Asia Aviation
Asia Aviation Buy (17E TP Bt8.60)
Company Update
Close Bt7.35
Transport & Logistics August 18, 2016
Earnings upgrade/Earnings downgrade/Overview unchanged
Flying higher Price Performance (%)
Maintain BUY: roll over to 2017E target price of Bt8.60 Although AAV’s share price has increased 43% YTD, we believe it is still the best choice for the airline sector owing to a substantial earnings performance. We maintain our BUY call for AAV and roll over the target price to the 2017E performance at Bt8.60, based on 20x PER (‐0.5SD). Better‐than‐expected results in 2Q16 AAV reported net profit of Bt423mn in 2Q16, including FX gains of Bt14mn. Stripping out FX gains, AAV delivered normalized profit of Bt408mn, jumping by 65% YoY but falling by 60% QoQ on the seasonal pattern, better than our expectation by 12% owing mainly to a tax reversal. Strong earnings growth on a yearly basis came from revenue growth and a fuel cost decline, enabling the gross profit margin to expand to 17%, vs. 14% in 2Q15. 2H16 ticket fares likely to improve In 2Q16, AAV’s average ticket fares fell by 5% YoY to Bt1,550 owing mainly to ticket promotions for the international routes. The average ticket fare in 1H16 stood at Bt1,638, ‐3% YoY. AAV believes ticket fares in 3Q16 will likely be flat or slightly expand due to strong demand in the domestic routes. Meanwhile, ticket fares in 4Q16 are likely to improve YoY on easing competition from charter flights to destinations in China as occurred in 4Q15.
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
0.448
0.501
KT ZMICO vs. consensus Share data
‐6.2%
‐14.2%
Reuters / Bloomberg
AAV.BK/AAV TB
Paid‐up Shares (m)
4,850.00
Par (Bt)
0.10
Market cap (Bt bn / US$ m)
36.00/1,027.00
Foreign limit / actual (%)
0.10/0.10
52 week High / Low (Bt)
7.80/3.90
Avg. daily T/O (shares 000)
44,417.00
NVDR (%)
12.06
Estimated free float (%)
54.61
Beta
0.36
URL
www.aavplc.co.th
CGR
Anti‐corruption
n.a.
Raenoo Bhandasukdi Analyst no. 17989 [email protected] 66 (0) 2695‐5836
Ancillary revenue to total revenue expected to increase In 2Q16, AAV delivered revenue of Bt7.9bn, mainly from Bt6.4bn in passenger revenue (+12% YoY) owing to passenger volume of 4.17mn (+18% YoY). Meanwhile, ancillary revenue increased by 17% YoY to Bt1.3bn, mainly from revenue expansion of meals on flights and Fly Thru services. AAV will introduce a new product in 2H16, which is likely to drive ancillary revenue to 18% of total, vs. 17% currently. Earnings upgrade We revise up AAV’s earnings estimates in 2016‐17E by 6‐7% to Bt2.0bn and Bt2.1bn owing to 1) a lower jet fuel price assumption in 2016‐17E to US$52/US$64, vs. US$54/US$66 previously, based on the decline of the spread between Dubai‐Jet fuel in 1H16; 2) lower tax expenses; 3) the upward revision of ancillary revenue to total revenue to 17%, vs. 16.5% previously; and 4) a lower ticket fare growth rate in 2016E from flat to ‐1%, vs. the flat ticket fares targeted by AAV. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) Norm. profit (Btmn) Norm. EPS (Bt) Norm. EPS growth (%) DPS (Bt) BV (Bt) FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) P/BV (x) Dividend yield (%) ROE (%) Net gearing (%)
2013 23,994 1,043 0.22 914 0.19 13.69 0.00 3.99 2013 39.02 13.78 1.84 0.00 4.86 8.82
2014 25,981 183 0.04 120 0.02 (86.85) 0.00 4.03 2014 296.65 35.52 1.82 0.00 0.62 29.58
2015 30,345 1,078 0.22 1,181 0.24 882.68 0.10 4.15 2015 30.19 11.15 1.77 1.36 5.95 32.00
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2016E 34,723 2,048 0.42 2,035 0.42 72.33 0.19 4.39 2016E 17.52 7.64 1.68 2.57 9.83 30.54
2017E 38,394 2,078 0.43 2,078 0.43 2.13 0.19 4.62 2017E 17.15 7.21 1.59 2.62 9.52 24.75
Figure 1: AAV’s PER band and sensitivity of market prices based on PER at different standard deviation levels (X) 45 40 35 +1.0 S.D. 30 Avg.
25 20
-0.50S.D.
15
Feb-16
May-16
Nov-15
Aug-15
Feb-15
May-15
Nov-14
Aug-14
Feb-14
May-14
Nov-13
Aug-13
Feb-13
May-13
Nov-12
Aug-12
-1 .0S.D.
May-12
10
2017E +1.0SD +0.5SD Average ‐0.5SD ‐1.0SD ‐1.5SD ‐2.0SD ‐2.5SD
PER (x) 29.9 26.6 23.3 20.0 16.8 13.5 10.2 6.9
Implied market price (Bt) 12.81 11.40 10.00 8.59 7.19 5.78 4.38 2.97
Upside/Downside vs. current market price (%) 74.2 55.1 36.0 16.9 (2.2) (21.4) (40.5) (59.6)
Source: Bloomberg, KT ZMICO Research
Figure 2: 2Q16 earnings review Profit and Loss (Btmn) Year‐end 31 Dec Revenue Gross profit SG&A expenses EBITDA Interest expenses Other income Income tax Forex gain (loss) Minority interests Net profit (loss) Normalized profit (loss) Reported EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%) Current ratio (x) Interest coverage (x) Debt/equity (x) BVPS (Bt) ROE (%) Statistics Passenger volume (mn) Cabin factor (%) Average fare (Bt/pax)
2Q15 7,041 1,000 (500) 780 (143) 33 67 (42) (208) 206 248 0.04
1Q16 9,171 2,704 (663) 2,324 (127) 12 (90) (1) (825) 1,009 1,010 0.21
2Q16 7,914 1,359 (613) 1,033 (109) 25 76 14 (330) 423 408 0.09
% YoY 12.4 35.9 22.5 32.5 (23.8) (24.4) 14.3 n.m. 58.5 105.2 64.8 105.2
% QoQ (13.7) (49.7) (7.7) (55.5) (13.9) 101.7 (184.4) n.m. (60.1) (58.1) (59.6) (58.1)
1H16 17,085 4,062 (1,276) 3,358 (236) 37 (14) 13 (1,155) 1,432 1,419 0.295
14.2 11.1 2.9 1.2 3.5 0.7 4.2 4.1 3.54 81.0 1,632
29.5 25.3 11.0 1.2 16.1 0.6 4.4 19.5 4.37 87.3 1,722
17.2 13.1 5.3 1.2 6.8 0.6 4.4 7.9
23.8 19.7 8.4 1.2 11.8 0.6 4.4 13.7
4.17 83.1 1,550
17.8 (5.0)
(4.5) (10.0)
% YoY 14.3 47.6 18.5 50.6 (6.1) (34.4) (88.2) n.m. 88.0 101.0 90.0 101.0
2016E 34,723 7,168 (2,828) 5,519 (490) 75 (157) 13 (1,733) 2,048 2,035 0.422 20.6 15.9 5.9 1.0 8.9 0.5 4.4 9.3
Source: AAV, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
YTD (% of 16E) 49.2 56.7 45.1 60.8 48.2 49.2 9.0 100.0 66.6 69.9 69.7 69.9
Figure 3: Peer comparison COUNTRY
PER (x) 15
16E
PBV (x)
Yield (%)
ROE (%)
EV/EBITDA (x)
17E
15
16E
17E
15
16E
17E
15
16E
17E
15
16E
17E 7.5
LCC AIR ASIA BHD
Malaysia
6.6
8.3
8.7
0.8
1.6
1.4
3.1
2.7
2.3
12.0
23.1
16.3
5.1
7.2
AIRARABI
UAE
12.4
11.1
10.4
1.3
1.3
1.3
6.6
6.9
7.1
10.2
11.0
13.1
8.3
8.0
7.5
CEBU AIR INC
Philippines
11.4
7.9
9.1
2.0
2.3
1.9
1.2
1.9
2.0
18.9
30.0
22.2
5.5
5.9
6.3
EASYJET PLC
Britain
12.8
9.6
8.8
3.1
1.7
1.6
3.1
5.1
5.5
24.8
17.8
17.4
8.0
5.4
4.9
RYANAIR HOLDINGS PLC
Ireland
17.8
12.4
11.0
3.8
3.5
3.3
0.0
2.1
0.0
23.7
31.2
34.0
10.5
7.8
7.0
SOUTHWEST AIRLINES
USA
12.2
9.5
9.3
3.8
2.5
2.1
0.7
1.0
1.3
30.9
31.1
25.5
5.5
4.3
4.3
TIGER AIRWAYS HLDG
Singapore
n.a.
n.a.
n.a.
4.0
n.a.
n.a.
0.0
n.a.
n.a.
n.m.
4.0
22.7
n.m.
n.a.
n.a.
VIRGIN AUSTRALIA HLDG
Australia
n.a.
17.5
22.3
1.4
1.0
1.1
0.0
0.0
0.0
(10.4)
2.9
7.5
16.3
8.4
7.0
WESTJET AIRLINES LTD
Canada
6.9
10.1
10.1
1.3
1.4
1.4
2.8
2.3
2.4
19.7
13.9
12.9
3.0
4.1
4.0
11.4
10.8
11.2
2.4
1.9
1.7
1.9
2.7
2.6
16.2
18.3
19.1
7.8
6.4
6.0 4.5
Average (simple) Conventional CHINA SOUTHERN AIRLINES‐H China AIR CHINA LTD‐H
China
CATHAY PACIFIC AIRWAYS
Hong Kong
CHINA EASTERN AIRLINES‐H
China
KOREAN AIR LINES CO LTD
South Korea
13.2
6.6
6.5
1.3
1.0
0.9
1.6
2.4
2.8
10.0
16.7
15.0
7.2
4.5
8.9
6.8
6.6
1.1
1.0
0.9
2.1
2.3
2.6
12.4
15.1
13.6
7.0
5.0
4.9
10.5
6.6
7.0
1.3
1.1
0.9
0.0
1.5
1.2
13.5
18.3
15.0
6.8
5.2
5.1
8.8
9.6
8.7
1.1
0.9
0.9
3.9
3.6
3.8
12.0
10.8
10.6
6.2
6.0
5.4
38.1
19.2
16.2
1.1
1.0
0.9
1.8
3.7
4.2
2.9
6.1
5.8
5.3
3.9
3.8
SINGAPORE AIRLINES LTD
Singapore
n.a.
n.a.
7.7
0.8
1.0
0.9
0.0
0.0
0.2
‐24.9
‐1.7
13.0
6.8
6.3
6.4
EVA AIRWAYS CORP
Taiwan
11.0
9.2
10.7
1.5
1.1
1.1
n.a.
1.4
1.5
15.5
12.2
11.0
5.8
5.2
5.0
CHINA AIRLINES LTD
Taiwan
Average (simple)
11.3
8.6
9.7
1.1
0.8
0.8
n.a.
1.5
1.7
10.8
9.1
8.0
6.1
5.1
5.1
14.5
9.5
9.1
1.2
1.0
0.9
1.6
2.0
2.2
6.5
10.8
11.5
6.4
5.2
5.0
Source: Bloomberg
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
Financial tables PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A expense EBITDA Depreciation & amortization EBIT Interest expense Equity earnings Other income / exp. EBT Corporate tax Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btm) Cash and equivalents Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Minority interests Shareholder equity Total liab. & shareholder equity CASH FLOW (Btm) Net income Depreciation & amortization Change in working capital FX, non‐cash adjustment & others Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) Core EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%) FINANCIAL QUALITY Total debt to capital employed (x) Net debt to equity (x)
2013 23,994 (19,928) 4,066 (1,756) 2,712 (402) 2,310 (171) 0 291 2,430 (651) (736) 1,043 0.22 0.22 914 0.19 0.00
2014 25,981 (23,708) 2,273 (1,925) 1,166 (818) 348 (313) 0 231 267 1 (85) 183 0.04 0.04 120 0.02 0.00
2015 30,345 (25,315) 5,030 (2,377) 3,775 (1,122) 2,653 (457) 0 16 2,212 (151) (982) 1,078 0.22 0.22 1,181 0.24 0.10
2016E 34,723 (27,556) 7,168 (2,828) 5,519 (1,179) 4,340 (490) 0 88 3,938 (157) (1,733) 2,048 0.42 0.42 2,035 0.42 0.19
2013 6,453 90 10,956 27,436 44,935 615 7,546 18,260 7,329 19,346 44,935
2014 6,298 97 16,033 27,073 49,502 959 11,118 22,486 7,482 19,534 49,502
2015 7,591 94 18,216 26,926 52,827 1,261 12,775 24,743 7,941 20,142 52,827
2016E 7,458 144 21,556 27,235 56,393 1,079 12,875 25,449 9,674 21,269 56,393
2013 1,043 402 2,445 131 4,020 (2,082) (3,483) (5,565) (348) 0 0 0 (348) (1,894) (1,545) (0.32)
2014 183 818 654 194 1,848 (980) 3,004 2,025 (1,043) 0 0 0 (1,043) 2,830 3,873 0.80
2015 1,078 1,122 (345) 1,152 3,007 615 268 883 (2,556) 0 0 0 (2,556) 1,334 3,890 0.80
2016E 2,048 1,179 (1,206) (13) 2,008 (1,573) 0 (1,573) (83) 0 (485) 0 (568) (133) 435 0.09
2013 46.2 64.6 13.7 16.9 11.3 9.6 4.3 3.8 26.8
2014 8.3 (57.0) (86.9) 8.7 4.5 1.3 0.7 0.5 (0.5)
2015 16.8 223.7 882.7 16.6 12.4 8.7 3.6 3.9 6.8
2016E 14.4 46.2 72.3 20.6 15.9 12.5 5.9 5.9 4.0
2013 0.30 0.09
2014 0.38 0.30
2015 0.41 0.32
2016E 0.40 0.31
2017E 38,394 (30,828) 7,567 (3,147) 5,717 (1,297) 4,419 (490) 0 80 4,009 (160) (1,770) 2,078 0.43 0.43 2,078 0.43 0.19
2017E 8,507 159 24,181 27,405 60,253 1,232 12,821 26,395 11,445 22,413 60,253
2017E 2,078 1,297 63 0 3,438 (1,573) 0 (1,573) 99 0 (915) 0 (816) 1,049 1,865 0.38
2017E 10.6 3.6 2.1 19.7 14.9 11.5 5.4 5.4 4.0 2017E 0.39 0.25
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, PLE, TPOLY, M‐CHAI, CI, EARTH. KT ZMICO is a co‐underwriter of ALT, EKH, RJH.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
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th
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
Company Update
Close Bt7.35
Transport & Logistics August 18, 2016
Earnings upgrade/Earnings downgrade/Overview unchanged
Flying higher Price Performance (%)
Maintain BUY: roll over to 2017E target price of Bt8.60 Although AAV’s share price has increased 43% YTD, we believe it is still the best choice for the airline sector owing to a substantial earnings performance. We maintain our BUY call for AAV and roll over the target price to the 2017E performance at Bt8.60, based on 20x PER (‐0.5SD). Better‐than‐expected results in 2Q16 AAV reported net profit of Bt423mn in 2Q16, including FX gains of Bt14mn. Stripping out FX gains, AAV delivered normalized profit of Bt408mn, jumping by 65% YoY but falling by 60% QoQ on the seasonal pattern, better than our expectation by 12% owing mainly to a tax reversal. Strong earnings growth on a yearly basis came from revenue growth and a fuel cost decline, enabling the gross profit margin to expand to 17%, vs. 14% in 2Q15. 2H16 ticket fares likely to improve In 2Q16, AAV’s average ticket fares fell by 5% YoY to Bt1,550 owing mainly to ticket promotions for the international routes. The average ticket fare in 1H16 stood at Bt1,638, ‐3% YoY. AAV believes ticket fares in 3Q16 will likely be flat or slightly expand due to strong demand in the domestic routes. Meanwhile, ticket fares in 4Q16 are likely to improve YoY on easing competition from charter flights to destinations in China as occurred in 4Q15.
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
0.448
0.501
KT ZMICO vs. consensus Share data
‐6.2%
‐14.2%
Reuters / Bloomberg
AAV.BK/AAV TB
Paid‐up Shares (m)
4,850.00
Par (Bt)
0.10
Market cap (Bt bn / US$ m)
36.00/1,027.00
Foreign limit / actual (%)
0.10/0.10
52 week High / Low (Bt)
7.80/3.90
Avg. daily T/O (shares 000)
44,417.00
NVDR (%)
12.06
Estimated free float (%)
54.61
Beta
0.36
URL
www.aavplc.co.th
CGR
Anti‐corruption
n.a.
Raenoo Bhandasukdi Analyst no. 17989 [email protected] 66 (0) 2695‐5836
Ancillary revenue to total revenue expected to increase In 2Q16, AAV delivered revenue of Bt7.9bn, mainly from Bt6.4bn in passenger revenue (+12% YoY) owing to passenger volume of 4.17mn (+18% YoY). Meanwhile, ancillary revenue increased by 17% YoY to Bt1.3bn, mainly from revenue expansion of meals on flights and Fly Thru services. AAV will introduce a new product in 2H16, which is likely to drive ancillary revenue to 18% of total, vs. 17% currently. Earnings upgrade We revise up AAV’s earnings estimates in 2016‐17E by 6‐7% to Bt2.0bn and Bt2.1bn owing to 1) a lower jet fuel price assumption in 2016‐17E to US$52/US$64, vs. US$54/US$66 previously, based on the decline of the spread between Dubai‐Jet fuel in 1H16; 2) lower tax expenses; 3) the upward revision of ancillary revenue to total revenue to 17%, vs. 16.5% previously; and 4) a lower ticket fare growth rate in 2016E from flat to ‐1%, vs. the flat ticket fares targeted by AAV. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) Norm. profit (Btmn) Norm. EPS (Bt) Norm. EPS growth (%) DPS (Bt) BV (Bt) FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) P/BV (x) Dividend yield (%) ROE (%) Net gearing (%)
2013 23,994 1,043 0.22 914 0.19 13.69 0.00 3.99 2013 39.02 13.78 1.84 0.00 4.86 8.82
2014 25,981 183 0.04 120 0.02 (86.85) 0.00 4.03 2014 296.65 35.52 1.82 0.00 0.62 29.58
2015 30,345 1,078 0.22 1,181 0.24 882.68 0.10 4.15 2015 30.19 11.15 1.77 1.36 5.95 32.00
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2016E 34,723 2,048 0.42 2,035 0.42 72.33 0.19 4.39 2016E 17.52 7.64 1.68 2.57 9.83 30.54
2017E 38,394 2,078 0.43 2,078 0.43 2.13 0.19 4.62 2017E 17.15 7.21 1.59 2.62 9.52 24.75
Figure 1: AAV’s PER band and sensitivity of market prices based on PER at different standard deviation levels (X) 45 40 35 +1.0 S.D. 30 Avg.
25 20
-0.50S.D.
15
Feb-16
May-16
Nov-15
Aug-15
Feb-15
May-15
Nov-14
Aug-14
Feb-14
May-14
Nov-13
Aug-13
Feb-13
May-13
Nov-12
Aug-12
-1 .0S.D.
May-12
10
2017E +1.0SD +0.5SD Average ‐0.5SD ‐1.0SD ‐1.5SD ‐2.0SD ‐2.5SD
PER (x) 29.9 26.6 23.3 20.0 16.8 13.5 10.2 6.9
Implied market price (Bt) 12.81 11.40 10.00 8.59 7.19 5.78 4.38 2.97
Upside/Downside vs. current market price (%) 74.2 55.1 36.0 16.9 (2.2) (21.4) (40.5) (59.6)
Source: Bloomberg, KT ZMICO Research
Figure 2: 2Q16 earnings review Profit and Loss (Btmn) Year‐end 31 Dec Revenue Gross profit SG&A expenses EBITDA Interest expenses Other income Income tax Forex gain (loss) Minority interests Net profit (loss) Normalized profit (loss) Reported EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%) Current ratio (x) Interest coverage (x) Debt/equity (x) BVPS (Bt) ROE (%) Statistics Passenger volume (mn) Cabin factor (%) Average fare (Bt/pax)
2Q15 7,041 1,000 (500) 780 (143) 33 67 (42) (208) 206 248 0.04
1Q16 9,171 2,704 (663) 2,324 (127) 12 (90) (1) (825) 1,009 1,010 0.21
2Q16 7,914 1,359 (613) 1,033 (109) 25 76 14 (330) 423 408 0.09
% YoY 12.4 35.9 22.5 32.5 (23.8) (24.4) 14.3 n.m. 58.5 105.2 64.8 105.2
% QoQ (13.7) (49.7) (7.7) (55.5) (13.9) 101.7 (184.4) n.m. (60.1) (58.1) (59.6) (58.1)
1H16 17,085 4,062 (1,276) 3,358 (236) 37 (14) 13 (1,155) 1,432 1,419 0.295
14.2 11.1 2.9 1.2 3.5 0.7 4.2 4.1 3.54 81.0 1,632
29.5 25.3 11.0 1.2 16.1 0.6 4.4 19.5 4.37 87.3 1,722
17.2 13.1 5.3 1.2 6.8 0.6 4.4 7.9
23.8 19.7 8.4 1.2 11.8 0.6 4.4 13.7
4.17 83.1 1,550
17.8 (5.0)
(4.5) (10.0)
% YoY 14.3 47.6 18.5 50.6 (6.1) (34.4) (88.2) n.m. 88.0 101.0 90.0 101.0
2016E 34,723 7,168 (2,828) 5,519 (490) 75 (157) 13 (1,733) 2,048 2,035 0.422 20.6 15.9 5.9 1.0 8.9 0.5 4.4 9.3
Source: AAV, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
YTD (% of 16E) 49.2 56.7 45.1 60.8 48.2 49.2 9.0 100.0 66.6 69.9 69.7 69.9
Figure 3: Peer comparison COUNTRY
PER (x) 15
16E
PBV (x)
Yield (%)
ROE (%)
EV/EBITDA (x)
17E
15
16E
17E
15
16E
17E
15
16E
17E
15
16E
17E 7.5
LCC AIR ASIA BHD
Malaysia
6.6
8.3
8.7
0.8
1.6
1.4
3.1
2.7
2.3
12.0
23.1
16.3
5.1
7.2
AIRARABI
UAE
12.4
11.1
10.4
1.3
1.3
1.3
6.6
6.9
7.1
10.2
11.0
13.1
8.3
8.0
7.5
CEBU AIR INC
Philippines
11.4
7.9
9.1
2.0
2.3
1.9
1.2
1.9
2.0
18.9
30.0
22.2
5.5
5.9
6.3
EASYJET PLC
Britain
12.8
9.6
8.8
3.1
1.7
1.6
3.1
5.1
5.5
24.8
17.8
17.4
8.0
5.4
4.9
RYANAIR HOLDINGS PLC
Ireland
17.8
12.4
11.0
3.8
3.5
3.3
0.0
2.1
0.0
23.7
31.2
34.0
10.5
7.8
7.0
SOUTHWEST AIRLINES
USA
12.2
9.5
9.3
3.8
2.5
2.1
0.7
1.0
1.3
30.9
31.1
25.5
5.5
4.3
4.3
TIGER AIRWAYS HLDG
Singapore
n.a.
n.a.
n.a.
4.0
n.a.
n.a.
0.0
n.a.
n.a.
n.m.
4.0
22.7
n.m.
n.a.
n.a.
VIRGIN AUSTRALIA HLDG
Australia
n.a.
17.5
22.3
1.4
1.0
1.1
0.0
0.0
0.0
(10.4)
2.9
7.5
16.3
8.4
7.0
WESTJET AIRLINES LTD
Canada
6.9
10.1
10.1
1.3
1.4
1.4
2.8
2.3
2.4
19.7
13.9
12.9
3.0
4.1
4.0
11.4
10.8
11.2
2.4
1.9
1.7
1.9
2.7
2.6
16.2
18.3
19.1
7.8
6.4
6.0 4.5
Average (simple) Conventional CHINA SOUTHERN AIRLINES‐H China AIR CHINA LTD‐H
China
CATHAY PACIFIC AIRWAYS
Hong Kong
CHINA EASTERN AIRLINES‐H
China
KOREAN AIR LINES CO LTD
South Korea
13.2
6.6
6.5
1.3
1.0
0.9
1.6
2.4
2.8
10.0
16.7
15.0
7.2
4.5
8.9
6.8
6.6
1.1
1.0
0.9
2.1
2.3
2.6
12.4
15.1
13.6
7.0
5.0
4.9
10.5
6.6
7.0
1.3
1.1
0.9
0.0
1.5
1.2
13.5
18.3
15.0
6.8
5.2
5.1
8.8
9.6
8.7
1.1
0.9
0.9
3.9
3.6
3.8
12.0
10.8
10.6
6.2
6.0
5.4
38.1
19.2
16.2
1.1
1.0
0.9
1.8
3.7
4.2
2.9
6.1
5.8
5.3
3.9
3.8
SINGAPORE AIRLINES LTD
Singapore
n.a.
n.a.
7.7
0.8
1.0
0.9
0.0
0.0
0.2
‐24.9
‐1.7
13.0
6.8
6.3
6.4
EVA AIRWAYS CORP
Taiwan
11.0
9.2
10.7
1.5
1.1
1.1
n.a.
1.4
1.5
15.5
12.2
11.0
5.8
5.2
5.0
CHINA AIRLINES LTD
Taiwan
Average (simple)
11.3
8.6
9.7
1.1
0.8
0.8
n.a.
1.5
1.7
10.8
9.1
8.0
6.1
5.1
5.1
14.5
9.5
9.1
1.2
1.0
0.9
1.6
2.0
2.2
6.5
10.8
11.5
6.4
5.2
5.0
Source: Bloomberg
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
Financial tables PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A expense EBITDA Depreciation & amortization EBIT Interest expense Equity earnings Other income / exp. EBT Corporate tax Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btm) Cash and equivalents Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Minority interests Shareholder equity Total liab. & shareholder equity CASH FLOW (Btm) Net income Depreciation & amortization Change in working capital FX, non‐cash adjustment & others Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) Core EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%) FINANCIAL QUALITY Total debt to capital employed (x) Net debt to equity (x)
2013 23,994 (19,928) 4,066 (1,756) 2,712 (402) 2,310 (171) 0 291 2,430 (651) (736) 1,043 0.22 0.22 914 0.19 0.00
2014 25,981 (23,708) 2,273 (1,925) 1,166 (818) 348 (313) 0 231 267 1 (85) 183 0.04 0.04 120 0.02 0.00
2015 30,345 (25,315) 5,030 (2,377) 3,775 (1,122) 2,653 (457) 0 16 2,212 (151) (982) 1,078 0.22 0.22 1,181 0.24 0.10
2016E 34,723 (27,556) 7,168 (2,828) 5,519 (1,179) 4,340 (490) 0 88 3,938 (157) (1,733) 2,048 0.42 0.42 2,035 0.42 0.19
2013 6,453 90 10,956 27,436 44,935 615 7,546 18,260 7,329 19,346 44,935
2014 6,298 97 16,033 27,073 49,502 959 11,118 22,486 7,482 19,534 49,502
2015 7,591 94 18,216 26,926 52,827 1,261 12,775 24,743 7,941 20,142 52,827
2016E 7,458 144 21,556 27,235 56,393 1,079 12,875 25,449 9,674 21,269 56,393
2013 1,043 402 2,445 131 4,020 (2,082) (3,483) (5,565) (348) 0 0 0 (348) (1,894) (1,545) (0.32)
2014 183 818 654 194 1,848 (980) 3,004 2,025 (1,043) 0 0 0 (1,043) 2,830 3,873 0.80
2015 1,078 1,122 (345) 1,152 3,007 615 268 883 (2,556) 0 0 0 (2,556) 1,334 3,890 0.80
2016E 2,048 1,179 (1,206) (13) 2,008 (1,573) 0 (1,573) (83) 0 (485) 0 (568) (133) 435 0.09
2013 46.2 64.6 13.7 16.9 11.3 9.6 4.3 3.8 26.8
2014 8.3 (57.0) (86.9) 8.7 4.5 1.3 0.7 0.5 (0.5)
2015 16.8 223.7 882.7 16.6 12.4 8.7 3.6 3.9 6.8
2016E 14.4 46.2 72.3 20.6 15.9 12.5 5.9 5.9 4.0
2013 0.30 0.09
2014 0.38 0.30
2015 0.41 0.32
2016E 0.40 0.31
2017E 38,394 (30,828) 7,567 (3,147) 5,717 (1,297) 4,419 (490) 0 80 4,009 (160) (1,770) 2,078 0.43 0.43 2,078 0.43 0.19
2017E 8,507 159 24,181 27,405 60,253 1,232 12,821 26,395 11,445 22,413 60,253
2017E 2,078 1,297 63 0 3,438 (1,573) 0 (1,573) 99 0 (915) 0 (816) 1,049 1,865 0.38
2017E 10.6 3.6 2.1 19.7 14.9 11.5 5.4 5.4 4.0 2017E 0.39 0.25
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, PLE, TPOLY, M‐CHAI, CI, EARTH. KT ZMICO is a co‐underwriter of ALT, EKH, RJH.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
th
th
th
th
KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
