Nok Airlines
Company Update October 10, 2014
Nok Airlines
Buy (TP Bt18.40)
Industry turbulence likely to end soon
Price Bt14.80
We recommend BUY for NOK with the 2015E target price of Bt18.4, based on a PER of 15x, slightly higher than PER of 13x for sector peers, owing to the expected turnaround in earnings in 2015-16E. We like NOK owing to its promising earnings outlook following substantial growth in passenger volume, the expected improvement of the LCC industry situation, and the setting up of new medium-haul LCC. Oversupply situation expected to improve in 2015E Thailand’s LCC industry in 2014E experienced an oversupply situation along with airfare pressure owing to both increases in available seat supply from both existing operators and newcomers coupled with slowing demand resulting from the political situation. As the political conflict has been resolved currently, we believe the price pressure for the sector will be relieved in 2015E. Medium-haul LCC outlook promising We have a positive view on NOK joining with Scoot, an LCC that is 100% owned by Singapore Airlines, to set up a new medium-haul LCC. The first flight will be arranged in 2015E to tap the East Asian region market, especially Japan and South Korea, which is a major source of tourist arrivals to Thailand. Meanwhile, Japan and South Korea are also top destinations for Thai tourists. Moreover, NOK will gain additional benefit from increased foreign currency income and more connecting customers from Scoot. Earnings to turn around in 2015-16E We expect NOK to report a net loss of Bt271mn in 2014E, but turn around to a net profit of Bt767mn in 2015E and Bt1.2bn in 2016E, owing to a favorable LCC industry situation and expected improvement in profitability. Our projections include NOKScoot’s performance, which is likely to contribute a net loss in 2015-16E. Risk Risk to our call is the delay of the bright prospects of the LCC industry and fluctuations of global oil prices. For every US$1/barrel that the jet fuel price increases from our assumption, NOK’s net profit in 2015E would fall short of our forecast by 6%. Financial and Valuation 2012 FY Ended 31 Dec 8,218 Revenues (Btm) 258 Net profit (Btm) 505 Norm. profit (Btm) 1.01 Norm. EPS (Bt) 152.8 Norm. EPS growth 0.50 Dividend (Bt) 1.78 BV (Bt)
2013 11,180 1,066 1,066 1.71 68.8 1.03 7.27
2014E 12,023 (271) (271) (0.43) n.m. 0.00 7.05
2015E 18,133 767 767 1.23 n.m. 0.61 7.67
2016E 26,321 1,240 1,240 1.98 61.73 0.99 8.66
2012 14.65 14.35 8.33 3.38 59.95 cash
2013 8.68 3.81 2.04 6.96 39.25 cash
2014E n.m. n.m. 2.10 0.00 (6.05) cash
2015E 12.06 8.22 1.93 4.15 16.67 cash
2016E 7.46 2.79 1.71 6.71 24.32 cash
FY Ended 31 Dec PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
Stock Performance (%) 1M
3M
12M
Absolute
-9.21
-16.86
-40.80
Relative to SET
-8.03
-18.54
-44.45
Share data Reuters / Bloomberg
NOK.BK/NOK TB
Sector
Transportation & Logistics
Paid-up Shares (m)
625.00
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
9.00/285.00
Foreign limit / actual (%)
49.00/13.52
52 week High / Low (Bt)
25.50/14.50
Avg. daily T/O (shares 000)
2,560.00
NVDR (%)
1.07
Estimated free float (%)
31.75
Beta
1.33
URL
www.nokair.com
Major Shareholders (30/09/2013) Thai Airways Plc.
39.20 %
State Street Bank Europe Limited
6.76 %
Aviation Investment International
6.65 %
Limited FY14 Consensus EPS (Bt)
FY15
0.714
1.427
n.a.
-13.8%
KT ZMICO vs. consensus Company Profile
The Company operates as a budget airline under the brand "Nok Air". The Company is considered a leading domestic low cost carrier with the most domestic coverage. Nok Air allows free seat assignments, provides free snack sets on board, and allows a minimum of 15 kilogram baggage weight without additional cost. CGR 2013 -
Raenoo Bhandasukdi Analyst, no 17989 [email protected] 66 (0) 2695-5836 page 1 of 20
Valuation BUY with target price of Bt18.4 (based on 15x PER) We recommend BUY for NOK with the 2015E target price of Bt18.40, based on 2015E EPS at Bt1.23 and PER of 15x, slightly higher than PER of 13x for peers. We believe the passenger volume of low cost carriers (LCC) will rebound significantly after the end of the political conflict, especially in 4Q14E as we enter the high season for Thailand’s tourism industry. In the longer term, the LCC earnings outlook is promising following the substantial growth of tourism numbers, along with Thailand’s ongoing urbanization and the establishment of the AEC community in 2015. Meanwhile, due to its geography, Thailand is ideally suited to be an aviation hub in the Asia-Pacific region, which will lead to high growth of passenger numbers for LCC. Given the prolonged protests since late 2013, the coup in May-14, and the imposition of martial law that remains in effect currently, NOK is likely to report a net loss of Bt271mn in 2014E. However, we project that NOK’s earnings will turn around in 2015E to Bt767mn, and jump by 62% YoY to Bt1.2bn in 2016E, driven by the expected growth in its passenger volume and the average fare, coupled with the setting up of the medium-haul LCC, NokScoot. As a result, we peg NOK’s valuation at PER of 15x, higher than sector peers. Figure 1: Peer comparison COUNTRY
Mkt Cap
PER (x)
US$mn 14E
15E
PBV (x) 16E
14E
15E
Yield (%) 16E
14E
15E
ROE (%) 16E
14E
15E
EV/EBITDA (x) 16E
14E
15E
16E
Airline - Conventional CHINA SOUTHERN AIRLINES
Hong Kong
4,005
14.2
9.7
6.6
0.6
0.6
0.5
1.3
2.2
2.7
4.0
7.2
8.4
9.0
8.0
7.2
AIR CHINA LTD-H
Hong Kong
8,157
14.7
11.4
8.8
0.9
0.8
0.8
0.6
0.8
0.9
5.8
7.5
8.7
8.6
7.8
7.0
Hong Kong
7,299
17.1
11.5
9.1
0.9
0.8
0.8
2.2
3.2
3.9
5.5
7.9
8.9
7.2
6.2
5.7
CHINA EASTERN AIRLINES
Hong Kong
5,445
14.3
9.7
6.5
0.9
0.8
0.7
0.2
0.5
0.7
6.4
9.4
11.3
9.4
8.1
6.9
KOREAN AIR LINES
Korea
2,183
n.a.
53.1
17.3
1.0
0.9
0.9
0.0
0.2
0.3
-0.2
5.0
6.3
8.2
7.3
6.9
SINGAPORE AIRLINES
Singapore
9,359
34.2
32.0
22.9
0.9
0.9
0.9
2.0
2.3
3.0
2.7
3.1
4.4
4.4
4.0
3.5
EVA AIRWAYS
Taiwan
1,695
24.0
16.1
16.3
n.a.
n.a.
n.a.
0.0
0.1
0.0
n.a.
n.a.
n.a.
6.8
6.7
6.4
CHINA AIRLINES
Taiwan
1,760
24.2
22.1
18.5
0.9
0.8
n.a.
0.0
0.3
0.9
6.1
7.1
n.a.
10.3
10.1
9.8
THAI*
Thailand
1,010
n.a.
26.8
19.0
0.7
0.7
0.7
0.0
1.5
2.1
-17.2
2.5
3.5
15.2
7.5
6.7
20.4
21.4
13.9
0.8
0.8
0.8
0.7
1.2
1.6
1.6
6.2
7.3
8.8
7.3
6.7
7.9
CATHAY PACIFIC AIRWAYS
Average (simple) Airline - LCC Malaysia
2,120
12.1
9.6
7.8
1.3
1.1
1.0
1.7
2.1
2.4
10.1
12.0
13.4
10.3
8.9
AIRARABI
UAE
1,779
14.3
12.5
11.2
1.2
1.1
1.1
5.2
5.7
6.5
8.7
9.3
10.1
11.1
9.1
7.7
CEBU AIR INC
Philippines
945
14.1
12.4
10.2
1.8
1.6
1.4
2.1
2.3
2.3
15.8
15.5
15.9
8.2
7.7
6.9
EASYJET PLC
Britain
8,909
12.2
11.1
9.8
2.5
2.2
2.0
3.0
3.3
3.7
21.3
21.4
20.9
7.2
6.6
5.9
RYANAIR HOLDINGS PLC
Ireland
12,573
20.6
14.8
12.9
3.2
2.8
2.4
0.0
3.4
0.7
15.9
20.0
20.0
10.3
7.7
6.9
SOUTHWEST AIRLINES
USA
22,637
18.1
15.2
13.6
2.8
2.4
2.1
0.6
0.7
0.8
15.8
15.8
17.6
7.0
6.2
5.8
TIGER AIRWAYS HLDG
Singapore
AIR ASIA BHD
305
n.a.
n.a.
n.a.
6.6
2.2
2.5
0.0
0.0
0.0
n.m.
n.m.
n.m.
n.a.
n.a.
23.0
n.a.
n.a.
n.a.
1.4
1.2
1.2
0.0
0.0
0.0
(33.1)
(9.0)
0.1
n.m.
10.7
7.6
VIRGIN AUSTRALIA HLDG
Australia
1,146
WESTJET AIRLINES LTD
Canada
3,447
12.8
10.3
9.2
2.2
1.9
1.6
1.6
1.9
2.2
17.6
18.9
19.3
5.5
4.7
4.2
AAV*
Thailand
667
99.0
20.6
16.8
1.1
1.1
1.0
0.0
2.0
2.4
1.1
5.2
6.2
20.3
8.0
6.7
25.4
13.3
11.4
2.4
1.8
1.6
1.4
2.1
2.1
8.1
12.1
13.7
25.7
7.7
8.2
Thailand
285
n.m.
12.1
7.5
2.1
1.9
1.7
0.0
4.2
6.7
(6.)
16.7
24.3
n.m.
8.2
2.8
Average (simple) NOK*
Source: Bloomberg Note: *KT ZMICO Research estimates
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 2 of 20
Figure 2: NOK’s historical PER band
Figure 3: NOK’s historical P/BV Band
Source: KT ZMICO Research
Our valuation for NOK at PER of 15x is also in line with the +1SD of the historical average PER of NOK since listing in the SET in Jun-13. We believe this level is appropriate considering the expected earnings turnaround in 2015-16E coupled with the increasing operation exposure to the international LCC market from NokScoot. However, our PER valuation for NOK is still much lower than AAV, which trades at PER of 22x, as the latter is well established in the international LCC market in Thailand and the South East Asian region.
Earnings prospects LCC operator with most coverage in domestic market NOK operates low cost carriers/airlines (LCC) in Thailand providing point-topoint services focusing mainly on the domestic market. Currently, NOK’s scheduled routes consist of 23 domestic destinations and one international destination (to Yangon, Myanmar). As of 2Q14, NOK operated a fleet of 18 aircraft, consisting of 16 Boeing 737-800 for primary routes and two ATR72500 aircraft for secondary routes and feeder routes. The company plans to add a third aircraft model, Turbo Propeller Q400, starting from 2H14E onward to enlarge its fleet and to replace the ATR72-500 in the long term. Compared with ATR72-500, the Turbo Propeller Q400 can lower the cost per seat by 6.07% with 12 more seats and also add two more sectors per day due to faster speed. NOK targets to receive four Q400 aircraft in 2H14E, two in 2015E and two in 2016E.
LCC passenger volume supported by domestic market in 1H14 Thailand’s tourism industry was impacted by the prolonged political protests that began in Nov-13. Martial law was declared by the NCPO after the coup d’etat on 22 May 2014, accompanied by the imposition of a curfew. Although the curfew has since been lifted, martial law is still in effect currently. Nevertheless, according to statistics reported by the Airports of Thailand (AOT), which owns and operates six airports nationwide including Suvarnabhumi International Airport (SBIA) and Don Muang International Airport (DMK), the main airport base for LCC operators, LCC passenger volume still grew by 29% YoY in 2013 and continued to expand by 21% YoY in 8M14. This was due to the significant increase of domestic passengers (+24% in 2013 and +31% in 8M14), which supported overall LCC passenger volume even as the growth figure of international passenger volume declined (+36% in 2013 and +5% in 8M14). REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 3 of 20
In 1H14, NOK’s market share ranked number two after AirAsia in both the overall domestic market and the LCC market. NOK’s market share has increased significantly since 2010 owing to aggressive route and ASK expansion, which has closed the gap between NOK and AirAsia. However, the LCC market share for both operators fell in 1H14 after a newcomer, Thai Lion Air, entered the market in Dec-13. Figure 4: International LCC passengers
Figure 5: Domestic LCC passengers
Source: AOT
Figure 6: Overall domestic market share
Figure 7: LCC market share
Source: AOT, DCA, NOK
Industry price cuts expected to be relieved after end of the protest Flight expansion and fierce competition, coupled with the slowdown of travel demand from international passengers, prompted LCC operators to cut their airfares to compete with each other. Although NOK has focused mainly on domestic routes, an oversupply situation in international routes still had a negative impact on the company, especially on primary routes that account for 75% of NOK’s total revenue (2013). Lower average ticket prices have been seen since 4Q13 when the political protests began. However, based on historical records, tourist arrivals to Thailand have rebounded strongly after the end of crises, both political unrest and natural disasters. This is due to the strength of Thailand’s tourism sector and the diversification of tourist destinations. As a result, we believe the price situation will be better after the resolution of the political crisis, especially in 4Q14E upon entering the high season of the tourism industry in Thailand. Although the tourism situation remains uncertain as the NCPO has not yet lifted martial law, political calm and the government’s support of the tourism industry is still a positive catalyst to the sector. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 4 of 20
In Aug-14, the Department of Tourism reported that the number of foreign tourist arrivals to Thailand fell by 12% to 2.08mn, decelerating compared to the decline of 11% in Jul-14. However, the tourist numbers have shown signs of improvement on a month-on-month basis after the coup in May-14. Recently, the Thai government waived visa fees for Chinese tourists for three months (Aug-Nov 14). As a result, we believe Chinese tourists will be a major source of improvement for tourist arrivals to Thailand for the rest of this year. It should be noted that Chinese tourists accounted for 17% of total tourist arrivals to Thailand in 8M14. Moreover, Thailand’s government is considering a personal income tax allowance for expenses related to traveling, such as accommodation and tour package expenses, which is likely to support LCC domestic passenger volume in 2015E. According to monthly statistics from the AOT, LCC flight expansion slowed down to +18% and +19% in Jul-Aug 14 after an increase of 34% in Apr-May 14. On the other hand, travel demand looks to be improving as LCC passenger volume increased at a higher rate to +23% and 24% in Jul-Aug 14, from +17% in Jun-14 after the coup. As a result, we believe the ticket price pressure for LCC operators will be relieved in 4Q14E. Figure 8: Tourist arrivals by quarter
Figure 9: Tourist arrivals show signs of improvement m-m
Source: Department of Tourism Figure 10: LCC flight and passenger volume growth
Figure 11: NOK’s average ticket price
Source: AOT, NOK
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 5 of 20
Promising outlook for secondary and feeder routes In 1H14, NOK reduced flight frequency by around 18% in response to the lower demand and intense competition as mentioned above. Meanwhile, the frequency reduction also reflected the termination of five SAAB aircraft lease contracts with Siam General Aviation (SGA) in 1Q14, despite strong demand from these segments. The SAAB aircraft was used by NOK to service secondary and feeder routes, on which the company had a competitive advantage over other airlines. NOK plans to add eight Q400 aircraft over the next three years to serve these routes. Based on the announcement of the Ministry of Transport, the regulations for domestic route air travel as of 27 Sep 2006 state the following: Primary routes: routes that transport more than 300,000 passengers per year with the number of airline permits granted by the Department of Civil Aviation (DCA) being unlimited; Secondary routes: routes that transport between 50,000 – 300,000 passengers with the number of airline permits granted by the DCA limited to only three airlines; Feeder routes: routes that transport less than 50,000 passengers with the number of airline permits granted by the DCA limited to only two airlines. In 2013, 20% of NOK’s total revenue was contributed by secondary and feeder routes. NOK has a competitive advantage in this segment owing to limited facilities at airports coupled with competitors’ lack of appropriate fleet size. For feeder routes, NOK has a 100% market share. Meanwhile, NOK also has a higher market share than other airlines for secondary routes. Based on the DCA’s statistics, passenger volume at secondary and feeder airports grew significantly in 2011-13. We believe this is due to the lower pricing gap between other transport modes (bus & rail) and LCC, coupled with the growth of GDP per capita upcountry owing to urbanization and the government’s populist policies over many years. NOK plans to introduce two new routes for the domestic market, Lampang in the northern region (4Q14) and Surin in the northeastern region (2015). Figure 12: Thailand’s GDP per capita by region Unit: Bt thousand North East North South East West Central BKK vs. Vicinities Whole Kingdom
2008 43 65 104 362 100 210
2009 49 65 98 335 104 202
2010 56 74 119 374 108 220
2011 60 79 131 378 117 208
2012 68 92 125 415 122 226
CAGR 12.3 9.3 4.7 3.4 5 1.9
320 148
307 146
326 163
331 169
360 184
3 5.5
Source: NESDB
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 6 of 20
Figure 13 Routes and flight frequency
Figure 14: Secondary and feeder airports passenger
Route
Unit: Person
DMK - Chiang Mai DMK - Udon Thani DMK - Phuket DMK - Hat Yai DMK - Surat Thani DMK - Nakhon Si Thammarat DMK - Ubon Ratchthani DMK - Chiang Rai DMK - Krabi DMK - Khon Kaen Total Primary routes DMK - Phitsanulok Chiang Mai - Mae Hong Son DMK - Trang DMK - Sakol Nakorn DMK - Nakorn Phanom Total Secondary routes Chiang Mai - Udon Thani DMK - Loei DMK - Burirum DMK – Nan DMK - Roi Et DMK - Mae Sot DMK – Phrae Chiang Mai - Mae Sot DMK - Chumphon Chiang Mai - Hat Yai DMK - Hua Hin DMK - Ranong Total Feeder International Mae Sot - Mawlamyine Mae Sot - Rangoon DMK - Rangoon Total International Grand Total % to total route network Primary Secondary Feeder International
Flight frequency/ week 2012 2013 Summer14 70 49 63 35 42 42 14 28 28 49 56 56 21 35 35 28 42 35 28 42 42 21 35 42 14 14 259 350 357 21 35 21 28 21 14 21 14 14 7 7 14 7 7 91 91 49 21 21 7 7 14 7 3 7 7 21 14 14 14 14 7 14 28 14 4 7 7 7 7 14 7 14 3 7 91 143 77
441 59% 21% 21%
7 7 8 22 606
14 14 497
58% 15% 24% 4%
72% 10% 16% 3%
2011
2012
2013
CAGR
33,107
143,775
197,559
144%
205,056
214,698
242,292
9%
39,536
97,422
109,259
66%
253,077
374,533
504,469
41%
8,207
4,547
11,355
18%
Secondary Nakon Panom (NE) Phitsanulok (N) Sakon Nakhon (NE) Trang (S) Feeder Burirum (NE) Chumpon (S)
5,366
11,059
45,392
191%
Loei (N)
10,304
22,451
41,870
102%
Mae Sot (N)
12,854
34,236
87,454
161%
Nan (N)
33,885
58,536
82,079
56%
3,494
9,051
13,622
98%
Phrae (N) Ranong (S)
3,186
7,406
30,345
209%
Roi Et (NE)
15,798
38,501
60,588
96%
22,343
55,958
77,848
13%
NOK’s new target Lampang (N)
Source: NOK, DCA, KT ZMICO Research Note: N (Northern), NE (North Eastern), S (Southern)
Thai Smile’s move to DMK may increase NOK’s passengers in L-T Starting from Aug-14, Thai Smile, an LCC operator that is 100% owned by Thai Airways International (THAI), moved some of its flight operations from SBIA to DMK, and it plans to move all the flights to this airport by the end of this year. As THAI already has a 39% investment stake in NOK, investors should be concerned about the impact to both operators as they are likely to compete with each other. In our view, Thai Smile’s routes are likely to compete with all other LCC operators based at DMK, not only with NOK. Thai Smile has a flight frequency of 234 flights/week: 154 flights/week are for domestic destinations, especially primary routes. In our view, in the absence of Thai Smile, other LCC operators would increase flight frequency if demand picked up, especially for domestic primary routes. Meanwhile, Thai Smile’s move to DMK will take advantage of the growth of the international market at DMK in the long term. Beside, Thai Smile may transfer connecting passengers to NOK when it lacks REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 7 of 20
appropriate flights to serve connecting passengers. Moreover, as Thai Smile only uses A320-200 aircraft for service, NOK still has a competitive advantage on secondary and feeder routes. While NOK and other LCC operators use websites and booths at airports as selling channels as a tool in LCC’s dynamic pricing model, Thai Smile will need time to develop these selling channels to compete. According to NOK, both LCC operators owned by THAI will co-ordinate on routes and flight time slots to suit each airline’s customers. Figure 15: Thai Smile’s flight frequency/week Route
Frequency
International BKK – Macau BKK – Phnom Penh BKK – Vientiane BKK – Colombo BKK – Delhi
14 14 14 7 5
Route
Figure 16: Thai Smile’s fleet plan
Frequency
Domestic BKK – Hat Yai BKK – Udon Thani BKK – Khon Kaen BKK – Chiang Mai BKK – Ubon Rachthani
35 28 21 14 14 14 14 7
BKK – Hyderabad BKK – Mandalay BKK – Chongqing
5 4 4
BKK – Surat Thani BKK – Krabi BKK – Chiang Rai
BKK –Changsa
3
Chiang Mai - Phuket
7
Source: THAI
Joining with Scoot to set up medium-haul LCC Regarding expansion to the international LCC market, NOK currently has one route to Yangoon, Myanmar. The performance looks promising as the cabin factor of this route achieved 78% in 2Q14, after a 50% cabin factor when introducing this route in 4Q13. The company plans to introduce a new international route to Ho Chi Minh City, Vietnam, in 3Q15E. Moreover, NOK will join with Scoot, an LCC 100% owned by Singapore Airlines Limited, to set up a new LCC airline, NokScoot. The new airline will operate medium-haul LCC based in Thailand. NOK will hold 49% of the joint venture, with an initial investment of Bt2bn. NokScoot plans to service flights to profitable destinations in the East Asian region, such as Tokyo, Osaka, Hong Kong, Seoul, and Beijing. The airline will start it first flight in Jan-15 with two B777-200 aircraft and expand to seven aircraft over the next five years. The majority of tourist arrivals to Thailand are from the East Asian region, accounting for around 57% of the total (8M14). Among the region, China is the major source of tourist arrivals followed by Japan and South Korea. Moreover, given the limited flight durations at an average of no longer than 4.5 hours for LCC, the economic growth of this region will have a big impact on the growth of LCC in Thailand. NokScoot will have an opportunity to serve travelers in the region, which contains some of the fastest growing economies in the world. Among the East Asian region, Chinese tourist arrivals to Thailand showed signs of significant improvement in Aug-14, falling only 5%, vs. -25% in Jul14 after the coup. Korean and Japanese tourists have also shown the same improving trend. This improvement, coupled with visa exemptions for Chinese tourists, causes us to believe that the East Asian region will be a major source of improvement for tourist arrivals to Thailand in 4Q14E and 2015E. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 8 of 20
Figure 17: Tourist arrivals by region (8M14)
Figure 18: East Asian tourists show signs of improvement
b Source: Department of Tourism
Figure 19: Real GDP growth % YoY 2009 World (2.3) High Income countries (3.7) Developing countries 2.0 East Asia countries 7.5
2010 4.1 3.0 7.3 9.7
2011 3.1 1.8 6.3 8.3
2012 2.5 1.5 4.8 7.2
2013E 2.4 1.3 4.8 7.2
2014F 2.8 1.9 4.8 7.1
2015F 3.4 2.4 5.4 7.1
2016F 3.5 2.5 5.5 7.0
Source: World Bank, June 2014
Japan and Korea: top destinations for Thai tourists On the other hand, Thai tourist arrivals to Japan have also increased significantly over the past 10 years (+25% CAGR in 2003-13). Meanwhile, after Japan introduced visa exemptions for Thai tourists (for 14-day stays in Japan) starting in Jul-13, tourists from Thailand to Japan almost doubled to 392,856 persons in 2013, and they expanded by 74% YoY in 5M14. Japan is a top destination for Thais, especially the middle class, owing to the familiarity with the culture and food, in our view. South Korea is another popular destination for Thai tourists with the travel numbers achieving +22% CAGR in 2003-13. Travel to South Korea by Thais became popular subsequent to its policy to open the country by exporting Korean movies/series and entertainers globally, including to Thailand. However, after visa exemptions to Japan went into effect, tourists from Thailand to South Korea declined by 8% YoY in 2013. Nevertheless, Thai tourist arrivals to South Korea returned to +21% in 8M14. Figure 20: Thai tourist arrivals to Japan
Figure 21: Thai tourist arrivals to South Korea
Source: Japan National Tourist Organization (JNTO), Korea Tourism Organization
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 9 of 20
Expect earnings to turn around in 2015-16E We expect NOK to report a net loss of Bt271mn in 2014E, owing to the impact of the political conflict since late 2013 and the coup in May-14, which lowered the cabin factor (to 81%, vs. 84% in 2013) and the average ticket price (-17% YoY) to Bt1,484/passenger. The performance is expected to continue weakening in 3Q14E, as this quarter is normally the low season for the LCC industry in Thailand, before improving significantly in 4Q14E. For 2015-16E, we believe NOK’s earnings will turn around to net profit of Bt767mn and Bt1.2bn, respectively. Our forecasts assume that NOK’s passenger volume will increase by 20% per year in 2015-16E, in line with the LCC industry’s volume growth. Meanwhile, we expect average fares to improve by +4% YoY to Bt1,543/passenger in 2015E on the favorable demand-supply situation for the LCC industry this year, with the industry fleet likely to grow in line with passenger volume. As a result, LCC operators that focus on international routes will shift their capacities to international flights and increase their average ticket prices while competition for domestic routes is likely to decline. It should be noted that our fleet growth assumptions do not include medium-haul LCC (two aircraft from NokScoot and five aircraft from Thai Air Asia X) or other newcomers, but do include Thai Smile fleet volume (which is in the process of moving its airport base from SBIA to DMK). However, the average fares in the long term is not expected to recover to the same level as 2012-13 as every LCC operator currently has a plan to expand its fleet. Meanwhile, other LCC operators will enter the market. As a result, we expect the 2016E ticket prices for NOK to remain at the 2015E level. Figure 22: Key assumptions for earnings forecasts for NOK
Aircraft (Unit) ASK (passenger-km.) Cabin factor (%) Passengers carried (mn) Average fare (Bt/Passenger) % YoY Average ancillary (Bt/Passenger) Bt/US$ Jet kerosene fuel price (US$/barrel)
2012 19 2,916 84.2 4.1 1,874 2.6 95 31.1 128
2013 21 4,247 83.6 5.9 1,788 (5.1) 108 30.5 123
2014E 24 5,582 81.4 7.5 1,484 (17.0) 119 32.5 122
NOKScoot assumptions Aircraft (Unit) ASK (passenger-km.) Cabin factor (%) Passengers carried (mn) Average fare (Bt/Passenger) Ancillary / passenger revenue (%) Financial forecasts (Btmn) Revenue Normalized profit Net profit
8,218 505 258
11,180 1,066 1,066
12,023 (271) (271)
2015E 28 6,977 83.3 9.0 1,543 4.0 125 32.0 117
2016E 31 8,398 84.5 10.8 1,543 0.0 131 32.0 117
2 3,169 75.7 0.6 4,350 18.0
4 6,009 80.0 1.6 4,480 18.0
18,133 767 767
26,321 1,240 1,240
Source: NOK, KT ZMICO Research
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page 10 of 20
Figure 23: NOK’s fleet plan
Figure 24: Industry fleet & pax volume growth**
Source: AAV, NOK, THAI, KT ZMICO Research Note: * Estimate Thai Lion Air to increase fleet by 1 aircraft per 2 months ** Not including medium-haul LCC and other newcomers
Target NokScoot to contribute a net loss in 2015-16E Our earnings projections already include the performance of NokScoot, which is expected to contribute EBIT losses of Bt389mn and Bt282mn in 2015-16E, based on passenger volume of 0.6mn and 1.6mn and average ticket prices of Bt4,350/pax and Bt4,480/pax in 2015-16E, respectively. As a result, NOK’s revenue is likely to increase significantly by 51% and 45% in 2015-16E, after including NokScoot’s revenue. Excluding NokScoot, NOK’s revenue is still likely to increase by 25% and 20% in 2015-16E owing to passenger volume and fare expansion. NokScoot’s revenue is expected to contribute around 17% and 31% of NOK’s total revenue in 2015-16E. The revenue portion is expected to increase significantly in the long term owing to the different ticket fares. We expect NokScoot to become profitable in 2018E. Figure 25: NOK’s revenue estimates
Figure 26: NOK’s net profit estimates
Source: NOK, KT ZMICO Research
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page 11 of 20
Profitability to improve in 2015-16E We estimate NOK’s CASK to decline to Bt2.25 in 2014E (1H14 = Bt2.35) as it plans to cut marketing expenses in response to the unfavorable industry currently. The company plans to lower marketing expenses from 2.2% of revenue to below 2.0% of revenue effective in 2H14E. For 2015E, CASK should fall significantly to Bt1.75 after including ASK from NokScoot. Excluding NokScoot, CASK is still likely to fall owing mainly to KTZMICO research’s assumption that global crude oil prices will decline thanks to the slight oversupply in the crude industry globally. As a result, we estimate jet fuel prices to fall by 4% YoY to US$117/barrel in 2015E. Including an improved cabin factor and average ticket price, NOK’s gross profit margin and net margin are likely to improve in 2015-16E. In the longer term, NOK’s maintenance cost per ASK is expected to decline slightly owing to brand new aircraft. Meanwhile, the company plans to implement a Maintenance Process Improvement strategy, which will go into effect in 2015-2016E. Moreover, the new turbo propeller fleet will also improve NOK’s profitability. However, eight Q400 turbo propeller aircrafts will account for only 12% of NOK’s total ASK. Figure 27: CASK and operating profit/ASK (excl. Fuel)
Figure 28: Gross profit margin & net margin
Source: NOK, KT ZMICO Research
Expect net profit to stay in the red in 3Q14E NOK reported a net loss of Bt160mn in 2Q14, vs. net profit of Bt260mn in 2Q13 and net profit of Bt41mn in 1Q14. Meanwhile, the company also posted a net loss of Bt119mn in 1H14, vs. net profit of Bt675mn in 1H13. The weak earnings performance was impacted by the prolonged protests, the coup, and the implementation of martial law by the NCPO. These factors, coupled with fierce competition, caused the cabin factor and average ticket prices in 2Q14 to fall compared to the same period last year. We expect the net loss to increase in 3Q14E compared to 2Q14, as this quarter is normally the low season for the LCC industry. According to NOK, the cabin factor in Jun-Aug 14 is likely to improve significantly (from 70% in May to over 85% in Aug), but the fare will still be pressured by competition, including the move of Thai Smile from SBIA to DMK. Meanwhile, September is the weakest month of the quarter. However, we believe net profit will turn around in 4Q14E.
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Figure 29: NOK’s 2Q14 earnings review Profit and Loss (Btmn) Year-end 31 Dec Revenue Gross profit SG&A expenses EBITDA
% YoY
2Q13 2,598
1Q14 3,096
2Q14 2,799
7.7
422
186
(5)
(101.3)
(173)
(176)
(194)
262
23
-
Interest expenses
% QoQ
% YoY
(9.6)
1H14 5,895
(102.9)
181
12.3
10.4
(186)
(171.0)
-
(1)
YTD (% 14E)
9.0
2014E 12,023
(81.7)
403
44.9
(370)
15.6
(972)
38.1
(912.1)
(163)
(123.6)
(514)
31.7
-
-
(1)
-
(1)
100.0 42.8
49.0
20
40
32
59.9
(20.6)
72
104.5
167
Income tax
(10)
(9)
9
n.m.
n.m.
0
n.m.
40
0.4
Net profit (loss)
260
41
(160)
(161.5)
(490.2)
(119)
(117.6)
(271)
43.9
Other income
260
41
(160)
(161.5)
(490.2)
(119)
(117.6)
(271)
43.9
Reported EPS (Bt)
0.42
0.07
(0.26)
(161.5)
(490.2)
(0.19)
(115.2)
(0.43)
43.9
Gross margin (%) EBITDA margin (%)
16.3 10.1
6.0 0.7
(0.2) (6.7)
3.1 (2.8)
3.4 (4.3)
Net margin (%)
10.0
1.3
(5.7)
(2.0)
(2.3)
Current ratio (x) Interest coverage (x)
4.3 cash
3.7 cash
2.5 n.m.
2.5 n.m.
3.3 cash
Debt/equity (x)
cash
cash
0.1
0.1
cash
Normalized profit (loss)
BVPS (Bt)
7.2
7.3
6.6
6.6
7.1
ROE (%)
37.4
3.6
(14.7)
(5.5)
(6.0)
Statistic Passenger volume (mn)
1.40
1.77
1.72
Cabin factor (%)
86.6
79.9
77.7
1,751
1,630
1,512
Ticket price (Bt/pax)
22.9
(2.8)
3.5
23.3
78.8 (13.8)
(7.2)
1,571
(12.9)
Source: NOK, KT ZMICO Research
Financial position Still in a net cash position NOK’s aircraft in operation are all operating leases (OL), resulting in minimal capital investment each year. The future investment plan for aircraft will still be operating leases, including the Turbo Propeller Model. NOK is considering a change in aircraft financing from OL to financial lease (FL) to lower the average cost of fund. However, we have not included this plan in our assumptions. NOK plans to give pre-operation loans to NokScoot in the amount of Bt970mn. Moreover, we roughly estimate that NOK will have CAPEX of around Bt100mn per year for machinery and equipment investment. As a result, we expect the company to have capital expenditures of Bt1,070mn in 2014E and Bt100mn in both 2015-16E. NOK’s financial status is thus expected to be in a net cash position in 2014-16E. Based on our assumption of a 50% payout ratio in line with the historical record, we expect that NOK will be able to pay DPS of Bt0.61, and Bt0.99 between 2015-16E. Figure 30: Forecasts for NOK’s CAPEX, free cash flow, and contingent liabilities (Btmn) Cash flow from operation CAPEX Free Cash flow Net cash at end of period Estimates DPS (Bt)
2012 844 (380) 464 1,656 1.53
2013 1,138 (3,361) (2,222) 5,365 0.77
2014E 208 (1,070) (862) 4,197 0.00
2015E 1,194 (100) 1,094 5,099 0.61
2016E 1,905 (100) 1,805 6,401 0.99
Source: NOK, KT ZMICO Research
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Industry outlook 33% of AOT’s passengers and flights came from LCC The budget airline or low cost carrier (LCC) industry in Thailand was initiated in late 2003 when Thai Air Asia (TAA) was established to operate the LCC business after the Thai government loosened regulations concerning the proportion of share holdings by foreigners. The new regulations allowed foreigners to hold shares in airlines not exceeding 49% (vs. not exceeding 30% previously). Since the LCC business was launched, the number of passengers has grown steadily. LCC airlines have expanded their route networks rapidly and tried to compete with full service airlines or legacy airlines for market share. According to statistics from AOT’s six airports that serve 90% of total passengers traveling through 38 airports nationwide, LCC passenger volume and flight expansion achieved +30% CAGR and +31% CAGR in 2004-2013, respectively. In 2013, passengers flying with LCC accounted for 33% of AOT’s total passengers (vs. 6% in 2004), while flights operated by LCC accounted for 33% of total flights (vs. 7% in 2004). Figure 31: % LCC pax of all AOT pax
Figure 32: % LCC flights of all AOT flights
Source: AOT (Fiscal year ended September)
Many LCC operators started flight services to Thailand in 2013, including Juneyao, Vietjet Air, Golden Myanmar Airlines, Norwegian Air Shuttle, and SpiceJet. Thai Lion Air, a subsidiary of Lion Mentari Airlines in collaboration with a local Thai partner, began international and domestic flight service in Dec-13.
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Figure 33: LCC’s scheduled service at AOT’s airports in 2013
Source: AOT
Figure 34: Market share at SBIA (International)
Figure 35: Market share at SBIA (Domestic)
Source: AOT
Figure 36: Market share at DMK (International)
Figure 37: Market share at DMK (Domestic)
Source: AOT
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page 15 of 20
Apart from the strong growth in the number of passengers at AOT’s airports, the passenger numbers at the 28 airports managed by DCA and other private operators have expanded strongly as well, especially at airports in tourist attractions or airport hubs for the region. Figure 38: Passengers at DCA’s and other private operators at selected airports Passengers
2009
2010
2012
2013
Khon Kaen
397,645
391,421
456,119
523,305
592,191
8.9%
Krabi
844,149
836,922
988,977
1,189,980
1,668,250
16.0% 26.1%
Nakhon Srithammarat
2011
08-13 CAGR
297,257
406,792
654,956
725,858
950,133
1,413,297
1,416,138
1,485,951
1,861,229
1,970,964
7.6%
Suratthani
394,096
505,778
595,184
816,484
1,070,781
25.6%
Ubon Ratchathani
393,451
452,944
614,686
733,893
835,648
16.2%
Udonthani
722,587
816,602
1,011,881
1,184,449
1,325,305
14.9%
Samui island, Suratthani
Others Total
689,863
737,851
942,846
1,346,194
1,802,639
20.5%
5,152,345
5,564,448
6,750,600
8,381,392
10,225,911
15.6%
Source: DCA, KT ZMICO Research
LCC passengers to increase by 20% p.a. in 2015-16E The growth of LCC passengers at AOT’s airports in 2009-12 had a high correlation with economic growth in the East Asian region, including Thailand (correlation = 0.7). The average growth of LCC passengers was three times the East Asian GDP growth. This is due to the fact that the majority of tourist arrivals to Thailand are from the East Asian region. Moreover, given the limited flight duration at the average of no longer than 4.5 hours for LCC, the economic growth of this region has a big impact on the growth of LCC. On top of that, Thailand is geographically suited to be an aviation hub in the region. In 2014E, we estimate LCC passenger volume to grow by 23% YoY (+21% YoY in 8M14) supported by domestic passengers. For 2015-16E, we estimate LCC passenger volume to increase by 20% YoY each year as the World Bank projects that the economies of the East Asian region will expand by 7-7.1%. Our passenger volume growth assumptions are 2.8x the GDP growth of the region, below the 3x multiplier from the historical average. Figure 39: Thailand as an aviation hub in ASIA
Figure 40: LCC passengers vs. East Asia GDP growth
Source: NOK, World Bank, KT ZMICO research Note: East Asia countries consist of Cambodia, China, Fiji, Indonesia, Laos, Malaysia, Mongolia, Myanmar, Papua New Guinea, Philippines, Solomon Islands, Thailand, Timor-Leste, Vietnam.
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page 16 of 20
Upside risk / downside risk Oil price risk In our 2015E projection, fuel costs will account for around 38% of NOK’s operating costs. As a result, we calculate that for every US$1/barrel that the jet fuel price differs from our assumption of US$117/barrel, our net profit forecast in 2015E and target price for NOK would change by 6%. Exchange rate risk In 2015E, NOK’s expenses related to US$ terms will account for 70% of total operating expenses, including jet fuel, aircraft leases, and maintenance costs. However, the exchange rate risk should be manageable after the setting up of NokScoot in 2015E, as this should increase foreign currency revenue. Furthermore, NOK can manage FX exposure by natural hedging.
Company Background Originally known as Sky Asia Co. Ltd., NOK was established on 27 Feb 2004. The company was founded when the government imposed the aviation liberalization scheme. NOK was aimed to operate as a low-cost airline under THAI in order to compete with other LCC. During the early stage, THAI had 39% holding in the company. The company’s shareholder structure was changed in 2011 after top management, in cooperation with Lombard Asia III L.P. Fund by Aviation Investment International Co. Ltd., purchased a 25% stake from the existing shareholders and THAI raised its stake holding to 49%. As a consequence, the shareholder structure was clearly divided into two major groups, namely the company’s management and THAI. NOK was listed in the SET in Jun-13, with THAI’s holding reduced again to 39%. NOK provides point-to-point services with single aisle aircraft that can fly up to four hours from operation hubs. Currently, NOK’s operation network, both from its core operation hub (at DMK) and secondary operation hub (at Chiang Mai International Airport), covers other airports. The company focuses both on domestic routes with high demand on primary routes along with secondary and feeder routes with softer demand in the first stage but with the potential to see higher demand in the future. Moreover, NOK also offers chartered flights for passengers who prefer to travel in groups. Currently, NOK’s chartered flights fly to various destinations in China weekly. NOK defines its business model as “Premium Low-Cost” with some differences in service compared with other LCC. The company provides a variety of services to customers at no charge, such as a baggage allowance of 15 kilograms per flight, seat selection, and a complimentary snack set. Moreover, in 3Q14, NOK introduced a new service called “Wi-Fi connectivity on board” in two aircraft initially.
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Figure 41: NOK’s route coverage
Figure 42: NOK’s fleet type & services
Wi-Fi on Board started in two aircraft in 3Q14
Source: NOK
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page 18 of 20
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)
2011 6,039 (5,301) 738 (484) 304 (50) 254 0 0 38 292 (92) 0 200 0.40 0.40 200 0.40 0.22
2012 8,218 (7,175) 1,043 (564) 529 (51) 478 0 0 (205) 273 (15) 0 258 0.52 0.52 505 1.01 0.50
2013 11,180 (9,479) 1,701 (737) 1,019 (54) 964 0 0 135 1,099 (33) 0 1,066 1.71 1.71 1,066 1.71 1.03
2014E 12,023 (11,620) 403 (972) (494) (74) (569) (1) 0 167 (403) 40 92 (271) (0.43) (0.43) (271) (0.43) 0.00
2015E 18,133 (16,573) 1,560 (1,149) 505 (94) 411 0 0 176 586 (18) 198 767 1.23 1.23 767 1.23 0.61
2016E 26,321 (23,819) 2,502 (1,596) 1,020 (114) 906 0 0 225 1,131 (34) 144 1,240 1.98 1.98 1,240 1.98 0.99
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
2011 1,247 5 71 693 2,016 0 0 1,218 0 797 2,016
2012 1,656 4 81 511 2,252 0 0 1,364 0 888 2,252
2013 5,365 11 93 803 6,272 0 0 1,728 0 4,543 6,272
2014E 4,197 9 166 1,723 6,095 0 0 1,595 92 4,408 6,095
2015E 5,099 14 226 1,955 7,294 0 0 2,212 290 4,792 7,294
2016E 6,401 20 267 2,272 8,960 0 0 3,115 434 5,412 8,961
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)
2011 200 44 10 66 320 (27) (345) (372) 1 0 (100) 0 (99) (152) (53) (0.11)
2012 258 50 272 264 844 (20) (360) (380) (2) 0 (414) 0 (416) 48 464 0.93
2013 1,066 51 (134) 156 1,138 30 (3,391) (3,361) (38) 3,167 (588) 0 2,542 320 (2,222) (3.56)
2014E (271) 54 424 0 208 (100) (970) (1,070) 0 0 (306) 0 (306) (1,168) (862) (1.38)
2015E 767 74 352 0 1,194 (100) 0 (100) 0 0 (192) 0 (192) 902 1,094 1.75
2016E 1,240 94 570 0 1,905 (100) 0 (100) 0 0 (502) 0 (502) 1,303 1,805 2.89
PROFITABILITY Revenue growth (%) EBITDA growth (%) Core EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2011 44.5 (53.6) (66.78) 12.2 5.0 4.2 3.3 3.3 31.6
2012 36.1 73.9 152.84 12.7 6.4 5.8 3.1 6.1 5.6
2013 36.0 92.5 68.80 15.2 9.1 8.6 9.5 9.5 3.0
2014E 7.5 n.m. n.m. 3.4 (4.1) (4.7) (2.3) (2.3) 10.0
2015E 50.8 n.m. n.m. 8.6 2.8 2.3 4.2 4.2 3.0
2016E 45.2 102.0 61.73 9.5 3.9 3.4 4.7 4.7 3.0
2011 cash cash cash
2012 cash cash cash
2013 cash cash cash
2014E cash cash cash
2015E cash cash cash
2015E cash cash cash
FINANCIAL QUALITY Total debt to capital employed (x) Net debt to equity (x) Interest coverage (x)
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page 19 of 20
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 BUY: Expecting positive total returns of 15% or more over the next 12 months TRADING BUY: Expecting positive total returns of 10% or more over the next 3 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months.
SELL INTO STRENGTH: Expecting total returns between -10% to +10% over the next 12 month; share price has largely priced in fundamentals
NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.
SELL: Expecting negative total returns of 10% or more over the next 12 months
UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
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page 20 of 20
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.
Nok Airlines
Buy (TP Bt18.40)
Industry turbulence likely to end soon
Price Bt14.80
We recommend BUY for NOK with the 2015E target price of Bt18.4, based on a PER of 15x, slightly higher than PER of 13x for sector peers, owing to the expected turnaround in earnings in 2015-16E. We like NOK owing to its promising earnings outlook following substantial growth in passenger volume, the expected improvement of the LCC industry situation, and the setting up of new medium-haul LCC. Oversupply situation expected to improve in 2015E Thailand’s LCC industry in 2014E experienced an oversupply situation along with airfare pressure owing to both increases in available seat supply from both existing operators and newcomers coupled with slowing demand resulting from the political situation. As the political conflict has been resolved currently, we believe the price pressure for the sector will be relieved in 2015E. Medium-haul LCC outlook promising We have a positive view on NOK joining with Scoot, an LCC that is 100% owned by Singapore Airlines, to set up a new medium-haul LCC. The first flight will be arranged in 2015E to tap the East Asian region market, especially Japan and South Korea, which is a major source of tourist arrivals to Thailand. Meanwhile, Japan and South Korea are also top destinations for Thai tourists. Moreover, NOK will gain additional benefit from increased foreign currency income and more connecting customers from Scoot. Earnings to turn around in 2015-16E We expect NOK to report a net loss of Bt271mn in 2014E, but turn around to a net profit of Bt767mn in 2015E and Bt1.2bn in 2016E, owing to a favorable LCC industry situation and expected improvement in profitability. Our projections include NOKScoot’s performance, which is likely to contribute a net loss in 2015-16E. Risk Risk to our call is the delay of the bright prospects of the LCC industry and fluctuations of global oil prices. For every US$1/barrel that the jet fuel price increases from our assumption, NOK’s net profit in 2015E would fall short of our forecast by 6%. Financial and Valuation 2012 FY Ended 31 Dec 8,218 Revenues (Btm) 258 Net profit (Btm) 505 Norm. profit (Btm) 1.01 Norm. EPS (Bt) 152.8 Norm. EPS growth 0.50 Dividend (Bt) 1.78 BV (Bt)
2013 11,180 1,066 1,066 1.71 68.8 1.03 7.27
2014E 12,023 (271) (271) (0.43) n.m. 0.00 7.05
2015E 18,133 767 767 1.23 n.m. 0.61 7.67
2016E 26,321 1,240 1,240 1.98 61.73 0.99 8.66
2012 14.65 14.35 8.33 3.38 59.95 cash
2013 8.68 3.81 2.04 6.96 39.25 cash
2014E n.m. n.m. 2.10 0.00 (6.05) cash
2015E 12.06 8.22 1.93 4.15 16.67 cash
2016E 7.46 2.79 1.71 6.71 24.32 cash
FY Ended 31 Dec PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
Stock Performance (%) 1M
3M
12M
Absolute
-9.21
-16.86
-40.80
Relative to SET
-8.03
-18.54
-44.45
Share data Reuters / Bloomberg
NOK.BK/NOK TB
Sector
Transportation & Logistics
Paid-up Shares (m)
625.00
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
9.00/285.00
Foreign limit / actual (%)
49.00/13.52
52 week High / Low (Bt)
25.50/14.50
Avg. daily T/O (shares 000)
2,560.00
NVDR (%)
1.07
Estimated free float (%)
31.75
Beta
1.33
URL
www.nokair.com
Major Shareholders (30/09/2013) Thai Airways Plc.
39.20 %
State Street Bank Europe Limited
6.76 %
Aviation Investment International
6.65 %
Limited FY14 Consensus EPS (Bt)
FY15
0.714
1.427
n.a.
-13.8%
KT ZMICO vs. consensus Company Profile
The Company operates as a budget airline under the brand "Nok Air". The Company is considered a leading domestic low cost carrier with the most domestic coverage. Nok Air allows free seat assignments, provides free snack sets on board, and allows a minimum of 15 kilogram baggage weight without additional cost. CGR 2013 -
Raenoo Bhandasukdi Analyst, no 17989 [email protected] 66 (0) 2695-5836 page 1 of 20
Valuation BUY with target price of Bt18.4 (based on 15x PER) We recommend BUY for NOK with the 2015E target price of Bt18.40, based on 2015E EPS at Bt1.23 and PER of 15x, slightly higher than PER of 13x for peers. We believe the passenger volume of low cost carriers (LCC) will rebound significantly after the end of the political conflict, especially in 4Q14E as we enter the high season for Thailand’s tourism industry. In the longer term, the LCC earnings outlook is promising following the substantial growth of tourism numbers, along with Thailand’s ongoing urbanization and the establishment of the AEC community in 2015. Meanwhile, due to its geography, Thailand is ideally suited to be an aviation hub in the Asia-Pacific region, which will lead to high growth of passenger numbers for LCC. Given the prolonged protests since late 2013, the coup in May-14, and the imposition of martial law that remains in effect currently, NOK is likely to report a net loss of Bt271mn in 2014E. However, we project that NOK’s earnings will turn around in 2015E to Bt767mn, and jump by 62% YoY to Bt1.2bn in 2016E, driven by the expected growth in its passenger volume and the average fare, coupled with the setting up of the medium-haul LCC, NokScoot. As a result, we peg NOK’s valuation at PER of 15x, higher than sector peers. Figure 1: Peer comparison COUNTRY
Mkt Cap
PER (x)
US$mn 14E
15E
PBV (x) 16E
14E
15E
Yield (%) 16E
14E
15E
ROE (%) 16E
14E
15E
EV/EBITDA (x) 16E
14E
15E
16E
Airline - Conventional CHINA SOUTHERN AIRLINES
Hong Kong
4,005
14.2
9.7
6.6
0.6
0.6
0.5
1.3
2.2
2.7
4.0
7.2
8.4
9.0
8.0
7.2
AIR CHINA LTD-H
Hong Kong
8,157
14.7
11.4
8.8
0.9
0.8
0.8
0.6
0.8
0.9
5.8
7.5
8.7
8.6
7.8
7.0
Hong Kong
7,299
17.1
11.5
9.1
0.9
0.8
0.8
2.2
3.2
3.9
5.5
7.9
8.9
7.2
6.2
5.7
CHINA EASTERN AIRLINES
Hong Kong
5,445
14.3
9.7
6.5
0.9
0.8
0.7
0.2
0.5
0.7
6.4
9.4
11.3
9.4
8.1
6.9
KOREAN AIR LINES
Korea
2,183
n.a.
53.1
17.3
1.0
0.9
0.9
0.0
0.2
0.3
-0.2
5.0
6.3
8.2
7.3
6.9
SINGAPORE AIRLINES
Singapore
9,359
34.2
32.0
22.9
0.9
0.9
0.9
2.0
2.3
3.0
2.7
3.1
4.4
4.4
4.0
3.5
EVA AIRWAYS
Taiwan
1,695
24.0
16.1
16.3
n.a.
n.a.
n.a.
0.0
0.1
0.0
n.a.
n.a.
n.a.
6.8
6.7
6.4
CHINA AIRLINES
Taiwan
1,760
24.2
22.1
18.5
0.9
0.8
n.a.
0.0
0.3
0.9
6.1
7.1
n.a.
10.3
10.1
9.8
THAI*
Thailand
1,010
n.a.
26.8
19.0
0.7
0.7
0.7
0.0
1.5
2.1
-17.2
2.5
3.5
15.2
7.5
6.7
20.4
21.4
13.9
0.8
0.8
0.8
0.7
1.2
1.6
1.6
6.2
7.3
8.8
7.3
6.7
7.9
CATHAY PACIFIC AIRWAYS
Average (simple) Airline - LCC Malaysia
2,120
12.1
9.6
7.8
1.3
1.1
1.0
1.7
2.1
2.4
10.1
12.0
13.4
10.3
8.9
AIRARABI
UAE
1,779
14.3
12.5
11.2
1.2
1.1
1.1
5.2
5.7
6.5
8.7
9.3
10.1
11.1
9.1
7.7
CEBU AIR INC
Philippines
945
14.1
12.4
10.2
1.8
1.6
1.4
2.1
2.3
2.3
15.8
15.5
15.9
8.2
7.7
6.9
EASYJET PLC
Britain
8,909
12.2
11.1
9.8
2.5
2.2
2.0
3.0
3.3
3.7
21.3
21.4
20.9
7.2
6.6
5.9
RYANAIR HOLDINGS PLC
Ireland
12,573
20.6
14.8
12.9
3.2
2.8
2.4
0.0
3.4
0.7
15.9
20.0
20.0
10.3
7.7
6.9
SOUTHWEST AIRLINES
USA
22,637
18.1
15.2
13.6
2.8
2.4
2.1
0.6
0.7
0.8
15.8
15.8
17.6
7.0
6.2
5.8
TIGER AIRWAYS HLDG
Singapore
AIR ASIA BHD
305
n.a.
n.a.
n.a.
6.6
2.2
2.5
0.0
0.0
0.0
n.m.
n.m.
n.m.
n.a.
n.a.
23.0
n.a.
n.a.
n.a.
1.4
1.2
1.2
0.0
0.0
0.0
(33.1)
(9.0)
0.1
n.m.
10.7
7.6
VIRGIN AUSTRALIA HLDG
Australia
1,146
WESTJET AIRLINES LTD
Canada
3,447
12.8
10.3
9.2
2.2
1.9
1.6
1.6
1.9
2.2
17.6
18.9
19.3
5.5
4.7
4.2
AAV*
Thailand
667
99.0
20.6
16.8
1.1
1.1
1.0
0.0
2.0
2.4
1.1
5.2
6.2
20.3
8.0
6.7
25.4
13.3
11.4
2.4
1.8
1.6
1.4
2.1
2.1
8.1
12.1
13.7
25.7
7.7
8.2
Thailand
285
n.m.
12.1
7.5
2.1
1.9
1.7
0.0
4.2
6.7
(6.)
16.7
24.3
n.m.
8.2
2.8
Average (simple) NOK*
Source: Bloomberg Note: *KT ZMICO Research estimates
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 2 of 20
Figure 2: NOK’s historical PER band
Figure 3: NOK’s historical P/BV Band
Source: KT ZMICO Research
Our valuation for NOK at PER of 15x is also in line with the +1SD of the historical average PER of NOK since listing in the SET in Jun-13. We believe this level is appropriate considering the expected earnings turnaround in 2015-16E coupled with the increasing operation exposure to the international LCC market from NokScoot. However, our PER valuation for NOK is still much lower than AAV, which trades at PER of 22x, as the latter is well established in the international LCC market in Thailand and the South East Asian region.
Earnings prospects LCC operator with most coverage in domestic market NOK operates low cost carriers/airlines (LCC) in Thailand providing point-topoint services focusing mainly on the domestic market. Currently, NOK’s scheduled routes consist of 23 domestic destinations and one international destination (to Yangon, Myanmar). As of 2Q14, NOK operated a fleet of 18 aircraft, consisting of 16 Boeing 737-800 for primary routes and two ATR72500 aircraft for secondary routes and feeder routes. The company plans to add a third aircraft model, Turbo Propeller Q400, starting from 2H14E onward to enlarge its fleet and to replace the ATR72-500 in the long term. Compared with ATR72-500, the Turbo Propeller Q400 can lower the cost per seat by 6.07% with 12 more seats and also add two more sectors per day due to faster speed. NOK targets to receive four Q400 aircraft in 2H14E, two in 2015E and two in 2016E.
LCC passenger volume supported by domestic market in 1H14 Thailand’s tourism industry was impacted by the prolonged political protests that began in Nov-13. Martial law was declared by the NCPO after the coup d’etat on 22 May 2014, accompanied by the imposition of a curfew. Although the curfew has since been lifted, martial law is still in effect currently. Nevertheless, according to statistics reported by the Airports of Thailand (AOT), which owns and operates six airports nationwide including Suvarnabhumi International Airport (SBIA) and Don Muang International Airport (DMK), the main airport base for LCC operators, LCC passenger volume still grew by 29% YoY in 2013 and continued to expand by 21% YoY in 8M14. This was due to the significant increase of domestic passengers (+24% in 2013 and +31% in 8M14), which supported overall LCC passenger volume even as the growth figure of international passenger volume declined (+36% in 2013 and +5% in 8M14). REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 3 of 20
In 1H14, NOK’s market share ranked number two after AirAsia in both the overall domestic market and the LCC market. NOK’s market share has increased significantly since 2010 owing to aggressive route and ASK expansion, which has closed the gap between NOK and AirAsia. However, the LCC market share for both operators fell in 1H14 after a newcomer, Thai Lion Air, entered the market in Dec-13. Figure 4: International LCC passengers
Figure 5: Domestic LCC passengers
Source: AOT
Figure 6: Overall domestic market share
Figure 7: LCC market share
Source: AOT, DCA, NOK
Industry price cuts expected to be relieved after end of the protest Flight expansion and fierce competition, coupled with the slowdown of travel demand from international passengers, prompted LCC operators to cut their airfares to compete with each other. Although NOK has focused mainly on domestic routes, an oversupply situation in international routes still had a negative impact on the company, especially on primary routes that account for 75% of NOK’s total revenue (2013). Lower average ticket prices have been seen since 4Q13 when the political protests began. However, based on historical records, tourist arrivals to Thailand have rebounded strongly after the end of crises, both political unrest and natural disasters. This is due to the strength of Thailand’s tourism sector and the diversification of tourist destinations. As a result, we believe the price situation will be better after the resolution of the political crisis, especially in 4Q14E upon entering the high season of the tourism industry in Thailand. Although the tourism situation remains uncertain as the NCPO has not yet lifted martial law, political calm and the government’s support of the tourism industry is still a positive catalyst to the sector. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 4 of 20
In Aug-14, the Department of Tourism reported that the number of foreign tourist arrivals to Thailand fell by 12% to 2.08mn, decelerating compared to the decline of 11% in Jul-14. However, the tourist numbers have shown signs of improvement on a month-on-month basis after the coup in May-14. Recently, the Thai government waived visa fees for Chinese tourists for three months (Aug-Nov 14). As a result, we believe Chinese tourists will be a major source of improvement for tourist arrivals to Thailand for the rest of this year. It should be noted that Chinese tourists accounted for 17% of total tourist arrivals to Thailand in 8M14. Moreover, Thailand’s government is considering a personal income tax allowance for expenses related to traveling, such as accommodation and tour package expenses, which is likely to support LCC domestic passenger volume in 2015E. According to monthly statistics from the AOT, LCC flight expansion slowed down to +18% and +19% in Jul-Aug 14 after an increase of 34% in Apr-May 14. On the other hand, travel demand looks to be improving as LCC passenger volume increased at a higher rate to +23% and 24% in Jul-Aug 14, from +17% in Jun-14 after the coup. As a result, we believe the ticket price pressure for LCC operators will be relieved in 4Q14E. Figure 8: Tourist arrivals by quarter
Figure 9: Tourist arrivals show signs of improvement m-m
Source: Department of Tourism Figure 10: LCC flight and passenger volume growth
Figure 11: NOK’s average ticket price
Source: AOT, NOK
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 5 of 20
Promising outlook for secondary and feeder routes In 1H14, NOK reduced flight frequency by around 18% in response to the lower demand and intense competition as mentioned above. Meanwhile, the frequency reduction also reflected the termination of five SAAB aircraft lease contracts with Siam General Aviation (SGA) in 1Q14, despite strong demand from these segments. The SAAB aircraft was used by NOK to service secondary and feeder routes, on which the company had a competitive advantage over other airlines. NOK plans to add eight Q400 aircraft over the next three years to serve these routes. Based on the announcement of the Ministry of Transport, the regulations for domestic route air travel as of 27 Sep 2006 state the following: Primary routes: routes that transport more than 300,000 passengers per year with the number of airline permits granted by the Department of Civil Aviation (DCA) being unlimited; Secondary routes: routes that transport between 50,000 – 300,000 passengers with the number of airline permits granted by the DCA limited to only three airlines; Feeder routes: routes that transport less than 50,000 passengers with the number of airline permits granted by the DCA limited to only two airlines. In 2013, 20% of NOK’s total revenue was contributed by secondary and feeder routes. NOK has a competitive advantage in this segment owing to limited facilities at airports coupled with competitors’ lack of appropriate fleet size. For feeder routes, NOK has a 100% market share. Meanwhile, NOK also has a higher market share than other airlines for secondary routes. Based on the DCA’s statistics, passenger volume at secondary and feeder airports grew significantly in 2011-13. We believe this is due to the lower pricing gap between other transport modes (bus & rail) and LCC, coupled with the growth of GDP per capita upcountry owing to urbanization and the government’s populist policies over many years. NOK plans to introduce two new routes for the domestic market, Lampang in the northern region (4Q14) and Surin in the northeastern region (2015). Figure 12: Thailand’s GDP per capita by region Unit: Bt thousand North East North South East West Central BKK vs. Vicinities Whole Kingdom
2008 43 65 104 362 100 210
2009 49 65 98 335 104 202
2010 56 74 119 374 108 220
2011 60 79 131 378 117 208
2012 68 92 125 415 122 226
CAGR 12.3 9.3 4.7 3.4 5 1.9
320 148
307 146
326 163
331 169
360 184
3 5.5
Source: NESDB
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 6 of 20
Figure 13 Routes and flight frequency
Figure 14: Secondary and feeder airports passenger
Route
Unit: Person
DMK - Chiang Mai DMK - Udon Thani DMK - Phuket DMK - Hat Yai DMK - Surat Thani DMK - Nakhon Si Thammarat DMK - Ubon Ratchthani DMK - Chiang Rai DMK - Krabi DMK - Khon Kaen Total Primary routes DMK - Phitsanulok Chiang Mai - Mae Hong Son DMK - Trang DMK - Sakol Nakorn DMK - Nakorn Phanom Total Secondary routes Chiang Mai - Udon Thani DMK - Loei DMK - Burirum DMK – Nan DMK - Roi Et DMK - Mae Sot DMK – Phrae Chiang Mai - Mae Sot DMK - Chumphon Chiang Mai - Hat Yai DMK - Hua Hin DMK - Ranong Total Feeder International Mae Sot - Mawlamyine Mae Sot - Rangoon DMK - Rangoon Total International Grand Total % to total route network Primary Secondary Feeder International
Flight frequency/ week 2012 2013 Summer14 70 49 63 35 42 42 14 28 28 49 56 56 21 35 35 28 42 35 28 42 42 21 35 42 14 14 259 350 357 21 35 21 28 21 14 21 14 14 7 7 14 7 7 91 91 49 21 21 7 7 14 7 3 7 7 21 14 14 14 14 7 14 28 14 4 7 7 7 7 14 7 14 3 7 91 143 77
441 59% 21% 21%
7 7 8 22 606
14 14 497
58% 15% 24% 4%
72% 10% 16% 3%
2011
2012
2013
CAGR
33,107
143,775
197,559
144%
205,056
214,698
242,292
9%
39,536
97,422
109,259
66%
253,077
374,533
504,469
41%
8,207
4,547
11,355
18%
Secondary Nakon Panom (NE) Phitsanulok (N) Sakon Nakhon (NE) Trang (S) Feeder Burirum (NE) Chumpon (S)
5,366
11,059
45,392
191%
Loei (N)
10,304
22,451
41,870
102%
Mae Sot (N)
12,854
34,236
87,454
161%
Nan (N)
33,885
58,536
82,079
56%
3,494
9,051
13,622
98%
Phrae (N) Ranong (S)
3,186
7,406
30,345
209%
Roi Et (NE)
15,798
38,501
60,588
96%
22,343
55,958
77,848
13%
NOK’s new target Lampang (N)
Source: NOK, DCA, KT ZMICO Research Note: N (Northern), NE (North Eastern), S (Southern)
Thai Smile’s move to DMK may increase NOK’s passengers in L-T Starting from Aug-14, Thai Smile, an LCC operator that is 100% owned by Thai Airways International (THAI), moved some of its flight operations from SBIA to DMK, and it plans to move all the flights to this airport by the end of this year. As THAI already has a 39% investment stake in NOK, investors should be concerned about the impact to both operators as they are likely to compete with each other. In our view, Thai Smile’s routes are likely to compete with all other LCC operators based at DMK, not only with NOK. Thai Smile has a flight frequency of 234 flights/week: 154 flights/week are for domestic destinations, especially primary routes. In our view, in the absence of Thai Smile, other LCC operators would increase flight frequency if demand picked up, especially for domestic primary routes. Meanwhile, Thai Smile’s move to DMK will take advantage of the growth of the international market at DMK in the long term. Beside, Thai Smile may transfer connecting passengers to NOK when it lacks REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 7 of 20
appropriate flights to serve connecting passengers. Moreover, as Thai Smile only uses A320-200 aircraft for service, NOK still has a competitive advantage on secondary and feeder routes. While NOK and other LCC operators use websites and booths at airports as selling channels as a tool in LCC’s dynamic pricing model, Thai Smile will need time to develop these selling channels to compete. According to NOK, both LCC operators owned by THAI will co-ordinate on routes and flight time slots to suit each airline’s customers. Figure 15: Thai Smile’s flight frequency/week Route
Frequency
International BKK – Macau BKK – Phnom Penh BKK – Vientiane BKK – Colombo BKK – Delhi
14 14 14 7 5
Route
Figure 16: Thai Smile’s fleet plan
Frequency
Domestic BKK – Hat Yai BKK – Udon Thani BKK – Khon Kaen BKK – Chiang Mai BKK – Ubon Rachthani
35 28 21 14 14 14 14 7
BKK – Hyderabad BKK – Mandalay BKK – Chongqing
5 4 4
BKK – Surat Thani BKK – Krabi BKK – Chiang Rai
BKK –Changsa
3
Chiang Mai - Phuket
7
Source: THAI
Joining with Scoot to set up medium-haul LCC Regarding expansion to the international LCC market, NOK currently has one route to Yangoon, Myanmar. The performance looks promising as the cabin factor of this route achieved 78% in 2Q14, after a 50% cabin factor when introducing this route in 4Q13. The company plans to introduce a new international route to Ho Chi Minh City, Vietnam, in 3Q15E. Moreover, NOK will join with Scoot, an LCC 100% owned by Singapore Airlines Limited, to set up a new LCC airline, NokScoot. The new airline will operate medium-haul LCC based in Thailand. NOK will hold 49% of the joint venture, with an initial investment of Bt2bn. NokScoot plans to service flights to profitable destinations in the East Asian region, such as Tokyo, Osaka, Hong Kong, Seoul, and Beijing. The airline will start it first flight in Jan-15 with two B777-200 aircraft and expand to seven aircraft over the next five years. The majority of tourist arrivals to Thailand are from the East Asian region, accounting for around 57% of the total (8M14). Among the region, China is the major source of tourist arrivals followed by Japan and South Korea. Moreover, given the limited flight durations at an average of no longer than 4.5 hours for LCC, the economic growth of this region will have a big impact on the growth of LCC in Thailand. NokScoot will have an opportunity to serve travelers in the region, which contains some of the fastest growing economies in the world. Among the East Asian region, Chinese tourist arrivals to Thailand showed signs of significant improvement in Aug-14, falling only 5%, vs. -25% in Jul14 after the coup. Korean and Japanese tourists have also shown the same improving trend. This improvement, coupled with visa exemptions for Chinese tourists, causes us to believe that the East Asian region will be a major source of improvement for tourist arrivals to Thailand in 4Q14E and 2015E. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 8 of 20
Figure 17: Tourist arrivals by region (8M14)
Figure 18: East Asian tourists show signs of improvement
b Source: Department of Tourism
Figure 19: Real GDP growth % YoY 2009 World (2.3) High Income countries (3.7) Developing countries 2.0 East Asia countries 7.5
2010 4.1 3.0 7.3 9.7
2011 3.1 1.8 6.3 8.3
2012 2.5 1.5 4.8 7.2
2013E 2.4 1.3 4.8 7.2
2014F 2.8 1.9 4.8 7.1
2015F 3.4 2.4 5.4 7.1
2016F 3.5 2.5 5.5 7.0
Source: World Bank, June 2014
Japan and Korea: top destinations for Thai tourists On the other hand, Thai tourist arrivals to Japan have also increased significantly over the past 10 years (+25% CAGR in 2003-13). Meanwhile, after Japan introduced visa exemptions for Thai tourists (for 14-day stays in Japan) starting in Jul-13, tourists from Thailand to Japan almost doubled to 392,856 persons in 2013, and they expanded by 74% YoY in 5M14. Japan is a top destination for Thais, especially the middle class, owing to the familiarity with the culture and food, in our view. South Korea is another popular destination for Thai tourists with the travel numbers achieving +22% CAGR in 2003-13. Travel to South Korea by Thais became popular subsequent to its policy to open the country by exporting Korean movies/series and entertainers globally, including to Thailand. However, after visa exemptions to Japan went into effect, tourists from Thailand to South Korea declined by 8% YoY in 2013. Nevertheless, Thai tourist arrivals to South Korea returned to +21% in 8M14. Figure 20: Thai tourist arrivals to Japan
Figure 21: Thai tourist arrivals to South Korea
Source: Japan National Tourist Organization (JNTO), Korea Tourism Organization
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 9 of 20
Expect earnings to turn around in 2015-16E We expect NOK to report a net loss of Bt271mn in 2014E, owing to the impact of the political conflict since late 2013 and the coup in May-14, which lowered the cabin factor (to 81%, vs. 84% in 2013) and the average ticket price (-17% YoY) to Bt1,484/passenger. The performance is expected to continue weakening in 3Q14E, as this quarter is normally the low season for the LCC industry in Thailand, before improving significantly in 4Q14E. For 2015-16E, we believe NOK’s earnings will turn around to net profit of Bt767mn and Bt1.2bn, respectively. Our forecasts assume that NOK’s passenger volume will increase by 20% per year in 2015-16E, in line with the LCC industry’s volume growth. Meanwhile, we expect average fares to improve by +4% YoY to Bt1,543/passenger in 2015E on the favorable demand-supply situation for the LCC industry this year, with the industry fleet likely to grow in line with passenger volume. As a result, LCC operators that focus on international routes will shift their capacities to international flights and increase their average ticket prices while competition for domestic routes is likely to decline. It should be noted that our fleet growth assumptions do not include medium-haul LCC (two aircraft from NokScoot and five aircraft from Thai Air Asia X) or other newcomers, but do include Thai Smile fleet volume (which is in the process of moving its airport base from SBIA to DMK). However, the average fares in the long term is not expected to recover to the same level as 2012-13 as every LCC operator currently has a plan to expand its fleet. Meanwhile, other LCC operators will enter the market. As a result, we expect the 2016E ticket prices for NOK to remain at the 2015E level. Figure 22: Key assumptions for earnings forecasts for NOK
Aircraft (Unit) ASK (passenger-km.) Cabin factor (%) Passengers carried (mn) Average fare (Bt/Passenger) % YoY Average ancillary (Bt/Passenger) Bt/US$ Jet kerosene fuel price (US$/barrel)
2012 19 2,916 84.2 4.1 1,874 2.6 95 31.1 128
2013 21 4,247 83.6 5.9 1,788 (5.1) 108 30.5 123
2014E 24 5,582 81.4 7.5 1,484 (17.0) 119 32.5 122
NOKScoot assumptions Aircraft (Unit) ASK (passenger-km.) Cabin factor (%) Passengers carried (mn) Average fare (Bt/Passenger) Ancillary / passenger revenue (%) Financial forecasts (Btmn) Revenue Normalized profit Net profit
8,218 505 258
11,180 1,066 1,066
12,023 (271) (271)
2015E 28 6,977 83.3 9.0 1,543 4.0 125 32.0 117
2016E 31 8,398 84.5 10.8 1,543 0.0 131 32.0 117
2 3,169 75.7 0.6 4,350 18.0
4 6,009 80.0 1.6 4,480 18.0
18,133 767 767
26,321 1,240 1,240
Source: NOK, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 10 of 20
Figure 23: NOK’s fleet plan
Figure 24: Industry fleet & pax volume growth**
Source: AAV, NOK, THAI, KT ZMICO Research Note: * Estimate Thai Lion Air to increase fleet by 1 aircraft per 2 months ** Not including medium-haul LCC and other newcomers
Target NokScoot to contribute a net loss in 2015-16E Our earnings projections already include the performance of NokScoot, which is expected to contribute EBIT losses of Bt389mn and Bt282mn in 2015-16E, based on passenger volume of 0.6mn and 1.6mn and average ticket prices of Bt4,350/pax and Bt4,480/pax in 2015-16E, respectively. As a result, NOK’s revenue is likely to increase significantly by 51% and 45% in 2015-16E, after including NokScoot’s revenue. Excluding NokScoot, NOK’s revenue is still likely to increase by 25% and 20% in 2015-16E owing to passenger volume and fare expansion. NokScoot’s revenue is expected to contribute around 17% and 31% of NOK’s total revenue in 2015-16E. The revenue portion is expected to increase significantly in the long term owing to the different ticket fares. We expect NokScoot to become profitable in 2018E. Figure 25: NOK’s revenue estimates
Figure 26: NOK’s net profit estimates
Source: NOK, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 11 of 20
Profitability to improve in 2015-16E We estimate NOK’s CASK to decline to Bt2.25 in 2014E (1H14 = Bt2.35) as it plans to cut marketing expenses in response to the unfavorable industry currently. The company plans to lower marketing expenses from 2.2% of revenue to below 2.0% of revenue effective in 2H14E. For 2015E, CASK should fall significantly to Bt1.75 after including ASK from NokScoot. Excluding NokScoot, CASK is still likely to fall owing mainly to KTZMICO research’s assumption that global crude oil prices will decline thanks to the slight oversupply in the crude industry globally. As a result, we estimate jet fuel prices to fall by 4% YoY to US$117/barrel in 2015E. Including an improved cabin factor and average ticket price, NOK’s gross profit margin and net margin are likely to improve in 2015-16E. In the longer term, NOK’s maintenance cost per ASK is expected to decline slightly owing to brand new aircraft. Meanwhile, the company plans to implement a Maintenance Process Improvement strategy, which will go into effect in 2015-2016E. Moreover, the new turbo propeller fleet will also improve NOK’s profitability. However, eight Q400 turbo propeller aircrafts will account for only 12% of NOK’s total ASK. Figure 27: CASK and operating profit/ASK (excl. Fuel)
Figure 28: Gross profit margin & net margin
Source: NOK, KT ZMICO Research
Expect net profit to stay in the red in 3Q14E NOK reported a net loss of Bt160mn in 2Q14, vs. net profit of Bt260mn in 2Q13 and net profit of Bt41mn in 1Q14. Meanwhile, the company also posted a net loss of Bt119mn in 1H14, vs. net profit of Bt675mn in 1H13. The weak earnings performance was impacted by the prolonged protests, the coup, and the implementation of martial law by the NCPO. These factors, coupled with fierce competition, caused the cabin factor and average ticket prices in 2Q14 to fall compared to the same period last year. We expect the net loss to increase in 3Q14E compared to 2Q14, as this quarter is normally the low season for the LCC industry. According to NOK, the cabin factor in Jun-Aug 14 is likely to improve significantly (from 70% in May to over 85% in Aug), but the fare will still be pressured by competition, including the move of Thai Smile from SBIA to DMK. Meanwhile, September is the weakest month of the quarter. However, we believe net profit will turn around in 4Q14E.
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page 12 of 20
Figure 29: NOK’s 2Q14 earnings review Profit and Loss (Btmn) Year-end 31 Dec Revenue Gross profit SG&A expenses EBITDA
% YoY
2Q13 2,598
1Q14 3,096
2Q14 2,799
7.7
422
186
(5)
(101.3)
(173)
(176)
(194)
262
23
-
Interest expenses
% QoQ
% YoY
(9.6)
1H14 5,895
(102.9)
181
12.3
10.4
(186)
(171.0)
-
(1)
YTD (% 14E)
9.0
2014E 12,023
(81.7)
403
44.9
(370)
15.6
(972)
38.1
(912.1)
(163)
(123.6)
(514)
31.7
-
-
(1)
-
(1)
100.0 42.8
49.0
20
40
32
59.9
(20.6)
72
104.5
167
Income tax
(10)
(9)
9
n.m.
n.m.
0
n.m.
40
0.4
Net profit (loss)
260
41
(160)
(161.5)
(490.2)
(119)
(117.6)
(271)
43.9
Other income
260
41
(160)
(161.5)
(490.2)
(119)
(117.6)
(271)
43.9
Reported EPS (Bt)
0.42
0.07
(0.26)
(161.5)
(490.2)
(0.19)
(115.2)
(0.43)
43.9
Gross margin (%) EBITDA margin (%)
16.3 10.1
6.0 0.7
(0.2) (6.7)
3.1 (2.8)
3.4 (4.3)
Net margin (%)
10.0
1.3
(5.7)
(2.0)
(2.3)
Current ratio (x) Interest coverage (x)
4.3 cash
3.7 cash
2.5 n.m.
2.5 n.m.
3.3 cash
Debt/equity (x)
cash
cash
0.1
0.1
cash
Normalized profit (loss)
BVPS (Bt)
7.2
7.3
6.6
6.6
7.1
ROE (%)
37.4
3.6
(14.7)
(5.5)
(6.0)
Statistic Passenger volume (mn)
1.40
1.77
1.72
Cabin factor (%)
86.6
79.9
77.7
1,751
1,630
1,512
Ticket price (Bt/pax)
22.9
(2.8)
3.5
23.3
78.8 (13.8)
(7.2)
1,571
(12.9)
Source: NOK, KT ZMICO Research
Financial position Still in a net cash position NOK’s aircraft in operation are all operating leases (OL), resulting in minimal capital investment each year. The future investment plan for aircraft will still be operating leases, including the Turbo Propeller Model. NOK is considering a change in aircraft financing from OL to financial lease (FL) to lower the average cost of fund. However, we have not included this plan in our assumptions. NOK plans to give pre-operation loans to NokScoot in the amount of Bt970mn. Moreover, we roughly estimate that NOK will have CAPEX of around Bt100mn per year for machinery and equipment investment. As a result, we expect the company to have capital expenditures of Bt1,070mn in 2014E and Bt100mn in both 2015-16E. NOK’s financial status is thus expected to be in a net cash position in 2014-16E. Based on our assumption of a 50% payout ratio in line with the historical record, we expect that NOK will be able to pay DPS of Bt0.61, and Bt0.99 between 2015-16E. Figure 30: Forecasts for NOK’s CAPEX, free cash flow, and contingent liabilities (Btmn) Cash flow from operation CAPEX Free Cash flow Net cash at end of period Estimates DPS (Bt)
2012 844 (380) 464 1,656 1.53
2013 1,138 (3,361) (2,222) 5,365 0.77
2014E 208 (1,070) (862) 4,197 0.00
2015E 1,194 (100) 1,094 5,099 0.61
2016E 1,905 (100) 1,805 6,401 0.99
Source: NOK, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 13 of 20
Industry outlook 33% of AOT’s passengers and flights came from LCC The budget airline or low cost carrier (LCC) industry in Thailand was initiated in late 2003 when Thai Air Asia (TAA) was established to operate the LCC business after the Thai government loosened regulations concerning the proportion of share holdings by foreigners. The new regulations allowed foreigners to hold shares in airlines not exceeding 49% (vs. not exceeding 30% previously). Since the LCC business was launched, the number of passengers has grown steadily. LCC airlines have expanded their route networks rapidly and tried to compete with full service airlines or legacy airlines for market share. According to statistics from AOT’s six airports that serve 90% of total passengers traveling through 38 airports nationwide, LCC passenger volume and flight expansion achieved +30% CAGR and +31% CAGR in 2004-2013, respectively. In 2013, passengers flying with LCC accounted for 33% of AOT’s total passengers (vs. 6% in 2004), while flights operated by LCC accounted for 33% of total flights (vs. 7% in 2004). Figure 31: % LCC pax of all AOT pax
Figure 32: % LCC flights of all AOT flights
Source: AOT (Fiscal year ended September)
Many LCC operators started flight services to Thailand in 2013, including Juneyao, Vietjet Air, Golden Myanmar Airlines, Norwegian Air Shuttle, and SpiceJet. Thai Lion Air, a subsidiary of Lion Mentari Airlines in collaboration with a local Thai partner, began international and domestic flight service in Dec-13.
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page 14 of 20
Figure 33: LCC’s scheduled service at AOT’s airports in 2013
Source: AOT
Figure 34: Market share at SBIA (International)
Figure 35: Market share at SBIA (Domestic)
Source: AOT
Figure 36: Market share at DMK (International)
Figure 37: Market share at DMK (Domestic)
Source: AOT
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page 15 of 20
Apart from the strong growth in the number of passengers at AOT’s airports, the passenger numbers at the 28 airports managed by DCA and other private operators have expanded strongly as well, especially at airports in tourist attractions or airport hubs for the region. Figure 38: Passengers at DCA’s and other private operators at selected airports Passengers
2009
2010
2012
2013
Khon Kaen
397,645
391,421
456,119
523,305
592,191
8.9%
Krabi
844,149
836,922
988,977
1,189,980
1,668,250
16.0% 26.1%
Nakhon Srithammarat
2011
08-13 CAGR
297,257
406,792
654,956
725,858
950,133
1,413,297
1,416,138
1,485,951
1,861,229
1,970,964
7.6%
Suratthani
394,096
505,778
595,184
816,484
1,070,781
25.6%
Ubon Ratchathani
393,451
452,944
614,686
733,893
835,648
16.2%
Udonthani
722,587
816,602
1,011,881
1,184,449
1,325,305
14.9%
Samui island, Suratthani
Others Total
689,863
737,851
942,846
1,346,194
1,802,639
20.5%
5,152,345
5,564,448
6,750,600
8,381,392
10,225,911
15.6%
Source: DCA, KT ZMICO Research
LCC passengers to increase by 20% p.a. in 2015-16E The growth of LCC passengers at AOT’s airports in 2009-12 had a high correlation with economic growth in the East Asian region, including Thailand (correlation = 0.7). The average growth of LCC passengers was three times the East Asian GDP growth. This is due to the fact that the majority of tourist arrivals to Thailand are from the East Asian region. Moreover, given the limited flight duration at the average of no longer than 4.5 hours for LCC, the economic growth of this region has a big impact on the growth of LCC. On top of that, Thailand is geographically suited to be an aviation hub in the region. In 2014E, we estimate LCC passenger volume to grow by 23% YoY (+21% YoY in 8M14) supported by domestic passengers. For 2015-16E, we estimate LCC passenger volume to increase by 20% YoY each year as the World Bank projects that the economies of the East Asian region will expand by 7-7.1%. Our passenger volume growth assumptions are 2.8x the GDP growth of the region, below the 3x multiplier from the historical average. Figure 39: Thailand as an aviation hub in ASIA
Figure 40: LCC passengers vs. East Asia GDP growth
Source: NOK, World Bank, KT ZMICO research Note: East Asia countries consist of Cambodia, China, Fiji, Indonesia, Laos, Malaysia, Mongolia, Myanmar, Papua New Guinea, Philippines, Solomon Islands, Thailand, Timor-Leste, Vietnam.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 16 of 20
Upside risk / downside risk Oil price risk In our 2015E projection, fuel costs will account for around 38% of NOK’s operating costs. As a result, we calculate that for every US$1/barrel that the jet fuel price differs from our assumption of US$117/barrel, our net profit forecast in 2015E and target price for NOK would change by 6%. Exchange rate risk In 2015E, NOK’s expenses related to US$ terms will account for 70% of total operating expenses, including jet fuel, aircraft leases, and maintenance costs. However, the exchange rate risk should be manageable after the setting up of NokScoot in 2015E, as this should increase foreign currency revenue. Furthermore, NOK can manage FX exposure by natural hedging.
Company Background Originally known as Sky Asia Co. Ltd., NOK was established on 27 Feb 2004. The company was founded when the government imposed the aviation liberalization scheme. NOK was aimed to operate as a low-cost airline under THAI in order to compete with other LCC. During the early stage, THAI had 39% holding in the company. The company’s shareholder structure was changed in 2011 after top management, in cooperation with Lombard Asia III L.P. Fund by Aviation Investment International Co. Ltd., purchased a 25% stake from the existing shareholders and THAI raised its stake holding to 49%. As a consequence, the shareholder structure was clearly divided into two major groups, namely the company’s management and THAI. NOK was listed in the SET in Jun-13, with THAI’s holding reduced again to 39%. NOK provides point-to-point services with single aisle aircraft that can fly up to four hours from operation hubs. Currently, NOK’s operation network, both from its core operation hub (at DMK) and secondary operation hub (at Chiang Mai International Airport), covers other airports. The company focuses both on domestic routes with high demand on primary routes along with secondary and feeder routes with softer demand in the first stage but with the potential to see higher demand in the future. Moreover, NOK also offers chartered flights for passengers who prefer to travel in groups. Currently, NOK’s chartered flights fly to various destinations in China weekly. NOK defines its business model as “Premium Low-Cost” with some differences in service compared with other LCC. The company provides a variety of services to customers at no charge, such as a baggage allowance of 15 kilograms per flight, seat selection, and a complimentary snack set. Moreover, in 3Q14, NOK introduced a new service called “Wi-Fi connectivity on board” in two aircraft initially.
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page 17 of 20
Figure 41: NOK’s route coverage
Figure 42: NOK’s fleet type & services
Wi-Fi on Board started in two aircraft in 3Q14
Source: NOK
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page 18 of 20
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)
2011 6,039 (5,301) 738 (484) 304 (50) 254 0 0 38 292 (92) 0 200 0.40 0.40 200 0.40 0.22
2012 8,218 (7,175) 1,043 (564) 529 (51) 478 0 0 (205) 273 (15) 0 258 0.52 0.52 505 1.01 0.50
2013 11,180 (9,479) 1,701 (737) 1,019 (54) 964 0 0 135 1,099 (33) 0 1,066 1.71 1.71 1,066 1.71 1.03
2014E 12,023 (11,620) 403 (972) (494) (74) (569) (1) 0 167 (403) 40 92 (271) (0.43) (0.43) (271) (0.43) 0.00
2015E 18,133 (16,573) 1,560 (1,149) 505 (94) 411 0 0 176 586 (18) 198 767 1.23 1.23 767 1.23 0.61
2016E 26,321 (23,819) 2,502 (1,596) 1,020 (114) 906 0 0 225 1,131 (34) 144 1,240 1.98 1.98 1,240 1.98 0.99
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
2011 1,247 5 71 693 2,016 0 0 1,218 0 797 2,016
2012 1,656 4 81 511 2,252 0 0 1,364 0 888 2,252
2013 5,365 11 93 803 6,272 0 0 1,728 0 4,543 6,272
2014E 4,197 9 166 1,723 6,095 0 0 1,595 92 4,408 6,095
2015E 5,099 14 226 1,955 7,294 0 0 2,212 290 4,792 7,294
2016E 6,401 20 267 2,272 8,960 0 0 3,115 434 5,412 8,961
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)
2011 200 44 10 66 320 (27) (345) (372) 1 0 (100) 0 (99) (152) (53) (0.11)
2012 258 50 272 264 844 (20) (360) (380) (2) 0 (414) 0 (416) 48 464 0.93
2013 1,066 51 (134) 156 1,138 30 (3,391) (3,361) (38) 3,167 (588) 0 2,542 320 (2,222) (3.56)
2014E (271) 54 424 0 208 (100) (970) (1,070) 0 0 (306) 0 (306) (1,168) (862) (1.38)
2015E 767 74 352 0 1,194 (100) 0 (100) 0 0 (192) 0 (192) 902 1,094 1.75
2016E 1,240 94 570 0 1,905 (100) 0 (100) 0 0 (502) 0 (502) 1,303 1,805 2.89
PROFITABILITY Revenue growth (%) EBITDA growth (%) Core EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2011 44.5 (53.6) (66.78) 12.2 5.0 4.2 3.3 3.3 31.6
2012 36.1 73.9 152.84 12.7 6.4 5.8 3.1 6.1 5.6
2013 36.0 92.5 68.80 15.2 9.1 8.6 9.5 9.5 3.0
2014E 7.5 n.m. n.m. 3.4 (4.1) (4.7) (2.3) (2.3) 10.0
2015E 50.8 n.m. n.m. 8.6 2.8 2.3 4.2 4.2 3.0
2016E 45.2 102.0 61.73 9.5 3.9 3.4 4.7 4.7 3.0
2011 cash cash cash
2012 cash cash cash
2013 cash cash cash
2014E cash cash cash
2015E cash cash cash
2015E cash cash cash
FINANCIAL QUALITY Total debt to capital employed (x) Net debt to equity (x) Interest coverage (x)
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page 19 of 20
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 BUY: Expecting positive total returns of 15% or more over the next 12 months TRADING BUY: Expecting positive total returns of 10% or more over the next 3 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months.
SELL INTO STRENGTH: Expecting total returns between -10% to +10% over the next 12 month; share price has largely priced in fundamentals
NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.
SELL: Expecting negative total returns of 10% or more over the next 12 months
UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 20 of 20
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.
