY15: 50% budgeted fuel required hedged at an average jet fuel price of USD88/bbl (in line with the entire AirAsia group)

FY16: None, but possibly looking to extend to FY16

Thai Airways – date as of 8 Jan 2015, Source: insider/Reuters

FY15: 73% budgeted fuel required hedged at an average jet fuel price of USD90/bbl and looking to maximise to 100% of its fuel requirements

FY16: None but possibly looking to extend to FY16



Thai Airways 122.1 123.8 117.1 117.0

Nok Air 121.8 115.0 92.4 102.4

Source: RHB, Companies data, News media

While we collectively see an overall improvement in earnings across the carriers under our coverage, we prefer to stick to those that have scale in their operations with proven cost efficiency structures. This can be determined by analysing the carrier’s breakeven load factor, which is the minimum required load factor for the carrier to breakeven. A lower breakeven number will bring more room for carriers to give further discount to airfares in an attempt to gain market share. Within our Thailand aviation coverage, we envision Asia Aviation having the lowest breakeven load factor, owing to AirAsia’s cost-conscious culture. We only expect improvement on Thai Airways’ breakeven load factor by FY16. This is because we think the intensifying competitive environment now would cap the upside on its efforts to increase its load factor in FY15.

Figure 30: Breakeven load factor analysis

Breakeven load factor (%)

Load factor (%)

Difference (Load factor -

breakeven load factor)



Changes to forecasts

The downward revision on jet fuel average price assumptions to USD95/bbl in 2015 and USD105/bbl in 2016 (by a reduction of USD15/bbl for 2015 and 2016) has boosted our earnings forecasts for Asia Aviation, Nok Airlines and Thai Airways as tabled below.

The upward revision in earnings leads us to upgrade Asia Aviation to NEUTRAL (from Sell) and Nok Airlines to a BUY (from Neutral). Thai Airways remains a TRADING BUY and our TAKE PROFIT call on AOT is also intact.

Figure 31: Earnings revision table

Pre vious e arnings (THBm ) Re vis e d e arnings (THBm ) % chg

FY13 FY14F FY15F FY16F FY13 FY14F FY15F FY16F FY13 FY14F FY15F FY16F Thai AirAsia (Asia Aviation) 1,096.7 243.0 994.0 1,143.1 1,096.7 (26.4) 1,764.5 1,727.8 - -110.9% 77.5% 51.1% Thai Airw ays (801.2) (12,524.0) (331.0) 3,771.8 (801.2) (10,280.0) 680.3 4,835.6 - -17.9% -305.5% 28.2% Nok Air 1,062.6 (281.0) 566.0 733.0 1,062.6 (98.9) 767.2 1,230.6 - -64.8% 35.6% 67.9%


Sensitivity analysis

We estimate that a USD1 change in jet fuel prices (USD/bbl) from our base case assumptions could inversely impact earnings in FY15/FY16 respectively by 5%/3% (THB36.6m/THB41.7m) for Nok Airlines and 3%/3% (THB50.4m/THB57.8m) for Asia Aviation. Given the smaller base in earnings, the impact on Thai Airways would be much larger at 91%/13% (THB615.9m/THB635.3m) respectively.

The impact on our TP based on a USD1 change in jet fuel prices (USD/bbl) from our base case assumptions are: 5% (THB0.76) for Nok Airlines; 3% (THB0.135) for Asia Aviation and 15% (THB3.1) for Thai Airways.

The magnitude is a lot more for Thai Airways as we value the stock on an adjusted EV/EBITDAR of 9.5x its projected FY15 EBITDAR. As a change in earnings could swing the Thai Airways’ TP, it is only sensible to cut the valuation multiples.

Figure 32: Sensitivity analysis on 1USD change in jet fuel price assumptions

Thai Airways Nok Airlines Asia Aviation

Revised Revised Revised

FY14F FY15F FY16F TP FY14F FY15F FY16F TP FY14F FY15F FY16F TP (10,280.0) 680.3 4,835.6 20.6 (98.9) 767.2 1,230.6 16.0 (26.4) 1,764.5 1,727.8 4.7

Previous Previous Previous

FY14F FY15F FY16F TP FY14F FY15F FY16F TP FY14F FY15F FY16F TP (10,280.0) 1,296.2 5,470.9 23.8 (98.9) 803.8 1,272.3 16.7 (26.4) 1,814.9 1,785.6 4.9

0.0% 90.5% 13.1% 15.2% 0.0% 4.8% 3.4% 4.8% 0.0% 2.9% 3.3% 2.9% 0.0 615.9 635.3 3.1 0.0 36.6 41.7 0.8 0.0 50.4 57.8 0.1


Risks

The upside risks to our earnings forecasts are lower than expected jet fuel price, which we foresee to be highly probable. We, however, lean on the conservative side in our jet fuel price assumptions, on expectations that the price is likely to creep up over the coming quarters ahead. However, depending on how long and how low oil prices stay, we do not rule out that there may be further revisions on earnings ahead, which we will monitor closely.



50

-20 0 -40

Valuation And Recommendation

How share price has performed

Thailand is no stranger to political crisis headwinds and once again, the calamity presents investment opportunities for badly bashed down stocks, which started diving in Nov 2013 and bottoming out in early Jan 2014.

Figure 33: Historical share price performance Figure 34: Share price returns since 2014 (when stock

bottomed)

30

25

20

15

10

5

0

Asia Aviation - LHS Nok Airlines - LHS

350 300 250 200 150 100

120

100

80

60

40

20

0

Asia Aviation Nok Airlines

Thai Airways - LHS Airports of T hailand - RHS Thai Airways Airports of T hailand

Source: Bloomberg Source: Bloomberg

Have valuations run ahead of fundamentals? Despite the sector seeing stronger

earnings prospects in 2015, we think valuations have run ahead of fundamentals. We have a NEUTRAL call on Asia Aviation and a TAKE PROFIT rating on AOT while

Nok Airlines is our fundamental BUY call and Top Pick in our Thailand aviation

coverage. Our non-BUYs appear to have factored in perfection in earnings growth, but this could pose downside risks should earnings fall below expectations, thus making the risks-to-reward ratio unappealing.

Within our Thailand’s aviation sector coverage, only Nok Airlines is trading below the FY15 P/E peer average, while Thai Airways looks attractive on a P/BV basis. We have a TRADING BUY call on Thai Airways as we envisage its earnings turnaround gaining traction given its commitment to cutting workforce and improving overall productivity and cost structure.

Given the mixed bag of recommendations on Thailand’s aviation sector citing the competitive landscape, we reiterate our NEUTRAL rating.

Figure 35: Valuation summary

C o re EP S

g ro wth R e c u rrin g P / E

(x) P / B (x) P / C F (x) EV / EB IT D A (x) N e t d e b t to

e q u ity R O E

D ivid e n d Y ie ld TP

F Y 15 F F Y 16 F F Y 15 F F Y 16 F F Y 15 F F Y 16 F F Y 15 F F Y 16 F F Y 15 F F Y 16 F F Y 15 F F Y 16 F F Y 15 F F Y 16 F F Y 15 F F Y 16 F

(T H B ) R e c o mme n d a tio n Airports of Thailand 30% 15% 25.5 22.1 3.8 3.5 18.9 16.7 15.0 13.3 net c ash net c ash 15.6% 16.3% 1.6% 1.8% 251.00 TAKE PROFIT Asia Aviation na - 2% 12.8 13.0 1.1 1.0 4.0 3.9 6.5 6.6 7.3% net c ash 8.7% 7.9% - - 4.73 NEUTRAL Nok Airlines Co Ltd na 60% 11.3 7.1 1.8 1.6 6.9 5.7 3.9 2.1 net c ash net c ash 17.3% 24.2% 4.4% 7.1% 15.96 BUY Thai Airways International na 611% 50.7 7.1 0.6 0.6 1.3 1.1 8.4 6.5 366.7% 300.4% 1.3% 8.7% - - 20.64 TRADING BUY

Source: RHB, Companies data, Closing prices as of 14 Jan



Airports of Thailand (TAKE PROFIT, TP: THB251.00)

Maintain TAKE PROFIT. At 15.0x FY15F EV/EBITDA currently, AOT is deemed

expensive vs its peers’ 13.0x average. We maintain a TAKE PROFIT call on this stock, which is premised on a 13.5x FY15F EV/EBITDA to derive a TP of THB251.00. This is already at a premium vis-à-vis its peers. In our view, AOT’s low dividend yield of only 1.6% does not justify such rich valuations.

Figure 36: Peer comparison (airport operators)

USD EBITDA 3 EBITDA P/E (x) P/B (x) EV/EBITDA (x) Div yie ld % ROE (%)

M ark e t

Cap (m ) ye ars

forw ard m argin

FY15 2014F 2015F 2014F 2015F 2014F 2015F 2014F 2015F 2014F 2015F

SYDNEY AIRPORT 8,983.50 9% 80.81 55.22 46.02 6.87 8.37 18.35 17.61 4.75 5.01 10.78 15.15 AUCKLAND INTL AIRPORT LTD 4,005.70 10% 75.64 31.07 28.43 1.77 1.72 17.87 16.86 3.22 3.54 5.71 6.13 GRUPO AEROPORT DEL PACIFIC-B 3,602.56 17% 65.81 23.93 22.26 2.35 2.30 13.97 12.59 4.35 3.36 9.78 10.63 GRUPO AEROPORT DEL SURESTE-B 3,970.94 13% 61.21 24.82 22.98 3.27 3.11 16.49 15.36 2.52 2.47 13.42 13.65 AIRPORTS OF THAILAND PCL 12,384.81 19% 56.55 33.28 25.51 4.18 3.81 18.26 14.99 1.20 1.57 12.90 15.59 SHANGHAI INTERNATIONAL AIR-A 5,871.48 21% 54.51 17.51 15.65 1.98 1.82 9.66 7.84 1.92 2.19 11.63 12.09 BEIJING CAPITAL INTL AIRPO-H 4,010.08 11% 53.01 17.72 15.51 1.46 1.37 8.77 7.98 2.28 2.65 8.44 9.10 GRUPO AEROPORTUARIO DEL CENT 1,834.42 27% 48.75 26.24 23.41 4.33 4.12 16.03 14.29 4.25 3.19 16.63 18.57 TAV HAVALIMANLARI HOLDING AS 2,997.05 61% 41.00 12.78 11.09 3.23 2.80 8.65 7.31 3.39 4.24 28.42 27.44 ADP 12,067.93 9% 40.13 26.23 22.68 2.54 2.41 11.50 10.65 2.29 2.61 10.03 10.79 FLUGHAFEN WIEN AG 1,903.40 5% 39.59 18.82 16.92 1.67 1.58 8.63 7.97 2.24 2.84 9.15 9.56 GUANGZHOU BAIYUN INTERNATI-A 2,025.65 7% 35.34 12.27 11.64 1.51 1.41 4.94 5.53 3.73 3.91 12.51 12.40 GMR INFRASTRUCTURE LTD 1,157.85 54% 32.31 na na 0.77 0.80 15.74 10.94 0.00 0.00 -18.29 -10.59 SHENZHEN AIRPORT CO-A 1,560.94 20% 32.21 32.87 23.35 1.21 1.15 10.44 7.80 0.35 0.77 3.21 5.05 FRAPORT AG FRANKFURT AIRPORT 5,498.52 1% 32.02 19.69 16.79 1.45 1.40 10.26 9.75 2.54 2.74 7.57 8.53 MALAYSIA AIRPORTS HLDGS BHD 2,610.87 12% 28.28 111.88 108.34 1.69 1.47 14.73 10.86 1.67 2.04 1.64 1.45 MACQUARIE INFRASTRUCTURE CO 4,940.25 112% 28.03 15.27 35.11 2.74 3.11 13.57 10.46 5.55 6.34 52.17 11.12

Average of airports exceeding EBITDA margin

of at least 50% 13% 65.17 28.38 25.14 2.95 3.11 14.18 13.04 3.17 3.20 9.96 11.12

Average (all) 24% 47.37 29.98 27.86 2.53 2.51 12.82 11.10 2.72 2.91 11.51 10.39 Source: RHB, Bloomberg, Closing prices as of 14 Jan



Asia Aviation (Upgrade to NEUTRAL, TP: THB4.73)

Upgrade to NEUTRAL from Sell. Despite its solid fundamentals, growing

margins and improving balance sheet, the carrier is trading at a higher FY15 P/E of 12.8x vs its peers’ 12.0x. On the back of our earnings upgrade, we upgrade our call to NEUTRAL from Sell with a higher revised TP of THB4.73, premised on 13x FY15 P/E. We apply a slight premium of 13x FY15 P/E vs the peer average of 12x due to Thailand being a leading tourist destination globally.

Nok Airlines (Upgrade to BUY, TP: THB15.96)

Upgrade to BUY. Current valuations look more compelling at 11.3x FY15 P/E.

We upgrade the stock to BUY (from Neutral), premised on 13x FY15 P/E to derive a higher TP of THB15.96 (from THB12.50). Nok Air is our Top Buy in Thailand’s aviation sector, with dividend yields of 4.4-7% in FY15-16 and its attractive FY15 EV/EBITDA of only 3.9x vs the sector’s 7.7x.

Figure 37: Peer comparison (global low cost carriers)

Last Price Market Cap (USD m') FY01 P/E FY02 P/E FY01 EV/EBITDA FY02 EV/EBITDA FY02 P/BV FY02 Best

ROE AIRASIA BHD 2.82 2,186 27.6 9.7 11.6 8.7 1.3 13.7 AIRASIA X 0.69 456 na na na 11.5 1.8 -3.6 NOK AIR 13.90 265 na 11.3 na 3.9 1.8 16.3 ASIA AVIATION 4.64 687 na 12.8 35.2 6.5 1.1 5.9 TIGER AIRWAYS HOLDINGS LTD 0.26 427 na na na 29.0 2.5 -16.1 CEBU AIR INC 87.00 1,180 17.8 12.9 10.0 8.2 1.9 18.2 JET AIRWAYS INDIA LTD 464.85 850 na 13.3 11.9 7.2 na -11.0 SOUTHWEST AIRLINES CO 39.64 28,222 20.1 13.5 8.0 6.5 2.8 22.3 AIR ARABIA 1.66 2,109 15.0 13.0 11.6 8.4 1.4 11.6 RYANAIR HOLDINGS PLC 9.85 16,021 17.1 15.1 9.5 8.2 3.1 22.0 ALLEGIANT TRAVEL CO 156.85 2,393 25.4 16.0 11.2 7.5 5.3 37.6 NORWEGIAN AIR SHUTTLE AS 293.20 1,322 na 18.5 na 9.7 3.3 24.3 AER LINGHUS GROUP 2.48 1,174 20.6 17.1 5.5 4.8 1.6 9.8 EASYJET PLC 1619.00 9,901 12.6 11.2 7.6 6.8 2.3 21.4 JETBLUE AIRWAYS CORP 14.61 4,360 21.5 11.0 7.0 4.7 1.6 17.7 GOL LINHAS AEREAS INTEL-ADR 5.18 1,447 na 57.9 na na 9.1 29.2 WESTJET AIRLINES LTD 33.55 3,192 14.0 10.3 5.0 4.1 2.0 20.7

Average 19.2 16.2 11.2 8.5 2.7 14.1

Average Asia LCCs 22.7 12.0 17.2 7.7 1.7 6.6 Source: RHB, Bloomberg, Closing prices as of 14 Jan



Thai Airways (TRADING BUY, TP: THB20.64)

Maintain TRADING BUY. We have a TRADING BUY call on Thai Airways as we

envision its earnings turnaround gaining traction, given its commitment to cutting its workforce, as well as improving overall productivity and cost structure. Following the earnings upgrade, we raise its TP to THB20.64 (from THB18.90), premised on a 9.5x FY15 adjusted EV/EBITDAR. This is at a premium valuation (warranted by a turnaround story) vs its full-service peers of 8.3x. It is trading at a 7.1x FY16 P/E and 0.6x FY15 P/BV, which we believe is attractive.

Figure 38: Peer comparison (Asia-based full service carriers)


ROE KOREAN AIR LINES 46000.00 2,493 na 15.1 9.0 7.7 1.1 9.5 AIR CHINA 7.13 16,150 20.8 12.9 9.7 7.8 1.2 10.3 SINGAPORE AIRLINES 12.46 10,295 38.2 21.4 5.3 4.2 1.1 5.5 JAPAN AIRLINES CO 3810.00 11,807 9.1 8.7 4.5 4.1 1.5 18.5 ANA HOLDINGS 293.30 9,113 25.6 20.9 6.7 6.0 1.3 6.6 CATHAY PACIFIC AIRWAYS 17.74 9,000 20.7 12.6 7.9 6.5 1.0 8.4 CHINA EASTERN AIRLINES 4.00 9,624 18.3 10.8 9.3 7.1 1.1 13.4 CHINA SOUTH AIR 3.70 7,667 19.8 10.8 7.4 5.9 0.8 8.6 HAINAN AIRLINES 0.56 6,670 18.6 14.5 na na na na THAI AIRWAYS 15.80 959 na 50.7 13.7 8.4 0.6 1.3 BANGKOK AIRWAYS 20.00 1,282 84.0 20.2 25.4 12.4 1.5 9.0 CHINA AIRLINES 14.75 2,651 na 25.9 10.0 8.0 1.6 4.7 MALAYSIAN AIRLINES 0.27 1,262 na na na 24.3 2.8 -8.5 GARUDA 610.00 1,147 na 16.2 na 5.9 1.1 10.0 ASIANA AIRLINES 7550.00 1,360 na 14.2 11.3 8.3 1.6 11.8

Average 28.3 18.2 10.0 8.3 1.3 7.8 Source: RHB, Bloomberg, Closing prices as of 14 Jan

Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total turnover (THBm) 16,103 23,485 24,324 29,710 34,363 Reported net profit (THBm) 15,513 1,043 34 1,765 1,728 Recurring net profit (THBm) 787 1,097 (26) 1,765 1,728 Recurring net profit growth (%) (20.7) 39.4 (102.4) na (2.1) Recurring EPS (THB) 0.16 0.23 (0.01) 0.36 0.36 Recurring P/E (x) 28.6 20.5 na 12.8 13.0 P/B (x) 1.23 1.16 1.16 1.06 0.98 P/CF (x) 8.51 6.09 7.59 3.99 3.94 EV/EBITDA (x) 14.8 9.9 35.2 6.5 6.6 Return on average equity (%) 169.0 5.5 0.2 8.7 7.9 Net debt to equity (%) net cash 6.4 24.9 7.3 net cash Our vs consensus EPS (adjusted) (%) (120.9) 33.3 4.2

Vol m

Jan-1

4

Mar-

14

May-1

4

Jul-14

Sep-1

4

Nov-1

4

Company Update, 16 January 2015

Asia Aviation (AAV TB) Neutral (from Sell)

Transport - Aviation Target Price: THB4.73

Market Cap: USD686m Price: THB4.64

Macro

Aggressive Expansion Ahead Risks Growth Value

5.00

4.80

4.60

4.40

4.20

4.00

3.80

3.60

180

Source: Bloomberg

Asia Aviation (AAV TB)

Price Close Relative to Stock Exchange of Thailand Index (RHS)

115

111

108

104

100

96

93

89

Asia Aviation is expected to gain market share as it competes in some of Nok Air’s routes. Upgrade to NEUTRAL with a higher THB4.73 TP (13x FY15 P/E, 1.9% upside). The carrier could see a turnaround this year with the launch of new routes coupled with the low jet fuel price environment. Despite its solid fundamentals and our earnings upgrade, Asia Aviation is trading at a higher FY15 P/E of 12.8x vs its peers’ 12.0x.

Expanding into competitor’s market. Asia Aviation is slated to see

deliveries of five aircraft in 2015, of which four will be under operational leases with the remaining one booked into its balance sheet as a financial lease. Going forward, the carrier will be more aggressive in new route launches, some of which are free from competition – including Chiang Mai-Hong Kong, Chiang Mai-Surat Thani and Krabi-Guangzhou routes. In late December, it opened bookings for three new routes (to commence flight on 9 Feb 2015), ie Bangkok to Nan, Loei and Eoi Et. We believe these routes could potentially steal away some of Nok Air’s (NOK TB, BUY, TP: THB15.96) market share.

Yield recovery unlikely to reach 2013 levels. Amid the intensifying

competitive landscape, we expect yield recovery to be more balanced among the low-cost carriers (LCC) in our coverage. We expect the rivalry between Nok Air and Thai AirAsia to further intensify as the latter has launched and increased frequency of routes that were previously solely operated by Nok Air. We forecast Asia Aviation’s overall yields to grow 3.1% YoY in FY15 to THB2.10, still below FY13’s THB2.17. Its low unit

Avg Turnover (THB/USD) 130m/3.97m

Cons. Upside (%) 10.1

Upside (%) 1.9

52-wk Price low/high (THB) 3.54 - 4.92

Free float (%) 45

Share outstanding (m) 4,829

Shareholders (%)

Tassapon Bijleveld 26.9

Prichaya Rasamitanin 5.9

Gerdprasert 5.9

Share Performance (%)

YTD 1m 3m 6m 12m

Absolute 7.9 (3.7) 6.4 (0.4) 23.4

Relative 6.2 (4.2) 7.9 0.0 5.9


[email protected]


[email protected]

cost and breakeven load factor give room for the carrier to aggressively compete on lower air fares to gain more market share.

Forecasts. After inputting lower jet fuel price assumptions, we raise our

FY15/FY16 earnings forecasts by 77.5%/51.1% respectively. A USD1/bbl deviation from our jet fuel price assumption could inversely impact earnings by 3%/3% (THB50.4m/THB57.8m) in FY15/FY16 respectively.

Upgrade to NEUTRAL from Sell. Despite its solid fundamentals,

growing margins and improving balance sheet, the carrier is trading at a higher FY15 P/E of 12.8x vs its peers’ 12.0x. On the back of our earnings upgrade but with limited upside to its target price (premised on 13x FY15 P/E), we derive a THB4.73 TP (from THB3.01) and upgrade the stock to NEUTRAL from sell.

Source: Company data, RHB, Closing prices as of 14 Jan


Platform 19




16 January 2015


Ju

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Figure 39: Asia Aviation’s historical P/BV (x) Figure 40: Asia Aviation’s forward P/E (x)

2.5 25.0

2.0 20.0

1.5 15.0

1.0 10.0

0.5 5.0

0.0 0.0

Mean: 1.24x

-1 stdev: 0.97x +1 stdev: 1.52x Mean: 13.59x -1 stdev: 10.44x +1 stdev: 16.75x

-2 stdev: 0.70x +2 stdev: 1.79x -2 stdev: 7.28x +2 stdev: 19.90x

Source: Bloomberg Source: Bloomberg (based on consensus estimates)

Figure 41: Peer comparison (global low-cost carriers)



Average 19.2 16.2 11.2 8.5 2.7 14.1

Average Asia LCCs 22.7 12.0 17.2 7.7 1.7 6.6 Source: RHB, Bloomberg, closing prices as of 14 Jan


16 January 2015


Financial Exhibits Key Assumptions

Dec-12

Dec-13

Dec-14F

Dec-15F

Dec-16F

% chg YoY RPK (m) 16.6% 25.7% 10.2% 18.5% 13.1%

ASK (m) 14.1% 23.4% 13.8% 18.5% 11.8%

Underlying yields 2.4% -5.9% -9.0% 4.0% 2.0%

Overall yields 2.7% -3.4% -6.0% 3.1% 2.2%

Unit cost 77.7% 16.8% 2.1% -9.4% 5.8%

Jet fuel (USD/bbl) 126.7 122.8 120.0 95.0 105.0

Load factor 82.3% 83.2% 80.6% 80.6% 81.6%

Breakeven load factor 61.9% 74.9% 81.4% 71.5% 74.0%

Profit & Loss (THBm)

Dec-12

Dec-13

Dec-14F

Dec-15F

Dec-16F

Total turnover 16,103 23,485 24,324 29,710 34,363 Cost of sales (13,728) (19,852) (22,724) (24,182) (28,865) Gross profit 2,375 3,633 1,599 5,527 5,498 Gen & admin expenses (854) (1,011) (1,409) (1,569) (1,688) Operating profit 1,522 2,622 191 3,959 3,810 Operating EBITDA 1,667 3,028 995 4,923 4,894 Depreciation of fixed assets (145) (406) (804) (964) (1,083) Operating EBIT 1,522 2,622 191 3,959 3,810 Interest income 82 162 122 99 162 Interest expense (17) (171) (303) (471) (460) Other non-recurring income 14,726 (54) 61 - - Pre-tax profit 16,312 2,559 70 3,587 3,512 Taxation (436) (651) (7) (359) (351) Minority interests (364) (865) (28) (1,464) (1,433) Profit after tax & minorities 15,513 1,043 34 1,765 1,728 Reported net profit 15,513 1,043 34 1,765 1,728 Recurring net profit 787 1,097 (26) 1,765 1,728

Source: Company data, RHB

Cash flow (THBm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F

191 3,959 3,810

804 964 1,083

1,879 821 900

409 526 523

3,283 6,271 6,318

Operating profit 1,522 2,622 Depreciation & amortisation 145 406 Change in w orking capital 1,129 860 Other operating cash flow 93 239 Operating cash flow 2,889 4,128 Interest received 25 25 19 15 25 Interest paid (17) (167) (303) (471) (460) Tax paid (253) (293) (35) (179) (176) Cash flow from operations 2,643 3,692 2,963 5,636 5,707 Capex (739) (1,904) (1,436) (370) (1,160) Other investing cash flow (1,091) (3,334) 516 72 1,012 Cash flow from investing activities (1,830) (5,238) (921) (298) (148) Proceeds from issue of shares 2,651 44 - - - Increase in debt 1,385 5,971 (677) (662) (782) Other financing cash flow (1,740) (6,451) (303) (471) (460) Cash flow from financing activities 2,296 (436) (980) (1,132) (1,242) Cash at beginning of period 694 3,853 1,959 3,021 7,226 Total cash generated 3,109 (1,982) 1,062 4,205 4,317 Forex effects 50 87 Implied cash at end of period 3,853 1,959 3,021 7,226 11,543



16 January 2015


Financial Exhibits

Balance Sheet (THBm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total cash and equivalents 6,166 6,453 5,109 9,314 13,631 Inventories 80 90 100 94 117 Accounts receivable 379 724 766 944 1,089 Other current assets 525 550 1,019 1,059 1,158 Total current assets 7,149 7,817 6,994 11,411 15,996 Total investments 18 1,651 1,471 1,471 577 Tangible fixed assets 3,075 10,956 15,815 16,314 19,807 Intangible assets 23,694 23,694 23,694 23,694 23,694 Total other assets 673 818 818 818 818 Total non-current assets 27,460 37,118 41,798 42,297 44,895 Total assets 34,609 44,935 48,792 53,707 60,891 Short-term debt 137 615 1,354 1,323 1,563 Accounts payable 71 153 172 186 222 Other current liabilities 4,754 6,504 6,635 8,538 10,410 Total current liabilities 4,962 7,272 8,161 10,047 12,195 Total long-term debt 1,783 7,546 10,414 10,179 12,027 Other liabilities 3,146 3,443 3,479 3,515 3,542 Total non-current liabilities 4,929 10,988 13,893 13,694 15,569 Total liabilities 9,892 18,260 22,054 23,741 27,764 Share capital 485 485 485 485 485 Other reserves 17,774 18,861 18,895 20,660 22,387 Shareholders' equity 18,259 19,346 19,380 21,145 22,872 Minority interests 6,459 7,329 7,358 8,821 10,254 Total equity 24,718 26,675 26,738 29,966 33,127 Total liabilities & equity 34,609 44,935 48,792 53,707 60,891


Key Ratios (THB) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Revenue growth (%) 98.2 45.8 3.6 22.1 15.7 Operating profit growth (%) 49.7 72.3 (92.7) 1975.2 (3.7) Net profit growth (%) 1429.7 (93.3) (96.7) 5056.1 (2.1) EPS growth (%) 1429.7 (93.3) (96.7) 5056.1 (2.1) Bv per share growth (%) 19165.1 6.0 0.2 9.1 8.2 Operating margin (%) 9.4 11.2 0.8 13.3 11.1 Net profit margin (%) 96.3 4.4 0.1 5.9 5.0 Return on average assets (%) 84.0 2.6 0.1 3.4 3.0 Return on average equity (%) 169.0 5.5 0.2 8.7 7.9 Net debt to equity (%) (17.2) 6.4 24.9 7.3 (0.1) Recurrent cash flow per share 0.54 0.76 0.61 1.16 1.18



16 January 2015


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SWOT Analysis

Thailand is a popular tourism hub

Favourable demographics

Strong branding

Cost-focused

Earnings are susceptible to jet fuel price volatility

Intensifying competition in the low-cost carrier space

The

commencement of Thai AirAsia X may boost passenger numbers ahead

Room to grow with more aircraft acquisitions

Margin expansion from economies of scale

Balance sheet is not strong enough to support

substantial aircraft acquisitions

P/E (x) vs EPS growth P/BV (x) vs ROAE

200

180

160

140

120

100

80

60

40

20

0

5000%

4400%

3800%

3200%

2600%

2000%

1400%

800%

200%

-400%

-1000%

16.0 14.0 12.0 10.0

8.0

6.0

4.0

2.0

0.0

300% 263% 225% 188% 150% 113% 75% 38% 0%

P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs)

Source: Company data, RHB Source: Company data, RHB

Company Profile

Asia Aviation is the 55% holding company of Thai AirAsia.


16 January 2015


na

5.3

2

7.7

1

9.0

5

7.7

1

3.1

6

2.6

9

3.0

1

Recommendation Chart

7.70

7.20

6.70

6.20

5.70

5.20

4.70

4.20

3.70

3.20

Recommendations & Target Price

Price Close

Buy Neutral Sell Trading Buy Take Profit Not Rated

Jun-12 Feb-13 Oct-13 Jun-14

Source: RHB, Bloomberg

Date Recommenda Target Price Price

2014-08-11 Sell 3.01 4.60 2014-02-27 Sell 2.69 3.78 2014-01-22 Sell 3.16 3.70 2013-08-08 Buy 7.71 5.45 2013-05-20 Buy 9.05 6.55 2013-05-14 Buy 9.05 7.10 2013-05-14 Buy 9.05 7.10 2013-03-19 Buy 9.05 7.40 2013-02-27 Buy 7.71 6.70 2012-12-11 Buy 5.32 4.62

Source : RHB, Bloomberg

25

RHB Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage

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26

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Vol m

Jan-1

4

Mar-

14

May-1

4

Jul-14

Sep-1

4

Nov-1

4


Nok Airlines (NOK TB) Buy (from Neutral)


Market Cap: USD265m Price: THB13.90

Macro

Not The Best But Yields The Highest Upside Returns Risks Growth Value

22.0

20.0

18.0

16.0

14.0

12.0

120

Source: Bloomberg

Nok Airlines (NOK TB)


113

100

86

73

60

46

While Nok Air may not be the leading carrier with a cost structure as low as that of Asia Aviation, but it has cheaper valuations with attractive dividend yields. Upgrade to BUY with a higher TP of THB15.96 (14.8% upside). We believe the downside in earnings disappointments has been factored in. With its new fleet, we see room for further improvement in unit costs to lift earnings higher.

Scaling back expansion. We estimate available seat kilometres (ASK)

growth for FY15/FY16 at 10%/13.9% YoY. The additional capacity will be deployed on: i) increasing frequencies, amounting to 54% of FY15-16 new capacity, ii) introducing new Indo China and southern China routes (26% of new capacity), and iii) introducing new routes from its feeder network where the urbanisation trend is strong, which would represent

20% of additional capacity. Nok Airlines (Nok Air) also hopes to see a traffic boost from the inception of its long-haul low-cost carrier division, Nok Scoot, which would expand to destinations such as Tokyo, Hong Kong, Seoul and Beijing, with the first flight scheduled to kick off in Mar 2015. It plans for an initial fleet size of four by end-FY15. We believe the carrier’s aggressive drive to capture market share amid intensifying competition could potentially cap upside to its yield recovery.

Forecasts. After inputting lower jet fuel price assumptions, we raise our

FY15/FY16 earnings forecasts by 35.6%/67.9% respectively. A USD1/bbl deviation from our jet fuel price assumption could inversely impact earnings by 5%/3% (THB36.6m/THB41.7m) in FY15/FY16

Avg Turnover (THB/USD) 79.9m/2.43m


Upside (%) 14.8


Free float (%) 30

Share outstanding (m) 621

Shareholders (%)

Thai Airways International 39.2

Aviation Investment 9.5

State Street Bank Europe 6.8


respectively. Nok Air has hedged 55% of its budgeted fuel consumption for the remainder of FY15 at an estimated average of USD96.10/bbl.

Cost-cutting. Nok Air targets to embark on a 5% YoY unit cost reduction

in FY15 on the back of improved fuel burn and lower maintenance costs from its new aircraft. It plans to localise some of its tasks (as opposed to outsourcing them) and cut down its marketing budget. While we believe the unit cost cut could be achieved, notably on reduced fuel burn, we think the impact would likely be offset by the lower discount on parking and landing charges at Don Mueang Airport. As such, we conservatively project unit cost to reduce by only 2.4% in FY15 and increase slightly by 1.3% in FY16 given the higher jet fuel price assumption.

Upgrade to BUY. Current valuations look attractive at 11.3x FY15 P/E.

YTD 1m 3m 6m 12m We upgrade the stock to BUY (from Neutral) premised on 13x FY15 P/E Absolute 6.1 2.2 (4.8) (21.9) (26.1) to derive a higher TP of THB15.96 (from THB12.50). Nok Air is our Top Relative 4.4 1.7 (3.3) (21.5) (43.6) Buy in Thailand’s aviation with dividend yields of 4-7% in FY15-16F.

Shariah compliant


[email protected]


[email protected]

Forecasts and Valua tions Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F

Total turnover (THBm) 8,218 11,180 14,451 16,891 19,720

Reported net profit (THBm) 505 1,066 (99) 767 1,231

Recurring net profit (THBm) 748 1,063 (99) 767 1,231

Recurring net profit growth (%) 278.2 42.1 (109.3) na 60.4

Recurring EPS (THB) 1.50 1.70 (0.16) 1.23 1.97

DPS (THB) 1.10 1.03 0.00 0.61 0.98

Recurring P/E (x) 9.3 8.2 na 11.3 7.1

P/B (x) 7.83 1.91 2.10 1.84 1.60

P/CF (x) 8.24 7.63 na 6.91 5.69

Dividend Yield (%) 7.9 7.4 0.0 4.4 7.1

EV/EBITDA (x) 6.84 3.19 na 3.93 2.05

Return on average equity (%) 59.9 39.3 (2.3) 17.3 24.2

Net debt to equity (%) net cash net cash net cash net cash net cash

Our vs consensus EPS (adjusted) (%) 1.4 4.8 16.6

Source: Company data, RHB, closing prices as of 14 Jan




16 January 2015


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Figure 42: Nok Air’s historical P/BV Figure 43: Nok Air’s forward P/E

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

14.0

12.0 10.0

8.0

6.0

4.0

2.0

0.0

Mean: 2.73x

-2 stdev: 1.75x

-1 stdev: 2.24x

+2 stdev: 3.71x

+1 stdev: 3.22x Mean: 8.66x

-2 stdev: 4.63x

-1 stdev: 6.65x

+2 stdev: 12.68x

+1 stdev: 10.67x

Source: Bloomberg Source: Bloomberg (based on consensus estimates)

Figure 44: Peer comparison (global low-cost carriers)



Average 19.2 16.2 11.2 8.5 2.7 14.1

Average Asia LCCs 22.7 12.0 17.2 7.7 1.7 6.6 Source: RHB, Bloomberg, closing prices as of 14 Jan


16 January 2015


Financial Exhibits

Key Assumptions Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F

% chg YoY

RPK (m) 36.2% 45.3% 41.7% 12.8% 13.9%

ASK (m) 29.9% 45.7% 52.6% 10.0% 13.9%

Overall yields -0.3% -6.3% -8.8% 3.6% 2.5%

Unit costs 3.1% -9.4% -4.4% -2.4% 1.3%

Jet fuel (USD/bbl) 127.40 121.80 115.00 92.43 102.43

Load factor 84.2% 84.0% 78.0% 80.0% 80.0%

Breakeven load factor 79.3% 76.7% 80.4% 75.8% 74.8%

Profit & Loss (THBm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F

Total turnover 8,218 11,180 14,451 16,891 19,720

Cost of sales (5,530) (7,037) (10,600) (10,803) (12,671)

Gross profit 2,688 4,143 3,850 6,088 7,049

Gen & admin expenses (1,965) (3,153) (4,266) (5,157) (5,736)

Operating profit 722 990 (415) 930 1,313

Operating EBITDA 773 1,040 (356) 999 1,390

Depreciation of fixed assets (38) (35) (40) (45) (50)

Amortisation of intangible assets (12) (16) (19) (23) (27)

Operating EBIT 722 990 (415) 930 1,313

Net income from investments - - (50) (180) (70)

Interest income 41 106 345 185 258

Exceptional income - net (243) 3 - - -

Pre-tax profit 520 1,099 (121) 936 1,501

Taxation (15) (33) 22 (168) (270)

Profit after tax & minorities 505 1,066 (99) 767 1,231

Reported net profit 505 1,066 (99) 767 1,231

Recurring net profit 748 1,063 (99) 767 1,231


Cash flow (THBm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F

Operating profit 722 990 (415) 930 1,313

Depreciation & amortisation 50 51 59 68 77

Change in w orking capital (45) (27) (1,236) 158 88

Other operating cash flow 195 260 534 428 535

Operating cash flow 923 1,273 (1,059) 1,584 2,013

Interest received (41) (106) (345) (185) (258)

Tax paid (39) (28) 18 (142) (228)

Cash flow from operations 844 1,138 (1,385) 1,257 1,528

Capex (58) (83) (80) (80) (80)

Other investing cash flow (322) (3,328) 1,787 141 195

Cash flow from investing activities (380) (3,411) 1,707 61 115

Proceeds from issue of shares - 3,250 - - -

Other financing cash flow (414) (670) (306) (192) (499)

Cash flow from financing activities (414) 2,580 (306) (192) (499)

Cash at beginning of period 197 246 565 581 1,707

Total cash generated 50 307 15 1,126 1,144

Forex effects (0) 12 - - -

Implied cash at end of period 246 565 581 1,707 2,851



16 January 2015


Financial Exhibits

Balance Sheet (THBm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total cash and equivalents 1,656 5,365 2,881 4,007 5,151 Inventories 4 11 13 27 85 Accounts receivable 30 41 54 63 73 Other current assets 408 606 1,171 1,103 1,055 Total current assets 2,098 6,024 4,118 5,200 6,364 Total investments 5 6 931 751 681 Tangible fixed assets 81 93 103 107 107 Intangible assets 34 54 65 72 75 Total other assets 35 95 1,219 1,219 1,219 Total non-current assets 155 248 2,317 2,149 2,082 Total assets 2,252 6,272 6,435 7,349 8,446 Accounts payable 420 411 623 721 818 Other current liabilities 851 1,170 1,527 1,753 2,004 Total current liabilities 1,271 1,581 2,149 2,473 2,822 Other liabilities 93 147 148 162 180 Total non-current liabilities 93 147 148 162 180 Total liabilities 1,364 1,728 2,297 2,635 3,001 Share capital 500 625 625 625 625 Retained earnings reserve 388 876 471 1,046 1,777 Other reserves - 3,042 3,042 3,042 3,042 Shareholders' equity 888 4,543 4,138 4,714 5,445 Total equity 888 4,543 4,138 4,714 5,445 Total liabilities & equity 2,252 6,272 6,435 7,349 8,446


Key Ratios (THB) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Revenue growth (%) 36.1 36.0 29.3 16.9 16.7 Operating profit growth (%) 180.9 37.0 (142.0) 0.0 41.1 Net profit growth (%) 152.6 111.2 (109.3) 0.0 60.4 EPS growth (%) 152.6 69.0 (109.3) 0.0 60.4 Bv per share growth (%) 11.4 309.3 (8.9) 13.9 15.5 Operating margin (%) 8.8 8.9 (2.9) 5.5 6.7 Net profit margin (%) 6.1 9.5 (0.7) 4.5 6.2 Return on average assets (%) 23.7 25.0 (1.6) 11.1 15.6 Return on average equity (%) 59.9 39.3 (2.3) 17.3 24.2 Net debt to equity (%) (186.5) (118.1) (69.6) (85.0) (94.6) DPS 1.10 1.03 0.00 0.61 0.98 Recurrent cash flow per share 1.69 1.82 (2.22) 2.01 2.44



16 January 2015


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SWOT Analysis

Thailand is a popular tourism destination

Favourable demographics

Extensive booking and payment distribution channel

Earnings are susceptible to volatility in jet fuel prices

Fierce competition

Room to increase gearing for aircraft acquisitions

Net cash position is not strong enough to allow significant aircraft acquisitions

Venturing into international routes could be challenging due to intensifying competition

Nok Airlines-Scoot JV could lead to start-up losses over its first three years of operations


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5000%

4000%

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10.0

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62%

54%

46%

38%

30%

22%

14%

6%

-2%

-10%



Company Profile

Nok Airlines is one of Thailand’s leading low-cost carriers with the most extensive domestic route coverage. It operates out of two hubs, in Chiang Mai and Don Mueang.


16 January 2015


37

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.8

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.0

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.2


30.0

28.0

26.0

24.0

22.0

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14.0

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Price Close


Jun-13 Nov-13 Apr-14 Sep-14



2014-08-11 Sell 15.2 16.7 2014-05-12 Sell 15.0 16.5 2014-03-03 Neutral 18.6 18.5 2014-01-22 Neutral 19.8 18.3 2013-11-08 Buy 30.8 24.0 2013-06-19 Buy 37.6 0.0

Source : RHB, Bloomberg

33





This report may further consist of, whether in whole or in part, summaries, research, compilations, extracts or analysis that has been prepared by RHB’s strategic, joint venture and/or business partners. No representation or warranty (express or implied) is given as to the accu racy or completeness of such information and accordingly investors should make their own informed decisions before relying on the same.





Malaysia


Singapore






34

Hong Kong






Indonesia



Thailand


Other Jurisdictions





Malaysia Tel : +(60) 3 9280 2185 Fax : +(60) 3 9284 8693



12th Floor


Central, Hong Kong

Tel : +(852) 2525 1118 Fax : +(852) 2810 0908

DMG & Partners



Singapore 049315 Tel : +(65) 6533 1818

Fax : +(65) 6532 6211







Tel : +(6221) 2598 6888 Fax : +(6221) 2598 6777




Shanghai 20041

China

Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633

Bangkok




Cambodia

Tel: +(855) 23 969 161 Fax: +(855) 23 969 171



10th Floor, Sathorn Square Office Tower 98, North Sathorn Road,Silom


Tel: +(66) 2 862 9999 Fax : +(66) 2 108 0999

Vol m

Jan-1

4

Mar-

14

May-1

4

Jul-14

Sep-1

4

Nov-1

4


Thai Airways (THAI TB) Trading Buy (Maintained)


Market Cap: USD1,052m Price: THB15.80

Macro

Turnaround In Play Risks Growth Value

18.0

17.0

16.0

15.0

14.0

13.0

90

Source: Bloomberg

Thai Airways (THAI TB)


108

102

96

91

85

79

Thai Airways’ board approved a turnaround plan for the ailing carrier in Aug 2014, and we expect more cost-cutting exercises ahead. Maintain TRADING BUY with a higher THB20.64 TP (9.5x adjusted EV/EBITDAR,

30.6% upside). This is at a premium valuation (warranted by a turnaround story) vs its full-service peers of 8.3x. It is trading at 7.1x FY16F P/E and 0.6x FY15F P/BV, which we believe is attractive.

A turnaround story in the making. Thai Airways’ board approved a

turnaround plan for the ailing carrier in Aug 2014, although we expect it to implement more cost-cutting measures ahead. We understand that management will cut 1,500 jobs this year and as many as 25% of its current workforce by 2018. It has already cut overtime costs by 19% YoY. This could pare down staff costs by 16% to THB27.9bn in FY16 (FY13: THB33bn), assuming that its workforce decreases by 23%.

Not realising full benefit of oil price slump. While carriers benefit from

lower jet fuel costs, not all companies will be able to capture the full advantage of lower jet fuel prices given their hedging positions. We believe Thai Airways’ aggressive hedging position – at 73% of its budgeted fuel required in FY15, at USD90/barrel (bbl) now – puts it at a disadvantage given the significantly lower jet fuel price environment currently vs the average hedged price position. This could be reversed should Thai Airways aggressively hedge ahead its jet fuel costs at substantially lower prices.

Avg Turnover (THB/USD) 81.1m/2.47m

Cons. Upside (%) -4.4

Upside (%) 30.6


Free float (%) 45


Shareholders (%)

Finance Ministry 51.0

Vayupak Fund I 15.1

Thai NVDR Co 2.6


YTD 1m 3m 6m 12m

Absolute 8.2 3.3 12.1 6.0 9.7

Relative 6.5 2.8 13.6 6.4 (7.8)

Ahmad Maghfur Usman +603 9207 7654

[email protected]


[email protected]

Sensitivity. Given the smaller base in earnings, we estimate that a

USD1 change in jet fuel prices (USD/bbl) from our base case assumptions could inversely impact earnings in FY15/FY16 by 91%/13% (THB615.9m/THB635.3m) respectively.

Maintain TRADING BUY. We have a TRADING BUY call on Thai

Airways as we envision its earnings turnaround gaining traction, given its commitment to cutting its workforce, and improving overall productivity and cost structure. Following the earnings upgrade, we raise its TP to THB20.64 (from THB18.90), premised on 9.5x FY15 adjusted EV/EBITDAR. This is at a premium valuation (warranted by a turnaround story) vs its full-service peers’ 8.3x. The stock is trading at 7.1x FY16F P/E and 0.6x FY15F P/BV, which we believe is attractive.

Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F


Reported net profit (THBm) 6,229 (12,047) (4,032) 680 4,836

Recurring net profit (THBm) 3,945 (801) (10,280) 680 4,836

Recurring net profit growth (%) 0.0 (120.3) 1183.1 na 610.8

Recurring EPS (THB) 1.81 (0.37) (4.71) 0.31 2.22

DPS (THB) 0.50 0.00 0.00 0.00 0.00

Recurring P/E (x) 8.7 na na 50.7 7.1

P/B (x) 0.50 0.61 0.65 0.64 0.59

P/CF (x) 1.11 1.34 1.46 1.26 1.07

Dividend Yield (%) 3.2 0.0 0.0 0.0 0.0

EV/EBITDA (x) 5.6 8.4 13.7 8.4 6.5

Return on average equity (%) 0.0 (19.2) (7.4) 1.3 8.7

Net debt to equity (%) 196.1 289.0 348.4 366.7 300.4

Our vs consensus EPS (adjusted) (%) (19.1) (4552.4) 82.8



Platform 35




16 January 2015


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Figure 45: Thai Airways’ historical P/BV

1.6

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Me an: 0.84 x

-2 stdev: 0.26x

-1 stdev: 0.55x

+2 stde v: 1.42 x

+1 stde v: 1.13 x

Source: Bloomberg (based on consensus estimates)

Figure 46: Peer comparison (Asia-based full-service carriers)


ROE KOREAN AIR LINES 46000.00 2,493 na 15.1 9.0 7.7 1.1 9.5 AIR CHINA 7.13 16,150 20.8 12.9 9.7 7.8 1.2 10.3 SINGAPORE AIRLINES 12.46 10,295 38.2 21.4 5.3 4.2 1.1 5.5 JAPAN AIRLINES CO 3810.00 11,807 9.1 8.7 4.5 4.1 1.5 18.5 ANA HOLDINGS 293.30 9,113 25.6 20.9 6.7 6.0 1.3 6.6 CATHAY PACIFIC AIRWAYS 17.74 9,000 20.7 12.6 7.9 6.5 1.0 8.4 CHINA EASTERN AIRLINES 4.00 9,624 18.3 10.8 9.3 7.1 1.1 13.4 CHINA SOUTH AIR 3.70 7,667 19.8 10.8 7.4 5.9 0.8 8.6 HAINAN AIRLINES 0.56 6,670 18.6 14.5 na na na na THAI AIRWAYS 15.80 959 na 50.7 13.7 8.4 0.6 1.3 BANGKOK AIRWAYS 20.00 1,282 84.0 20.2 25.4 12.4 1.5 9.0 CHINA AIRLINES 14.75 2,651 na 25.9 10.0 8.0 1.6 4.7 MALAYSIAN AIRLINES 0.27 1,262 na na na 24.3 2.8 -8.5 GARUDA 610.00 1,147 na 16.2 na 5.9 1.1 10.0 ASIANA AIRLINES 7550.00 1,360 na 14.2 11.3 8.3 1.6 11.8

Average 28.3 18.2 10.0 8.3 1.3 7.8 Note: Closing prices as at 14 Jan



16 January 2015


Financial Exhibits

Key Assumptions Dec-13 Dec-14F Dec-15F Dec-16F

% chg YoY

RPK 4.61% -7.33% 4.24% 2.93% ASK 8.11% -2.58% 2.07% 1.52% Overall yields -3.20% 1.37% 1.92% 0.64% Unit costs -3.60% 0.46% -1.40% -0.08%

Jet fuel (USD/bbl) 122.1 123.8 117.1 117.0 Load factor 65.9% 62.7% 64.0% 64.9% Breakeven load factor 66.9% 66.3% 64.1% 63.7%


Profit & Loss (THBm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total turnover 209,123 206,336 193,836 205,948 213,334 Cost of sales (173,702) (179,265) (173,969) (174,781) (177,285) Gross profit 35,420 27,071 19,867 31,167 36,049 Gen & admin expenses (25,624) (24,049) (24,207) (24,554) (24,646) Operating profit 9,796 3,022 (4,340) 6,613 11,403 Operating EBITDA 30,320 23,048 15,638 26,727 31,391 Depreciation of fixed assets (20,524) (20,026) (19,978) (20,114) (19,989) Operating EBIT 9,796 3,022 (4,340) 6,613 11,403 Net income from investments 363 836 235 642 742 Interest income 497 516 282 366 315 Interest expense (5,836) (6,057) (6,732) (6,894) (7,276) Other non-recurring income 2,284 (11,246) 6,248 - - Pre-tax profit 7,104 (12,929) (4,305) 728 5,183 Taxation (593) 929 307 (6) (300) Minority interests (281) (47) (33) (41) (48) Profit after tax & minorities 6,229 (12,047) (4,032) 680 4,836 Reported net profit 6,229 (12,047) (4,032) 680 4,836 Recurring net profit 3,945 (801) (10,280) 680 4,836

Cash flow (THBm)

Dec-12

Dec-13

Dec-14F

Dec-15F

Dec-16F

Operating profit 9,796 3,022 (4,340) 6,613 11,403 Depreciation & amortisation 20,524 20,026 19,978 20,114 19,989 Change in w orking capital 804 1,245 (474) 530 469 Other operating cash flow (497) 851 4,756 (2,755) (3,330) Operating cash flow 30,627 25,144 19,920 24,501 28,530 Interest received (4,966) (5,158) (2,824) (3,665) (3,145) Interest paid 5,836 6,057 6,732 6,894 7,276 Dividends received (0) (1) (0) (0) (1) Tax paid (334) (309) (245) (376) (436) Cash flow from operations 31,163 25,734 23,582 27,354 32,225 Capex (18,597) (29,164) (45,656) (41,238) (11,990) Other investing cash flow 3,833 1,944 2,526 1,679 729 Cash flow from investing activities (14,764) (27,220) (43,130) (39,559) (11,261) Increase in debt (12,079) (6,141) 23,262 10,000 (22,000) Other financing cash flow (346) (1,223) (48) - - Cash flow from financing activities (12,426) (7,364) 23,214 10,000 (22,000) Cash at beginning of period 16,666 20,048 11,757 15,424 13,219 Total cash generated 3,973 (8,850) 3,666 (2,205) (1,036) Forex effects (591) 559 - - - Implied cash at end of period 20,048 11,757 15,424 13,219 12,182



16 January 2015


Financial Exhibits

Balance Sheet (THBm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total cash and equivalents 21,758 11,857 15,424 13,219 12,182 Inventories 7,784 7,521 7,223 7,228 7,306 Accounts receivable 15,738 13,640 12,814 13,614 14,103 Other current assets 26,331 25,466 26,860 26,867 26,957 Total current assets 71,611 58,485 62,320 60,928 60,548 Total investments 1,560 5,112 5,203 5,563 5,972 Tangible fixed assets 218,568 231,449 241,960 255,168 238,784 Intangible assets 2,728 862 826 910 993 Total other assets 9,629 11,177 11,176 11,175 11,174 Total non-current assets 232,485 248,600 259,165 272,816 256,924 Total assets 304,096 307,085 321,486 333,744 317,472 Short-term debt 23,944 24,800 43,321 43,321 36,321 Accounts payable 4,622 6,186 5,941 5,945 6,009 Other current liabilities 54,117 51,382 49,327 50,547 51,495 Total current liabilities 82,683 82,369 98,589 99,813 93,825 Total long-term debt 134,741 151,550 156,291 166,291 151,291 Other liabilities 16,853 16,248 13,746 14,083 13,953 Total non-current liabilities 151,595 167,797 170,037 180,374 165,244 Total liabilities 234,277 250,166 268,626 280,188 259,069 Share capital 21,828 21,828 21,828 21,828 21,828 Retained earnings reserve 18,853 5,717 1,685 2,365 7,201 Other reserves 28,239 29,285 29,285 29,285 29,285 Shareholders' equity 68,920 56,830 52,798 53,478 58,314 Minority interests 898 89 62 78 90 Other equity 0 (0) (0) 0 (0) Total equity 69,818 56,919 52,860 53,556 58,403 Total liabilities & equity 304,096 307,085 321,486 333,744 317,472


Key Ratios (THB) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Revenue growth (%) 0.0 (1.3) (6.1) 6.2 3.6 Operating profit growth (%) 0.0 (69.1) (243.6) 0.0 72.4 Net profit growth (%) 0.0 (293.4) (66.5) 0.0 610.8 EPS growth (%) 0.0 (293.4) (66.5) 0.0 610.8 Bv per share growth (%) 0.0 (17.5) (7.1) 1.3 9.0 Operating margin (%) 4.7 1.5 (2.2) 3.2 5.3 Net profit margin (%) 3.0 (5.8) (2.1) 0.3 2.3 Return on average assets (%) 0.0 (3.9) (1.3) 0.2 1.5 Return on average equity (%) 0.0 (19.2) (7.4) 1.3 8.7 Net debt to equity (%) 196.1 289.0 348.4 366.7 300.4 DPS 0.50 0.00 0.00 0.00 0.00 Recurrent cash flow per share 14.3 11.8 10.8 12.5 14.8



16 January 2015


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SWOT Analysis

Thailand is a popular tourism destination

As Thailand’s national flag carrier, it benefits from strong branding

Earnings are susceptible to any volatility in jet fuel prices

Penetration into both low-cost and full-service carrier segments

Exposed to long-haul routes, where the market can be very competitive in securing new time charter fixtures


180

160

140

120

100

80

60

40

20

0

2000%

1222%

444%

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-2667%

-3444%

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-5000%

0.7

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0.3

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9%

4%

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-8%

-14%

-19%

-25%



Company Profile

Thai Airways is the national flag carrier of Thailand.


16 January 2015


na

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Price Close


Jan-10 Apr-11 Jul-12 Nov-13



2014-08-15 Trading Buy 18.9 16.2 2014-07-28 Trading Buy 19.6 16.6 2014-05-16 Sell 9.4 13.0 2014-02-26 Sell 11.5 13.0 2014-01-22 Sell 11.9 13.7 2013-11-15 Buy 24.6 17.8 2013-08-15 Buy 30.2 20.8 2013-05-13 Buy 42.6 31.8 2013-03-25 Buy 36.9 25.5 2013-03-01 Buy 31.0 25.5


41










Malaysia


Singapore






42

Hong Kong






Indonesia



Thailand


Other Jurisdictions





Malaysia Tel : +(60) 3 9280 2185 Fax : +(60) 3 9284 8693



12th Floor


Central, Hong Kong

Tel : +(852) 2525 1118 Fax : +(852) 2810 0908

DMG & Partners



Singapore 049315 Tel : +(65) 6533 1818

Fax : +(65) 6532 6211







Tel : +(6221) 2598 6888 Fax : +(6221) 2598 6777




Shanghai 20041

China

Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633

Bangkok




Cambodia

Tel: +(855) 23 969 161 Fax: +(855) 23 969 171



10th Floor, Sathorn Square Office Tower 98, North Sathorn Road, Silom


Tel: +(66) 2 862 9999 Fax : +(66) 2 108 0999

Vol m

Jan-1

4

Mar-

14

May-1

4

Jul-14

Sep-1

4

Nov-1

4


Airports of Thailand (AOT TB) Take Profit (Maintained)


Market Cap: USD12,373m Price: THB284.00

Macro

Take Profit On Steep Valuation Risks Growth Value

320

300

280

260

240

220

200

180

160

20

Source: Bloomberg

Airport of Thailand (AOT TB)


168

159

150

141

132

124

115

106

97

Despite the recovery in Thai air travel propelling its earnings outlook, we think this has pretty much been priced into the stock. Maintain TAKE PROFIT and THB251.00 TP (11.6% downside) on 13.5x FY15F EV/EBITDA. At 15x FY15F EV/EBITDA now, AOT is deemed expensive vs peers’ 13x average. We prefer to wait for share price weakness before initiating a position. We also prefer airlines.

Ours vs management guidance. Airports of Thailand (AOT) expects

12% YoY passenger growth in FY15, hitting 98.1m passengers handled at its six airports. However, it anticipates aircraft movement to only move by 5% YoY (FY14: +9% YoY). We expect AOT to record a slightly higher passenger growth of 13.3% YoY and 99.2m passengers handled with aircraft movement to grow by a higher 14% YoY on the aggressive expansion and additional frequencies by the regional carriers. Accordingly, management guided that its FY15 earnings may grow by 30.5% (our forecast: 25.7% YoY). The key earnings driver aside from the recovery in tourism are the lower landing and parking discounts charged at Don Mueang Airport.

Impending potential acquisitions. According to media reports, AOT is

looking to acquire the airport operating concessions for Krabi, Udon Thani and Ubon Ratchathani. We are positive on this development as it could bring room for further revenue expansion. But the devil is in the detail, as it boils down to how much AOT is willing to pay. A yardstick valuation is ~12.5x its 1-year trailing EV/EBITDA multiple.

Avg Turnover (THB/USD) 573m/17.5m


Upside (%) -11.68

52-wk Price low/high (THB) 158 - 295

Free float (%) 23


Shareholders (%)

Finance Ministry 70.0

Thai NVDR 4.7

State Street Bank Europe 2.1


YTD 1m 3m 6m 12m

Absolute 0.7 2.2 26.2 43.1 78.1

Relative (1.8) 0.9 27.0 42.7 59.6


[email protected]


[email protected]

Capex expansion. AOT is also planning to expand Suvarnabhumi

Airport to increase capacity to 60m people per year from 45m currently. The capex allocation for this expansion is ~THB62bn, which will take approximately six years to complete. Other expansions targeted for completion this year include Don Mueang’s THB3.2bn Phase 2 expansion and Phuket’s new THB5.79bn terminal. While this poses risks to AOT’s free cash flow, we do not see this hurting its dividend outlook. We have inputted a total capex spend of THB79m for FY15-20F.

Maintain TAKE PROFIT. At 15x FY15F EV/EBITDA currently, AOT is

deemed expensive vs its peers’ 13x average. We maintain a TAKE PROFIT call on this stock, which is premised on 13.5x FY15F EV/EBITDA to derive a TP of THB251.00. This is already at a premium vis-à-vis its peers. In our view, AOT’s low dividend yield of only 1.6% does not justify such rich valuations.

Forecasts and Valuations Sep-13 Sep-14 Sep-15F Sep-16F Sep-17F


Reported net profit (THBm) 16,347 12,220 15,904 18,325 20,021

Recurring net profit (THBm) 10,386 12,189 15,904 18,325 20,021

Recurring net profit growth (%) 50.8 17.4 30.5 15.2 9.3

Recurring EPS (THB) 7.3 8.5 11.1 12.8 14.0

DPS (THB) 4.60 3.41 4.45 5.13 5.61

Recurring P/E (x) 39.1 33.3 25.5 22.1 20.3

P/B (x) 4.43 4.18 3.81 3.45 3.13

P/CF (x) 19.7 21.4 18.9 16.7 15.0

Dividend Yield (%) 1.6 1.2 1.6 1.8 2.0

EV/EBITDA (x) 19.1 18.3 15.0 13.3 12.4

Return on average equity (%) 19.3 13.0 15.6 16.3 16.2

Net debt to equity (%) 2.7 net cash net cash net cash 1.1

Our vs consensus EPS (adjusted) (%) 6.4 5.3 (8.7)

Source: Company data, RHB, Closing prices as of 14 Jan See important disclosures at the end of this report Powered by EFA

TM Platform 43



Airports of Thailand (AOT TB)

16 January 2015


Figure 47: AOT’s EV/EBITDA-derived TP

EV/EBITDA multiple applied (x) 13.5 FY15F EBITDA (THBm) 25,524

344,579 Add: FY15F Net Cash (THBm) 14,080

358,659 Number of Shares (m) 1,429 TP per Share (THB) 251

Source: RHB

Figure 48: Peer comparison (airport operators)

USD EBITDA 3 EBITDA P/E (x) P/B (x) EV/EBITDA (x) Div yie ld % ROE (%)

M ark e t

Cap (m ) ye ars

forw ard m argin

FY15 2014F 2015F 2014F 2015F 2014F 2015F 2014F 2015F 2014F 2015F

SYDNEY AIRPORT 8,983.50 9% 80.81 55.22 46.02 6.87 8.37 18.35 17.61 4.75 5.01 10.78 15.15 AUCKLAND INTL AIRPORT LTD 4,005.70 10% 75.64 31.07 28.43 1.77 1.72 17.87 16.86 3.22 3.54 5.71 6.13 GRUPO AEROPORT DEL PACIFIC-B 3,602.56 17% 65.81 23.93 22.26 2.35 2.30 13.97 12.59 4.35 3.36 9.78 10.63 GRUPO AEROPORT DEL SURESTE-B 3,970.94 13% 61.21 24.82 22.98 3.27 3.11 16.49 15.36 2.52 2.47 13.42 13.65 AIRPORTS OF THAILAND PCL 12,384.81 19% 56.55 33.28 25.51 4.18 3.81 18.26 14.99 1.20 1.57 12.90 15.59 SHANGHAI INTERNATIONAL AIR-A 5,871.48 21% 54.51 17.51 15.65 1.98 1.82 9.66 7.84 1.92 2.19 11.63 12.09 BEIJING CAPITAL INTL AIRPO-H 4,010.08 11% 53.01 17.72 15.51 1.46 1.37 8.77 7.98 2.28 2.65 8.44 9.10 GRUPO AEROPORTUARIO DEL CENT 1,834.42 27% 48.75 26.24 23.41 4.33 4.12 16.03 14.29 4.25 3.19 16.63 18.57 TAV HAVALIMANLARI HOLDING AS 2,997.05 61% 41.00 12.78 11.09 3.23 2.80 8.65 7.31 3.39 4.24 28.42 27.44 ADP 12,067.93 9% 40.13 26.23 22.68 2.54 2.41 11.50 10.65 2.29 2.61 10.03 10.79 FLUGHAFEN WIEN AG 1,903.40 5% 39.59 18.82 16.92 1.67 1.58 8.63 7.97 2.24 2.84 9.15 9.56 GUANGZHOU BAIYUN INTERNATI-A 2,025.65 7% 35.34 12.27 11.64 1.51 1.41 4.94 5.53 3.73 3.91 12.51 12.40 GMR INFRASTRUCTURE LTD 1,157.85 54% 32.31 na na 0.77 0.80 15.74 10.94 0.00 0.00 -18.29 -10.59 SHENZHEN AIRPORT CO-A 1,560.94 20% 32.21 32.87 23.35 1.21 1.15 10.44 7.80 0.35 0.77 3.21 5.05 FRAPORT AG FRANKFURT AIRPORT 5,498.52 1% 32.02 19.69 16.79 1.45 1.40 10.26 9.75 2.54 2.74 7.57 8.53 MALAYSIA AIRPORTS HLDGS BHD 2,610.87 12% 28.28 111.88 108.34 1.69 1.47 14.73 10.86 1.67 2.04 1.64 1.45 MACQUARIE INFRASTRUCTURE CO 4,940.25 112% 28.03 15.27 35.11 2.74 3.11 13.57 10.46 5.55 6.34 52.17 11.12

Average of airports exceeding EBITDA margin

of at least 50% 13% 65.17 28.38 25.14 2.95 3.11 14.18 13.04 3.17 3.20 9.96 11.12

Average (all) 24% 47.37 29.98 27.86 2.53 2.51 12.82 11.10 2.72 2.91 11.51 10.39 Source: RHB, Bloomberg, closing prices as of 14 Jan


16 January 2015


FV of AOT (THB) based on DCF 269.0 After tax c ost of debt 6.2% Current Pric e (THB) 284.0 Equity Weighting - 10 year forward c apital struc ture 74.2% Upside (%) - 5.3% Debt Weighting - 10 year forward c apital struc ture 25.8%

Figure 49: DCF valuation

F Y 0 9

F Y 10

F Y 11

F Y 12

F Y 13

F Y 14

F Y 15 F

F Y 16 F

F Y 17 F

F Y 18 F

F Y 19 F

F Y 2 0 F

F Y 2 1F

F Y 2 2 F

F Y 2 3 F

F Y 2 4 F

F Y 2 5 F

Revenue 21,502 24,033 28,641 30,405 36,810 37,585 44,909 50,198 56,853 62,114 65,549 68,737 72,098 80,625 84,245 86,726 89,295 EBITDA 10,655 12,092 14,482 15,819 20,636 21,256 25,524 29,020 32,199 34,652 35,691 37,060 38,473 44,715 46,105 46,691 47,254 Earnings growth 13% 20% 9% 30% 3% 20% 14% 11% 8% 3% 4% 4% 16% 3% 1% 1% EBITDA Margin 50% 50% 51% 52% 56% 57% 57% 58% 57% 56% 54% 54% 53% 55% 55% 54% 53% Core PATAMI 955 1,919 4,006 6,889 10,386 12,189 15,904 18,325 20,021 20,244 21,062 22,254 23,485 28,394 29,575 30,014 30,335 Earnings growth 101% 109% 72% 51% 17% 30% 15% 9% 1% 4% 6% 6% 21% 4% 1% 1% PATAMI Margin 4% 8% 14% 23% 28% 32% 35% 37% 35% 33% 32% 32% 33% 35% 35% 35% 34%

CFO

10,976

16,199

16,742

16,086

20,584

18,941

21,445

24,225

27,048

28,296

27,117

30,239

31,633

34,897

38,127

39,295

40,242 Int (1- t) 2,477 1,709 1,406 1,340 1,524 1,475 970 970 970 895 829 762 696 629 563 496 430

FC Inv 2,652 2,632 3,489 5,602 2,503 7,756 10,000 21,000 30,000 10,000 4,000 4,200 4,410 4,631 10,000 10,000 15,000 F C F F (C F O + In t- F C In v) 10 , 8 0 1 15 , 2 7 6 14 , 6 6 0 11, 8 2 4 19 , 6 0 4 12 , 6 5 9 12 , 4 15 4 , 19 5 - 1, 9 8 2 19 , 19 1 2 3 , 9 4 5 2 6 , 8 0 1 2 7 , 9 19 3 0 , 8 9 6 2 8 , 6 9 0 2 9 , 7 9 1 2 5 , 6 7 2 PV of FCFF 11,417 3,548 - 1,541 13,726 15,750 16,211 15,530 15,804 13,496 12,888 10,213

F Y 2 6 F F Y 2 7 F F Y 2 8 F F Y 2 9 F F Y 3 0 F F Y 3 1F F Y 3 2 F F Y 3 3 F F Y 3 4 F F Y 3 5 F F Y 3 6 F F Y 3 7 F F Y 3 8 F F Y 3 9 F F Y 4 0 F F Y 4 1F F Y 4 2 F Revenue 91,954 101,475 104,470 107,571 110,783 113,581 125,141 128,288 131,536 134,892 138,329 152,924 156,808 160,825 164,981 168,104 185,151 EBITDA 47,791 54,795 55,405 55,979 56,514 56,919 65,612 66,100 66,547 66,952 67,280 78,156 78,576 78,938 79,238 78,860 91,678 Earnings growth 15% 1% 1% 1% 1% 15% 1% 1% 1% 0% 16% 1% 0% 0% 0% 16% EBITDA Margin 52% 54% 53% 52% 51% 50% 52% 52% 51% 50% 49% 51% 50% 49% 48% 47% 50% Core PATAMI 30,620 35,868 36,099 36,218 36,451 36,977 43,809 44,457 45,090 45,081 45,604 54,039 54,718 55,349 55,935 56,013 65,984 Earnings growth 1% 17% 1% 0% 1% 1% 18% 1% 1% 0% 1% 18% 1% 1% 1% 0% 18% PATAMI Margin 33.3% 35.3% 34.6% 33.7% 32.9% 32.6% 35.0% 34.7% 34.3% 33.4% 33.0% 35.3% 34.9% 34.4% 33.9% 33.3% 35.6%

CFO

40,916

40,647

47,610

48,511

49,056

49,804

53,000

58,079

58,911

59,823

60,603

64,869

70,538

71,811

73,059

74,106

78,845 Int (1- t) 363 297 230 164 97 31 107 2 2 2 2 2 2 2 2 2 2

FC Inv 10,000 15,000 15,000 20,000 5,695 5,866 6,042 6,223 6,410 6,602 6,800 7,004 7,214 7,431 7,654 7,883 8,120 F C F F (C F O + In t- F C In v) 3 1, 2 7 9 2 5 , 9 4 4 3 2 , 8 4 1 2 8 , 6 7 5 4 3 , 4 5 8 4 3 , 9 6 9 4 7 , 0 6 5 5 1, 8 5 8 5 2 , 5 0 3 5 3 , 2 2 3 5 3 , 8 0 5 5 7 , 8 6 7 6 3 , 3 2 5 6 4 , 3 8 2 6 5 , 4 0 8 6 6 , 2 2 5 7 0 , 7 2 7 PV of FCFF 11,444 8,729 10,161 8,159 11,372 10,580 10,415 10,553 9,826 9,160 8,516 8,423 8,476 7,925 7,404 6,894 95,124

DCF of FCFF (m) (FY15F- FY42F) 370,203 Rm 8.7% FY15F Net Cash (m) 14,080 Beta 1.18 FV (m) 384,284 RFR 3.9% Shares outstanding (m) 1,429 Cost of equity 9.6%

WACC 8.7%

Terminal growth applied 1.0%

Source: RHB, company data, closing prices as of 14 Jan


16 January 2015


Financial Exhibits

Key Assumptions Sep-13 Sep-14 Sep-15F Sep-16F Sep-17F Pax Traffic (m) 86.1 87.6 99.2 108.7 117.5 % chg 20.4% 1.7% 13.3% 9.6% 8.1% Aircraft '000 559.4 609.9 697.9 770.6 838.3 % chg 16.5% 9.0% 14.4% 10.4% 8.8% PSC - int (THB) 700 700 700 700 750 PSC - dom (THB) 100 100 100 100 125 Staff pay increment (% y-o-y) 7 10 10

Profit & Loss (THBm)

Sep-13

Sep-14

Sep-15F

Sep-16F

Sep-17F

Total turnover 36,810 37,585 44,909 50,198 56,853 Cost of sales (8,881) (9,281) (11,421) (12,590) (14,790) Gross profit 27,929 28,304 33,489 37,608 42,062 Gen & admin expenses (10,078) (10,635) (11,826) (13,054) (15,173) Other operating costs (1,991) (2,063) (2,125) (2,189) (2,255) Operating profit 15,860 15,606 19,537 22,365 24,635 Operating EBITDA 20,636 21,256 25,524 29,020 32,199 Depreciation of fixed assets (4,630) (5,488) (5,808) (6,457) (7,347) Amortisation of intangible assets (145) (162) (180) (198) (218) Operating EBIT 15,860 15,606 19,537 22,365 24,635 Net income from investments 49 62 63 64 65 Interest income 1,332 1,407 1,547 1,745 1,595 Interest expense (1,977) (1,836) (1,213) (1,213) (1,213) Exceptional income - net 5,962 31 - - - Pre-tax profit 21,226 15,269 19,934 22,961 25,083 Taxation (4,869) (3,007) (3,987) (4,592) (5,017) Minority interests (9) (42) (43) (44) (46) Profit after tax & minorities 16,347 12,220 15,904 18,325 20,021 Reported net profit 16,347 12,220 15,904 18,325 20,021 Recurring net profit 10,386 12,189 15,904 18,325 20,021


Cash flow (THBm) Sep-13 Sep-14 Sep-15F Sep-16F Sep-17F Operating profit 15,860 15,606 19,537 22,365 24,635 Depreciation & amortisation 4,775 5,650 5,987 6,655 7,564 Change in w orking capital 2,261 (463) 1,678 1,249 1,160 Other operating cash flow 1,920 1,860 (1,727) (1,540) (1,194) Operating cash flow 24,816 22,653 25,475 28,729 32,165 Interest received 1,335 1,380 1,519 1,712 1,566 Interest paid (1,977) (1,836) (1,213) (1,213) (1,213) Dividends received 49 62 63 64 65 Tax paid (3,640) (3,318) (4,399) (5,067) (5,535) Cash flow from operations 20,584 18,941 21,445 24,225 27,048 Capex (2,503) (7,758) (10,000) (21,000) (30,000) Other new investments (6,350) 1,750 (4,005) 4,995 15,149 Other investing cash flow 62 76 169 174 178 Cash flow from investing activities (8,791) (5,932) (13,835) (15,831) (14,673) Dividends paid (2,571) (6,571) (4,876) (6,362) (7,330) Increase in debt (4,326) (4,186) 0 0 (1,000) Other financing cash flow (1,936) (1,827) (1,207) (1,207) (1,207) Cash flow from financing activities (8,833) (12,584) (6,082) (7,568) (9,537) Cash at beginning of period 3,653 6,618 7,049 8,565 9,391 Total cash generated 2,960 425 1,527 826 2,839 Forex effects 5 7 (11) - - Implied cash at end of period 6,618 7,049 8,565 9,391 12,230



16 January 2015


Financial Exhibits

Balance Sheet (THBm) Sep-13 Sep-14 Sep-15F Sep-16F Sep-17F Total cash and equivalents 39,271 43,203 48,719 44,545 32,230 Inventories 206 195 239 268 294 Accounts receivable 3,444 3,109 3,801 4,264 4,674 Other current assets 610 848 891 935 982 Total current assets 43,532 47,355 53,649 50,012 38,179 Total investments 13,648 9,118 9,163 9,208 9,253 Tangible fixed assets 91,406 94,282 98,587 114,041 137,689 Intangible assets 595 586 487 408 311 Total other assets 3,880 2,448 2,514 2,582 2,653 Total non-current assets 109,529 106,433 110,750 126,239 149,906 Total assets 153,061 153,789 164,400 176,251 188,085 Short-term debt 4,455 3,960 3,960 3,960 3,960 Accounts payable 1,256 1,444 3,726 4,179 4,581 Other current liabilities 13,741 13,104 11,813 12,134 12,464 Total current liabilities 19,452 18,508 19,498 20,272 21,005 Total long-term debt 37,328 30,679 30,679 30,679 29,679 Other liabilities 4,541 7,355 7,413 7,476 7,543 Total non-current liabilities 41,869 38,033 38,092 38,155 37,222 Total liabilities 61,321 56,541 57,590 58,427 58,227 Share capital 14,286 14,286 14,286 14,286 14,286 Retained earnings reserve 62,818 68,023 77,566 88,560 100,573 Other reserves 14,475 14,736 14,736 14,736 14,736 Shareholders' equity 91,579 97,044 106,587 117,582 129,594 Minority interests 161 203 222 242 264 Other equity 0 (0) (0) (0) (0) Total equity 91,740 97,247 106,809 117,824 129,858 Total liabilities & equity 153,061 153,789 164,400 176,251 188,085


Key Ratios (THB) Sep-13 Sep-14 Sep-15F Sep-16F Sep-17F Revenue growth (%) 21.1 2.1 19.5 11.8 13.3 Operating profit growth (%) 42.2 (1.6) 25.2 14.5 10.1 Net profit growth (%) 151.5 (25.2) 30.1 15.2 9.3 EPS growth (%) 151.5 (25.2) 30.1 15.2 9.3 Bv per share growth (%) 17.9 6.0 9.8 10.3 10.2 Operating margin (%) 43.1 41.5 43.5 44.6 43.3 Net profit margin (%) 44.4 32.5 35.4 36.5 35.2 Return on average assets (%) 10.8 8.0 10.0 10.8 11.0 Return on average equity (%) 19.3 13.0 15.6 16.3 16.2 Net debt to equity (%) 2.7 (8.8) (13.2) (8.4) 1.1 DPS 4.60 3.41 4.45 5.13 5.61 Recurrent cash flow per share 14.4 13.3 15.0 17.0 18.9



16 January 2015


Ja

n-1

3

Ja

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4

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5

Ja

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6

Ja

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7

Ja

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3

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7

SWOT Analysis

Thailand is a major tourism hub

Favourable concession agreements

Political crisis could dampen tourist arrivals

Higher-than- expected capex could be detrimental to cash flow

Airport

expansion overseas

Airport expansion will boost retail revenue

Unable to maximise its revenue generation

substantially in the non-aeronautical segment as it does not manage its own duty free shops


45 200%

40 172%

35 144%

30 117%

25 89%

20 61%

15 33%

10 6%

5 -22%

0 -50%

6.0

5.0

4.0

3.0

2.0

1.0

0.0

25%

21%

17%

13%

8%

4%

0%



Company Profile

Airports of Thailand is the airport operator of six major airports in Thailand.


16 January 2015


na

97

104

120

137 133

153

1

88

222

249

148

226

1

70

243

245

229

2

51


357

307


Price Close

257

207

157

107

57


Jan-10 Apr-11 Jul-12 Nov-13


Date Recomme nda Target Price Price 2014-12-01 Take Profit 251 284 2014-10-31 Neutral 229 242 2014-08-14 Buy 245 214 2014-05-15 Buy 243 193 2014-05-15 Buy 243 193 2014-03-04 Buy 226 199 2014-02-18 Neutral 170 187 2014-01-22 Neutral 148 160 2013-12-02 Buy 249 183 2013-08-15 Buy 222 183


50





This report may further consist of, whether in whole or in part, summaries, research, compilations, extracts or analysis tha t has been prepared by RHB’s strategic, joint venture and/or business partners. No representation or warranty (express or implied) is given as to the accu racy or completeness of such information and accordingly investors should make their own informed decisions before relying on the same.





Malaysia


Singapore






51

Hong Kong






Indonesia



Thailand


Other Jurisdictions





Malaysia Tel : +(60) 3 9280 2185 Fax : +(60) 3 9284 8693



12th Floor


Central, Hong Kong

Tel : +(852) 2525 1118 Fax : +(852) 2810 0908

DMG & Partners



Singapore 049315 Tel : +(65) 6533 1818

Fax : +(65) 6532 6211







Tel : +(6221) 2598 6888 Fax : +(6221) 2598 6777




Shanghai 20041

China

Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633

Bangkok




Cambodia

Tel: +(855) 23 969 161 Fax: +(855) 23 969 171



10th Floor, Sathorn Square Office Tower 98, North Sathorn Road, Silom


Tel: +(66) 2 862 9999 Fax : +(66) 2 108 0999

52






RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to, or dispose off, or may be materially interested in any such securities. Further, RHB, its affiliates and related companies do and seek to do bus iness with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services fr om any entity mentioned in this research report.




Malaysia

This report is published and distributed in Malaysia by RHB Research Institute Sdn Bhd (233327-M), Level 11, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur, a wholly-owned subsidiary of RHB Investment Bank Berhad (RHBIB), which in turn is a wholly-owned subsidiary of RHB Capital Berhad.

Singapore

This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No. 200808705N), a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group) and OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as “RHBIB”, which in turn is a wholly- owned subsidiary of RHB Capital Berhad). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report.




Where the research report is produced by an RHB entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, it is only distributed to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd.

Hong Kong

This report is published and distributed in Hong Kong by RHB OSK Securities Hong Kong Limited (“RHBSHK”) (formerly known as OSK Securities Hong Kong Limited), a subsidiary of OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as “RHBIB”), which in turn is a wholly-owned subsidiary of RHB Capital Berhad.

RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company.

53

RHBSHK, RHBIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company.



Indonesia

This report is published and distributed in Indonesia by PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad.

Thailand


Other Jurisdictions





Malaysia Tel : +(60) 3 9280 2185 Fax : +(60) 3 9284 8693

RHB OSK Securities Hong Kong Ltd. (formerly known as OSK Securities

Hong Kong Ltd.) 12

th Floor

World-Wide House 19 Des Voeux Road Central, Hong Kong

Tel : +(852) 2525 1118

Fax : +(852) 2810 0908

DMG & Partners Securities Pte. Ltd.

10 Collyer Quay #09-08 Ocean Financial Centre

Singapore 049315 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211


PT RHB OSK Securities Indonesia (formerly known as

PT OSK Nusadana Securities Indonesia)

Plaza CIMB Niaga 14th Floor

Jl. Jend. Sudirman Kav.25 Jakarta Selatan 12920, Indonesia

Tel : +(6221) 2598 6888 Fax : +(6221) 2598 6777

RHB OSK (China) Investment Advisory Co. Ltd. (formerly known as OSK (China) Investment

Advisory Co. Ltd.)


Shanghai 20041 China

Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633

Bangkok

RHB OSK Indochina Securities Limited (formerly known as OSK Indochina Securities Limited) No.

1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok

Phnom Penh Cambodia

Tel: +(855) 23 969 161 Fax: +(855) 23 969 171

RHB OSK Securities (Thailand) PCL (formerly known

as OSK Securities (Thailand) PCL) 10th Floor, Sathorn Square Office Tower

98, North Sathorn Road,Silom Bangrak, Bangkok 10500

Thailand Tel: +(66) 2 862 9999

Fax : +(66) 2 108 0999

Thai Institute of Directors Association (IOD) – Corporate Governance Report Rating 2014

Excellent

BAFS HANA KTB SAMART SIM BCP INTUCH MINT SAMTEL SPALI BTS IRPC PSL SAT TISCO CPN IVL PTT SC TMB EGCO KBANK PTTEP SCB TOP GRAMMY KKP PTTGC SE-ED

Very Good

AAV BKI DTAC KSL NMG PS SNP TIPCO UAC ACAP BLA DTC LANNA NSI PT SPI TK VGI ADVANC BMCL EASTW LH OCC QH SSF TKT VNT ANAN BROOK EE LHBANK OFM RATCH SSI TNITY WACOAL AOT CENTEL ERW LOXLEY PAP ROBINS SSSC TNL ASIMAR CFRESH GBX LPN PE RS STA TOG ASK CIMBT GC MACO PG S&J SVI TRC ASP CK GFPT MC PHOL SAMCO TCAP TRUE BANPU CNT GUNKUL MCOT PJW SCC TF TSTE BAY CPF HEMRAJ NBC PM SINGER THAI TSTH BBL CSL HMPRO NCH PPS SIS THANI TTA BECL DELTA ICC NINE PR SITHAI THCOM TTW BIGC DRT KCE NKI PRANDA SNC TIP TVO

Good

2S AQUA CCET EA IFS MAKRO NTV PRG SIAM STPI TIC TUF AF ARIP CGD ESSO IHL MATCH NUSA PRIN SIRI SUC TICON TVD AH AS CGS FE INET MBK NWR PTG SKR SWC TIW TWFP AHC ASIA CHOW FORTH IRC MBKET NYT QLT SMG SYMC TKS UMI AIT AYUD CI FPI IRCP MEGA OGC QTC SMK SYNEX TLUXE UP AJ BEAUTY CKP GENCO ITD MFC OISHI RCL SMPC SYNTEC TMI UPF AKP BEC CM GL KBS MFEC PACE SABINA SMT TASCO TMT UPOIC AKR BFIT CMR GLOBAL KGI MJD PATO SALEE SOLAR TBSP TNDT UT AMANAH BH CSC GLOW KKC MODERN PB SCBLIF SPC TEAM TPC UV AMARIN BJC CSP GOLD KTC MONO PDI SCCC SPCG TFD TPCORP UWC AMATA BJCHI CSS HOTPOT L&E MOONG PICO SCG SPPT TFI TRT VIH AP BOL DCC HTC LRH MPG PPM SEAFCO SST THANA TRU WAVE APCO BTNC DEMCO HTECH LST MTI PPP SEAOIL STANLY THIP TSC WHA APCS BWG DNA HYDRO MAJOR NC PREB SFP STEC THREL TTCL WIN

WINNER YUASA

ZMICO

IOD (IOD Disclaimer)

การเปิดเผลผลการส ารวจของสมาคมส่งเสริมสถาบันกรรมการบรษิัทไทย (IOD) ในเรื่องการก ากับดูแลกิจการ (Corporate Governance) นี้เป็นการด าเนินการตามนโยบายของส านักงานคณะกรรมการก ากับหลักทรัพย์และตลาดหลักทรัพย์ โดยการส ารวจของ IOD เป็นการส ารวจและประเมินจากข้อมูลของบรษัทจดทะเบียนในตลาดหลักทรัพย์แห่งประเทศไทยและตลาดหลกัทรัพย์เอ็มเอไอ ที่มีการเปิดเผยต่อสาธารณะและเป็นข้อมูลที่ผูล้งทุนทั่วไปสามารถเข้าถงึได้ ดังนั้นผลส ารวจดังกล่าวจึงเป็นการน าเสนอในมุมมองของบุคคลภายนอกโดยไม่ได้เป็นการประเมินการปฏิบัติและมิได้มีการใช้ข้อมูลภายในในการประเมิน

อนึ่ง ผลการส ารวจดังกล่าว เป็นผลการส ารวจ ณ วนัที่ปรากฎในรายงานการก ากับดแูละกิจการบริษัทจดทะเบียนไทยเท่านั้น ดังนั้นผลการส ารวจจึงอาจเปลี่ยนแปลงได้ภายหลังวันดังกล่าว ทัง้นี้บริษัทหลักทรัพย์ อาร์เอสบี โอเอส เค จ ากัด (มหาชน) มิได้ยืนยันหรือรับรองถึงความถูกต้องของผลการส ารวจดงักล่าวแต่อย่างใด

thailand aviation neutral (maintained) · aviation 16 january 2015 see important disclosures at the...

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