Industry Update
Industry Update June 20, 2014
Transport & Logistics (Aviation)
Overweight
High season coming soon We upgrade the aviation sector rating to “Overweight” after the easing of the political crisis currently. We believe tourist numbers will rebound sharply in the high season at yearend this year and the growth will continue in 2015E. Our rolled over valuations for aviation stocks based on earnings in 2015E suggest upside potential for AAV, which we decide to select as the top pick for the aviation sector. Revise tourist numbers in 2014E to -8%; +14% in 2015E The number of foreign tourist arrivals to Thailand in May-14 fell by -11% after the coup d’etat on 22 May 2014, followed by a curfew being instituted. We expect the number of tourist arrivals to fall further for the next couple months as martial law is still in effect. However, we expect tourist numbers to rebound in 4Q14 as Thailand enters the high season of the tourism industry. We revise down the growth of tourist numbers in 2014E to -8% YoY, vs. +8% previously, with subsequent improvement to +14% YoY in 2015E on the easing of the political crisis currently and the bright prospects for the global economy.
Share data SET index
1,461.91
Sector index
189.14
52-week high
202.22
52-week low
148.23
Market capitalization (Bt m)
641,574.04
% of market cap
4.89
Avg daily turnover (m shares)
224.01
Beta
1.08
Sector Performance (%) 1M
3M
12M
Absolute
7.25
3.56
19.79
Relative
2.32
-3.62
11.77
LCC volume still intact, but not fares In 4M14, AOT’s figures show that LCC passenger volume still grew strongly (+20% YoY), supported by domestic passengers. However, the strong volume growth came at the expense of average ticket fares. We expect LCC passenger volume in 201415E to increase by 16% and +20%, respectively. However, we expect average fare for AAV and NOK in 2014E to fall by 13% and 10%, respectively, and conservatively assume average fares to increase slightly (+2%) in 2015E. Downward earnings We revise down normalized profit in 2014-15E for stocks related to the aviation sector (AOT, AAV, NOK, THAI), based on the changes in passenger volume assumptions as mentioned above and the weak 1Q14 earnings performance owing to the prolonged protests. We lower earnings in 2014E for airline operators significantly as we expect earnings to continue to weaken in 2Q14-3Q14, especially for THAI, which we expect to report a normalized loss of almost Bt10bn this year. For 2015E, we lower the earnings forecasts by 5-7%. However, for NOK, our net profit projection is lowered by 25% as the company will start to operate long haul LCC, NOK-SCOOT (NOK’s 49%-owned subsidiary), in 4Q14E, which we expect to contribute a net loss until 2016E. Target prices rolled over to 2015E After the earnings revision and the rolling over of target prices (TP) to be based on the earnings performance in 2015E, our DCF-based TP for AOT is lifted to Bt200 and AAV’s TP is increased to Bt4.70 (based on PER of 22x, -1SD). Meanwhile, owing to significantly lower earnings projections in 2014-15E, NOK’s TP is lowered to Bt19.30 (based on PER of 13x, -1SD), while THAI’s TP is decreased to Bt18 (based on P/BV of 0.8x, -0.5SD). We maintain our Trading BUY call for THAI, switch AOT’s rating to Sell into Strength (from Sell), switch NOK’s rating to Trading BUY (from Buy) and upgrade AAV to BUY (from Sell).
Note: An executive of KT ZMICO Securities is also a member of PSL’s board.
Raenoo Bhandasukdi Analyst, no 17989 [email protected] 66 (0) 2695-5836
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 1 of 10
Figure 1: Valuation changes for aviation sector Target price (Bt) Current AOT*
Previous
% +/-
14E Normalized profit (Btmn)
15E Normalized profit (Btmn)
Current
Current
Previous
% +/-
Previous
% +/-
200.00
175.00
14.3
11,478
12,651
(8.6)
13,176
13,992
(5.8)
AAV
4.70
4.00
17.5
476
884
(46.2)
1,039
1,113
(6.6)
NOK
19.30
21.00
(8.1)
335
1,080
(69.0)
930
1,233
(24.6)
THAI
18.00
19.00
(5.3)
(9,998)
(2,839)
n.m.
1,203
1,267
(5.1)
Source: KT ZMICO Research Note: * Fiscal year ended September
Figure 2: Rating and valuation summary – Transport sector Rating
TP
Up/Down
(Bt)
(%)
14E
PER (x) 15E
16E
14E
PBV (x) 15E
16E
14E
ROE (%) 15E
16E
14E
Div. yield (%) 15E
16E
4.70
12.98
42.4
19.4
15.8
1.0
1.0
1.0
2.4
5.2
6.1
-
2.1
2.5
200.00
0.50
24.8
21.6
16.5
2.9
2.7
2.4
12.1
12.9
15.5
1.6
1.9
2.4
1.5
1.4
1.3
13.1
14.5
14.2
4.7
4.9
5.2 2.9
AAV
Buy
AOT*
Sell into Strength
BECL
Buy
45.00
23.29
10.1
9.6
9.2
BTS**
Buy
10.00
11.73
36.6
37.1
34.1
1.9
2.1
2.2
5.1
5.5
6.4
6.7
7.8
NOK
Trading Buy
19.30
11.56
32.3
11.6
9.0
2.3
2.1
1.9
7.2
18.8
22.0
1.5
4.3
5.6
PSL
Buy
32.00
25.49
47.1
32.5
26.4
1.7
1.7
1.6
3.6
5.2
9.7
1.7
2.4
4.6
THAI
Trading Buy
18.00
14.65
Average
n.m.
28.5
20.1
0.7
0.7
0.7
(17.2)
2.5
3.5
-
1.4
2.0
32.2
22.9
18.7
1.7
1.7
1.6
3.8
9.2
11.0
2.3
3.5
3.6
Source: KT ZMICO Research Note: *Fiscal year ended September, **Fiscal year ended March
Figure 3: Share price performance & relative performance vs. SETTRANS and SET Closed (Bt) AAV
Price change (%)
Relative to SETTRANS
Relative to SET
19/6/14
1W
1M
3M
12M
1W
1M
3M
12M
1W
1M
3M
12M
4.16
(3.3)
8.9
2.0
(24.4)
(4.5)
3.6
(2.2)
(34.5)
(3.6)
5.3
(5.2)
(26.0)
AOT*
199.00
0.8
2.1
2.8
28.0
(0.5)
(3.2)
(1.3)
17.8
0.4
(1.6)
(4.3)
26.3
BECL
36.50
0.7
7.4
11.5
(4.6)
(0.5)
2.1
7.3
(14.8)
0.4
3.7
4.3
(6.3)
BTS**
8.95
5.3
10.5
4.7
16.2
4.1
5.2
0.5
6.1
5.0
6.9
(2.5)
14.5
17.30
(3.4)
4.2
(8.5)
(34.7)
(4.6)
(1.1)
(12.6)
(44.9)
(3.7)
0.6
(15.6)
(36.4)
PSL
25.50
(1.9)
(5.6)
(7.3)
45.7
(3.2)
(10.8)
(11.4)
35.5
(2.3)
(9.2)
(14.4)
44.0
THAI
15.70
0.6
20.8
11.3
(39.6)
(0.6)
15.5
7.2
(49.8)
0.3
17.1
4.2
(41.3)
NOK
Source: KT ZMICO Research Note: *Fiscal year ended September, **Fiscal year ended March
Figure 4: Earnings summary Company
Net profit (Btm)
Norm. profit (Btm)
Norm. EPS (Bt)
Norm. EPS growth (%)
13
14E
15E
13
14E
15E
13
14E
15E
13
14E
15E
1,043
468
1,039
914
476
1,039
0.19
0.10
0.21
13.7
(47.9)
118.3
AOT*
16,347
11,571
13,176
9,935
11,478
13,176
6.95
8.03
9.22
51.7
15.5
14.8
BECL
4,835
2,770
2,916
1,800
2,770
2,916
2.34
3.60
3.79
20.9
53.9
5.3
12,684
2,910
2,876
2,195
2,910
2,876
0.18
0.24
0.24
35.0
32.6
(1.2) 177.9
AAV
BTS** NOK
1,066
335
930
1,066
335
930
1.71
0.54
1.49
68.8
(68.6)
528
587
816
(421)
562
816
(0.40)
0.54
0.78
165.1
n.m.
45.1
THAI
(12,047)
(9,008)
1,203
(5,868)
(9,998)
1,203
(2.69)
(4.58)
0.55
(964.0)
70.4
n.m.
Total
24,456
9,633
22,955
9,621
8,533
22,955
PSL
Source: KT ZMICO Research Note: *Fiscal year ended September, **Fiscal year ended March
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 2 of 10
Tourist numbers fell sharply after coup The Department of Tourism reported that the number of foreign tourist arrivals to Thailand fell by -11% to 1.74mn in May-14, decelerating when compared to the decline of -2% in Apr-14, owing to the declaration of martial law, the coup d’etat on 22 May 2014, followed by a curfew being imposed. Although the curfew has been lifted currently, martial law is still in effect. As a result, we expect the number of tourist arrivals to continue falling sharply for the next couple months. For 5M14, Thailand’s tourist arrivals fell by -6% YoY, led by the Asian region, owing to the prolonged political protests. Revise tourist arrival growth to -8% this year, +14% next year 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. Previously, we expected the number of tourist arrivals to Thailand to increase by 8% YoY in 2014E, decelerating when compared to the growth of 20% in 2013, owing to the prolonged political protests since Nov-13. However, now we assume the number of tourist arrivals to fall by -8% YoY in 2014E and improve to +14% YoY in 2015E on the easing of the political crisis currently and the bright prospects of the global economy.
Figure 5: Tourist arrival growth in 5M14
Figure 6: Tourist arrivals by quarter
Source: Department of Tourism
AOT: Valuation still rich Revise passenger and aircraft volume Although the number of international passengers is likely to decline, AOT’s passengers in FY14E will still be supported by domestic volume owing to the expansion of low cost carriers (LCC). As a result, we believe AOT’s passengers in FY14E will still increase slightly. We revise down our assumption for AOT’s passenger volume growth in FY14E to +2%, vs. +7% previously. However, aircraft movement growth is revised up to +11%, vs. +8% previously. For FY15E, we still assume passenger volume will improve significantly after the relieving of the political crisis, so we revise up passenger volume growth in FY15E to +14%, vs. +12% previously. Meanwhile, we revise down aircraft movement volume growth in FY15E to +10%, vs. +12% previously, owing to the high base this year from the aggressive expansion of LCC flights.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 3 of 10
Earnings revision Although we slightly upgrade the passenger volume growth figure in FY15E, the lowering of the traffic volume base this year will not offset the growth figure next year. As a result, we revise down AOT’s earnings in FY14-15E by 9% and 6% to Bt11.6bn and Bt13.2bn, respectively. For FY16E, we maintain our assumption for an increase in PSC for AOT. Switch to “Sell into Strength” with new target price of Bt200 We switch our DCF-based target price (TP) for AOT to FY15E of Bt200, vs. FY14E TP of Bt175 previously, based on WACC of 11% and long-term growth of 3%. AOT’s share price performance has been better than peers over the last twelve months despite being impacted by the political unrest. This is due to the visibility of earnings and the nature of its business as a monopoly. However, the share price currently trading at PER of 25x looks expensive, in our view, compared to the PER of 15x for regional peers. Nevertheless, we expect the share price to continue to be strong over the next three months owing to the easing of the political situation and the prospects for better tourist numbers in the peak season this year. As a result, we switch our rating for AOT to Sell into Strength (from Sell).
Figure 7: Key changes to our assumptions and revision to earnings forecasts: AOT FY14E Ended Sep
Current
Previous
Passenger volume growth (%)
1.8
Aircraft movement growth (%)
FY15E % chg
Current
Previous
7.0
13.7
12.0
% chg
11.0
8.0
10.0
12.0
Revenue (Btmn)
38,026
40,154
(5.3)
41,915
44,896
(6.6)
Normalized profit (Btmn)
11,478
12,558
(8.6)
13,176
13,992
(5.8)
93
93
0.0
0
0
0.0
11,571
12,651
(8.5)
13,176
13,992
(5.8)
Forecast changes
Extra items (Btmn) Net profit (Btmn)
Source: KT ZMICO Research
Figure 8: Summary of assumptions for DCF-based valuation for AOT
Risk-free rate (Rf) % Market return (Rm)% Market risk premium (Rm-Rf)% Beta Cost of equity (Ke) % Debt-to-capital ratio (%) Perpetual growth rate (%) WACC (%)
5.00 14.50 9.50 0.90 13.80 24.00 3.00 11.00
Present value of free cash flow (FY15-30E) Present value of terminal value Total present value of FCF Less: debt as of end-FY14E Plus: cash as of end-FY14E Total equity value
Outstanding shares at end-FY14E
Equity value / share (Bt)
(Btmn) 140,241 136,418 276,659 33,510 42,501 285,651 1,429 200
Source: KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 4 of 10
Figure 9: AOT’s historical PER Band
Figure 10: AOT’s historical P/BV Band
Source: Bloomberg
LCC: volume intact, but not fares Domestic passengers support LCC volume in 2014E According to AOT’s figures, LCC passenger volume at AOT’s six airports in Jan-Apr 14 remained intact at +20% YoY, comprised of +10% YoY for international passengers and +25% YoY for domestic. Although we believe passenger numbers in the next couple months may be impacted by the martial law remaining in effect, the growth figure will likely accelerate in the last quarter of the year as we enter the high season of the tourism industry. As a result, we expect LCC passenger volume to grow by +16% in 2014E, followed by +20% in 2015E, owing to LCC flight expansion, both short and long haul, and the turnaround of the Thai tourism industry. Fare rate hurt by both competition and low demand Although volume growth remained strong, the average fare rate of LCC in 1Q14 fell significantly (AAV; -14% YoY, NOK; -12% YoY) owing to fierce competition amidst the lower travel demand resulting from political uncertainty, especially for international routes. We expect this situation to continue until 3Q14 before improving in the last quarter of this year. For 2015E, we assume the average fare rate to slightly increase by 2%. AAV: revise down normalized profit in 2014-15E by 46% and 7% We revise down our normalized profit estimates in 2014-15E for AAV by 46% and 7% to Bt476mn and Bt1bn, respectively. In 2014E, we revise down our passenger volume assumption for AAV by 3% to 12.4mn (+18% YoY) and lower the average fare rate assumption by 7% to Bt1,640/passenger (-13% YoY) to reflect the intense competition in the LCC industry. AAV’s cabin factor in 2014E is likely to fall to 82%, vs. 84% in 2013. For 2015E, we believe AAV’s earnings will come back to normal after passenger volume rebounds, with the cabin factor turning back to 84% and earnings likely jumping by 122% YoY. AAV: Upgrade to BUY with new target price of Bt4.70 We switch our target price (TP) for AAV to be based on the earnings performance in 15E to Bt4.70 vs. the 14E TP of Bt4.00 previously. Our multiple valuation for AAV is still based on PER of 22x, -1SD of the historical average PER since listing in the SET. As the share price currently offers significant capital gains compared to the new target price, we switch our recommendation for AAV to BUY (from Sell).
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 5 of 10
Figure 11: Key changes to our assumptions and revision to earnings forecasts for AAV 2014E Ended Dec
Current
ASK growth (% YoY)
16.0
2015E
Previous
% +/-
Current
Previous
22.9
17.3
14.0
% +/-
RPK growth (% YoY)
14.0
22.0
20.0
15.0
Cabin factor (%)
82.2
83.0
84.1
83.8
Passengers carried (mn)
12.4
12.8
(3.1)
14.9
14.7
1.4
1,640
1,772
(7.4)
1,673
1,745
(4.1)
369
369
0.0
380
380
0.0
25,386
28,017
(9.4)
31,129
31,986
(0.2)
476
884
(46.2)
1,039
1,113
(6.6)
Average fare (Bt/passenger) Average ancillary (Bt/passenger) Revenue (Btmn) Normalized profit (Btmn) FX gains (Btmn)
(8)
0
n.m.
0
0
-
Net profit (Btmn)
468
884
(47.1)
1,039
1,113
(6.6)
Source: KT ZMICO Research
Figure 12: AAV’s historical PER band
Figure 13: AAV’s historical P/BV Band
Source: KT ZMICO Research
NOK: revise down normalized profit in 2014-15E by 69% and 25% We revise down our normalized profit estimates in 2014-15E for NOK by 69% and 25% to Bt335mn and Bt930mn, respectively. In 2014E, we revise down our passenger volume assumption for NOK by 1% to 7.0mn (+19% YoY) and lower the average fare rate assumption by 4% to Bt1,609/passenger (-10% YoY) to reflect the intense competition in the LCC industry. For 2015E, we believe NOK’s earnings will come back to normal just like AAV. NOK-SCOOT long haul LCC to contribute loss in 2014-15E We already include the new long haul LCC, NOK-SCOOT SPV (NOK’s 49%owned subsidiary), in our earnings projections starting from 4Q14E onwards. NOK will start to operate this airlines with two aircraft in 2014-15E, which will likely compete with Thai Air Asia X. We assume the new airline to achieve cabin factors of 72% and 76% in 2014-15E. NOK-SCOOT SPV is likely to contribute a net loss (after minority interest) to NOK of around Bt130mn and Bt204mn in 2014-15E. We expect this new airline to start generating a net profit in 2017E. NOK: Switch to Trading BUY with new target price of Bt19.30 We switch our target price (TP) for NOK to be based on the earnings performance in 15E to Bt19.30 vs. the 14E TP of Bt21.00 previously. The lowering of the 15E TP compared with 14E TP owes to the significant downward earnings revision for both 2014E and 2015E. Our multiple REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 6 of 10
valuation for NOK is shifted from PER of 12x to PER of 13x, -1SD of the historical average PER since listing in the SET. As NOK is currently trading close to our new TP but still has a short-term catalyst from the peak season of the tourism industry, we switch our rating to Trading BUY (from BUY).
Figure 14: Key changes to our assumptions and revision to earnings forecasts: NOK 2014E Ended Dec
Current
2015E
Previous
% +/-
Current
Previous
% +/-
ASK growth (% YoY)
24.3
22.9
18.3
15.6
RPK growth (% YoY)
20.9
21.0
21.0
16.0
Cabin factor (%)
81.7
82.7
83.5
83.0
7.0
7.1
(1.4)
8.5
8.3
2.4
1,609
1,681
(4.3)
1,641
1,656
(0.9)
119
111
7.2
125
115
8.7
Passengers carried (mn) Average fare (Bt/passenger) Average ancillary (Bt/passenger) NOK-SCOOT assumption (start 4Q14) Cabin factor (%) Passengers carried (mn) Average fare (Bt/Passenger) Revenue (Btmn) Normalized profit (Btmn) FX gains (Btmn) Net profit (Btmn)
76.0
72.0 0.1
0.6
4,100
4,300
12,605
12,773
(1.3)
18,098
14.635
23.7
930
1,233
(24.6)
335
1,080
(69.0)
0
0
0.0
0
0
0.0
(69.0)
930
1,233
(24.6)
335
1,080
Source: KT ZMICO Research
Figure 15: NOK’s historical PER band
Figure 16: NOK’s historical P/BV Band
Source: KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 7 of 10
THAI: balance sheet concerns Expect net loss of Bt9bn in 2014E We revise down THAI’s earnings in 2014E to a net loss of Bt9bn, vs. the net loss of Bt2.8bn previously expected, owing mainly to our downward revision of RPK growth to -3.7%, vs. +5% previously. THAI’s cabin factor in 2014E is likely to fall to 71%, vs. the 75% previously expected. However, as ticket promotions decline in light of lower demand, THAI’s passenger yields this year are expected to slightly increase to Bt2.77/RPK (+2% YoY). For 2015E, although we believe THAI’s earnings will turn around just like other airlines, we slightly downgrade the net profit estimate by 5% to Bt1.2bn for THAI as we believe the passenger yield will likely falling as the airline tries to attract passenger volume following the turnaround of the tourism industry. THAI plans to launch hybrid bond to lower D/E After the earnings revision, THAI’s financial status is likely to weaken with net D/E expected to increase to 3.8x in 2014E, from 2.9x in 2013. The company plans to launch a hybrid bond to reduce D/E to below 3x. Maintain Trading BUY with new target price of Bt18 We switch our target price (TP) for THAI to be based on the earnings performance in 15E to Bt18 vs. the 14E TP of Bt19 previously. Just as with NOK, the lowering of the 15E TP compared with the 14E TP for THAI owes to the significant downward earnings revision, especially the huge loss in 2014E, which will drag down the company’s equity. Our multiple valuations for THAI are still based on P/BV of 0.8x, -0.5SD of the historical average P/BV for the last ten years. THAI’s share price has increased significantly over the last month as the military junta is likely to reform THAI’s operation, especially in regard to personal benefit expenses. However, implementing reform will not be easy or quick since there will likely be resistance from THAI’s labor union. Nevertheless, as earnings are likely to improve in 4Q14E during the peak season, we maintain our Trading BUY call for THAI.
Figure 17: Key changes to our assumptions and revision to earnings forecasts 2014E Current ASK growth (% YoY)
0.7
RPK growth (% YoY) Cabin factor (%) Passenger Yield (Bt/RPK)
2015E
Previous
% +/-
Current
Previous
% +/-
4.0
2.2
(3.7)
5.0
11.9
5.0
70.8
74.8
77.6
74.8
2.77
2.71
2.1
1.1
Freight load factor (%)
51.1
52.1
Freight Yield (%)
9.37
9.10
3.0
Revenue (Btmn)
204,684
217,535
(5.9)
223,713
230,016
(2.7)
(225,112)
(2.9)
Passenger Yield growth (% YoY)
Operating expenses (Btmn) Normalized profit (Btmn) FX gains (Btmn) Extra items (Btmn) Net profit (Btmn)
2.2
5.0
2.73
2.74
(1.7)
1.1
52.6
53.6
9.37
9.10
(0.4)
3.0
(211,588)
(217,319)
(2.6)
(218,574)
(9,998)
(2,839)
1,203
1,267
(5.1)
0
n.m. n.m.
0
0
0.0
0
n.m.
0
0
0.0
(2,839)
n.m.
1,203
1,267
(5.1)
990 0 (9,008)
Source: KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 8 of 10
Figure 18: THAI’s historical P/E Band
Figure 19: THAI’s historical P/BV Band
Source: Bloomberg
Figure 20: 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
Airport Beijing Capital Intl
China
2,866
12.4
10.8
9.8 1.0
1.0
0.9
3.2
3.8
7.6
8.6
9.3
9.6
7.3
6.8
6.4
Guangzhou Baiyun Intl
China
1,267
7.8
7.3
6.7 0.9
0.9
0.8
5.8
4.7
1.2
11.8
11.7
11.7
3.4
3.2
3.0
Shanghai International
China
3,976
11.5
10.2
9.2 1.3
1.2
1.1
2.7
3.1
3.3
11.7
12.2
12.7
6.5
5.9
5.2
Shenzhen Airport
China
1,011
19.2
13.6
13.3 0.8
0.7
0.7
0.5
1.4
0.9
3.7
5.7
6.6
7.0
6.4
6.2
Xiamen Intl.
China
667
8.5
7.3
6.3 1.4
1.2
1.1
3.2
3.9
4.2
17.8
17.5
18.5
3.8
3.4
3.0
25.9
22.3
19.4 1.9
1.8
1.7
1.8
2.2
2.6
8.0
7.8
8.8
13.8
12.2
11.5
18.9
17.3
16.2 2.4
2.4
2.3
4.3
4.6
5.1
12.8
14.1
14.4
13.2
12.0
11.3
14.9
12.7
11.6 1.4
1.3
1.2
3.1
3.4
3.6
10.6
11.2
11.7
7.8
7.1
6.6
24.8
21.6
2.7
2.4
1.6
1.9
2.4
12.1
12.9
15.5
13.6
12.0
10.0
Malaysia Airports Holdings
Malaysia
3,377
Singapore Airport Terminal
Singapore
2,808
Average (simple) Thailand
AOT*
9,025
16.5
2.9
Airline - LCC AIR ASIA BHD
Malaysia
2,006
9.8
8.4
6.8
1.2
1.0
0.9
2.0
2.4
2.6
12.4
13.2
14.4
8.9
7.9
6.9
AIRARABI
UAE
1,639
12.8
10.8
10.0
1.1
1.0
1.0
5.7
6.4
7.1
9.0
9.7
10.8
9.9
8.1
7.0
CEBU AIR INC
Philippines
795
16.1
12.4
12.1
1.6
1.4
1.3
1.4
2.0
2.2
9.0
12.5
12.2
8.8
7.6
7.5
EASYJET PLC
Britain
9,625
12.6
11.0
9.8
2.6
2.2
1.9
2.6
3.2
3.4
20.9
21.8
20.9
7.4
6.5
5.8
RYANAIR HOLDINGS PLC
Ireland
12,892
20.6
14.5
12.8
3.2
2.7
2.3
0.0
3.2
0.4
15.9
19.3
19.1
10.3
7.8
7.1
SOUTHWEST AIRLINES
USA
18,451
17.4
14.9
12.7
2.4
2.1
2.0
0.6
0.7
0.8
13.7
13.9
14.3
6.4
5.7
5.3 25.5
TIGER AIRWAYS HLDG
Singapore
390
n.a.
n.a.
n.a.
6.6
2.5
2.6
0.0
0.0
0.0
n.m.
n.m.
n.m.
n.a.
n.a.
VIRGIN AUSTRALIA HLDG
Australia
1,404
n.a.
n.a.
47.5
1.3
1.4
1.3
0.0
0.0
0.5
(15.0)
(6.9)
2.4
17.8
10.5
7.1
WESTJET AIRLINES LTD
Canada
2,875
12.2
10.3
8.8
1.8
1.6
1.4
1.9
2.2
2.6
16.0
16.6
n.a.
4.5
3.9
3.4
14.5
11.7
15.1
2.4
1.8
1.6
1.6
2.2
2.2
10.2
12.5
13.4
9.3
7.3
8.4
AAV
Average (simple) Thailand
662
42.4
19.4
15.8
1.0
1.0
1.0
0.0
2.1
2.5
2.4
5.2
6.1
12.3
6.9
5.8
NOK
Thailand
355
32.3
11.6
9.0
2.3
2.1
1.9
1.6
4.3
5.6
7.2
18.8
22.0
4.1
3.2
2.6
Airline - Conventional CHINA SOUTHERN AIRLINES
Hong Kong
3,426
11.3
6.2
5.3
0.5
0.5
0.5
1.5
2.7
3.2
5.0
8.2
9.1
5.8
5.2
4.6
AIR CHINA LTD-H
Hong Kong
7,122
11.2
9.0
7.9
0.8
0.7
0.7
0.9
1.3
1.4
5.8
7.2
7.4
6.6
6.0
5.4
CATHAY PACIFIC AIRWAYS
Hong Kong
7,349
14.5
10.3
8.3
0.9
0.8
0.8
2.4
3.3
3.9
6.3
8.2
9.4
7.2
6.3
5.7
CHINA EASTERN AIRLINES
Hong Kong
4,439
11.3
7.6
6.8
0.9
0.8
0.7
0.1
0.3
0.5
7.5
10.5
9.7
6.9
6.0
5.4
KOREAN AIR LINES
Korea
1,903
n.a.
12.3
8.6
0.8
0.8
0.7
0.9
1.2
0.7
1.1
2.5
5.0
7.2
6.8
6.2
SINGAPORE AIRLINES
Singapore
9,813
34.2
21.7
16.5
0.9
0.9
0.9
2.0
3.1
3.9
2.7
4.4
5.8
4.4
3.7
3.3
EVA AIRWAYS
Taiwan
1,591
19.4
14.3
15.7 n.a.
n.a.
n.a.
0.1
0.9
0.2
n.a.
n.a.
n.a.
6.6
6.4
6.2
CHINA AIRLINES
Taiwan
1,759
24.2
22.1
18.4 n.a.
n.a.
n.a.
0.0
0.4
1.0
n.a.
n.a.
n.a.
10.3
10.1
9.7
Average (simple) THAI
Thailand
847
18.0
12.9
10.9
0.8
0.8
0.7
1.0
1.7
1.8
4.7
6.8
7.7
6.9
6.3
5.8
n.m.
28.5
20.1
0.7
0.7
0.7
0.0
1.4
2.0
(17.2)
2.5
3.5
15.3
7.6
6.7
Source: Bloomberg, KT ZMICO, *AOT fiscal year ended September
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 9 of 10
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
The industry, as defined by the NEUTRAL: 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 10 of 10
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
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Fax. (66-2) 686-1666
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Fax. (66-2) 627-3582, 627-3600
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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,
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Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
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Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
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Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
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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.
Transport & Logistics (Aviation)
Overweight
High season coming soon We upgrade the aviation sector rating to “Overweight” after the easing of the political crisis currently. We believe tourist numbers will rebound sharply in the high season at yearend this year and the growth will continue in 2015E. Our rolled over valuations for aviation stocks based on earnings in 2015E suggest upside potential for AAV, which we decide to select as the top pick for the aviation sector. Revise tourist numbers in 2014E to -8%; +14% in 2015E The number of foreign tourist arrivals to Thailand in May-14 fell by -11% after the coup d’etat on 22 May 2014, followed by a curfew being instituted. We expect the number of tourist arrivals to fall further for the next couple months as martial law is still in effect. However, we expect tourist numbers to rebound in 4Q14 as Thailand enters the high season of the tourism industry. We revise down the growth of tourist numbers in 2014E to -8% YoY, vs. +8% previously, with subsequent improvement to +14% YoY in 2015E on the easing of the political crisis currently and the bright prospects for the global economy.
Share data SET index
1,461.91
Sector index
189.14
52-week high
202.22
52-week low
148.23
Market capitalization (Bt m)
641,574.04
% of market cap
4.89
Avg daily turnover (m shares)
224.01
Beta
1.08
Sector Performance (%) 1M
3M
12M
Absolute
7.25
3.56
19.79
Relative
2.32
-3.62
11.77
LCC volume still intact, but not fares In 4M14, AOT’s figures show that LCC passenger volume still grew strongly (+20% YoY), supported by domestic passengers. However, the strong volume growth came at the expense of average ticket fares. We expect LCC passenger volume in 201415E to increase by 16% and +20%, respectively. However, we expect average fare for AAV and NOK in 2014E to fall by 13% and 10%, respectively, and conservatively assume average fares to increase slightly (+2%) in 2015E. Downward earnings We revise down normalized profit in 2014-15E for stocks related to the aviation sector (AOT, AAV, NOK, THAI), based on the changes in passenger volume assumptions as mentioned above and the weak 1Q14 earnings performance owing to the prolonged protests. We lower earnings in 2014E for airline operators significantly as we expect earnings to continue to weaken in 2Q14-3Q14, especially for THAI, which we expect to report a normalized loss of almost Bt10bn this year. For 2015E, we lower the earnings forecasts by 5-7%. However, for NOK, our net profit projection is lowered by 25% as the company will start to operate long haul LCC, NOK-SCOOT (NOK’s 49%-owned subsidiary), in 4Q14E, which we expect to contribute a net loss until 2016E. Target prices rolled over to 2015E After the earnings revision and the rolling over of target prices (TP) to be based on the earnings performance in 2015E, our DCF-based TP for AOT is lifted to Bt200 and AAV’s TP is increased to Bt4.70 (based on PER of 22x, -1SD). Meanwhile, owing to significantly lower earnings projections in 2014-15E, NOK’s TP is lowered to Bt19.30 (based on PER of 13x, -1SD), while THAI’s TP is decreased to Bt18 (based on P/BV of 0.8x, -0.5SD). We maintain our Trading BUY call for THAI, switch AOT’s rating to Sell into Strength (from Sell), switch NOK’s rating to Trading BUY (from Buy) and upgrade AAV to BUY (from Sell).
Note: An executive of KT ZMICO Securities is also a member of PSL’s board.
Raenoo Bhandasukdi Analyst, no 17989 [email protected] 66 (0) 2695-5836
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 1 of 10
Figure 1: Valuation changes for aviation sector Target price (Bt) Current AOT*
Previous
% +/-
14E Normalized profit (Btmn)
15E Normalized profit (Btmn)
Current
Current
Previous
% +/-
Previous
% +/-
200.00
175.00
14.3
11,478
12,651
(8.6)
13,176
13,992
(5.8)
AAV
4.70
4.00
17.5
476
884
(46.2)
1,039
1,113
(6.6)
NOK
19.30
21.00
(8.1)
335
1,080
(69.0)
930
1,233
(24.6)
THAI
18.00
19.00
(5.3)
(9,998)
(2,839)
n.m.
1,203
1,267
(5.1)
Source: KT ZMICO Research Note: * Fiscal year ended September
Figure 2: Rating and valuation summary – Transport sector Rating
TP
Up/Down
(Bt)
(%)
14E
PER (x) 15E
16E
14E
PBV (x) 15E
16E
14E
ROE (%) 15E
16E
14E
Div. yield (%) 15E
16E
4.70
12.98
42.4
19.4
15.8
1.0
1.0
1.0
2.4
5.2
6.1
-
2.1
2.5
200.00
0.50
24.8
21.6
16.5
2.9
2.7
2.4
12.1
12.9
15.5
1.6
1.9
2.4
1.5
1.4
1.3
13.1
14.5
14.2
4.7
4.9
5.2 2.9
AAV
Buy
AOT*
Sell into Strength
BECL
Buy
45.00
23.29
10.1
9.6
9.2
BTS**
Buy
10.00
11.73
36.6
37.1
34.1
1.9
2.1
2.2
5.1
5.5
6.4
6.7
7.8
NOK
Trading Buy
19.30
11.56
32.3
11.6
9.0
2.3
2.1
1.9
7.2
18.8
22.0
1.5
4.3
5.6
PSL
Buy
32.00
25.49
47.1
32.5
26.4
1.7
1.7
1.6
3.6
5.2
9.7
1.7
2.4
4.6
THAI
Trading Buy
18.00
14.65
Average
n.m.
28.5
20.1
0.7
0.7
0.7
(17.2)
2.5
3.5
-
1.4
2.0
32.2
22.9
18.7
1.7
1.7
1.6
3.8
9.2
11.0
2.3
3.5
3.6
Source: KT ZMICO Research Note: *Fiscal year ended September, **Fiscal year ended March
Figure 3: Share price performance & relative performance vs. SETTRANS and SET Closed (Bt) AAV
Price change (%)
Relative to SETTRANS
Relative to SET
19/6/14
1W
1M
3M
12M
1W
1M
3M
12M
1W
1M
3M
12M
4.16
(3.3)
8.9
2.0
(24.4)
(4.5)
3.6
(2.2)
(34.5)
(3.6)
5.3
(5.2)
(26.0)
AOT*
199.00
0.8
2.1
2.8
28.0
(0.5)
(3.2)
(1.3)
17.8
0.4
(1.6)
(4.3)
26.3
BECL
36.50
0.7
7.4
11.5
(4.6)
(0.5)
2.1
7.3
(14.8)
0.4
3.7
4.3
(6.3)
BTS**
8.95
5.3
10.5
4.7
16.2
4.1
5.2
0.5
6.1
5.0
6.9
(2.5)
14.5
17.30
(3.4)
4.2
(8.5)
(34.7)
(4.6)
(1.1)
(12.6)
(44.9)
(3.7)
0.6
(15.6)
(36.4)
PSL
25.50
(1.9)
(5.6)
(7.3)
45.7
(3.2)
(10.8)
(11.4)
35.5
(2.3)
(9.2)
(14.4)
44.0
THAI
15.70
0.6
20.8
11.3
(39.6)
(0.6)
15.5
7.2
(49.8)
0.3
17.1
4.2
(41.3)
NOK
Source: KT ZMICO Research Note: *Fiscal year ended September, **Fiscal year ended March
Figure 4: Earnings summary Company
Net profit (Btm)
Norm. profit (Btm)
Norm. EPS (Bt)
Norm. EPS growth (%)
13
14E
15E
13
14E
15E
13
14E
15E
13
14E
15E
1,043
468
1,039
914
476
1,039
0.19
0.10
0.21
13.7
(47.9)
118.3
AOT*
16,347
11,571
13,176
9,935
11,478
13,176
6.95
8.03
9.22
51.7
15.5
14.8
BECL
4,835
2,770
2,916
1,800
2,770
2,916
2.34
3.60
3.79
20.9
53.9
5.3
12,684
2,910
2,876
2,195
2,910
2,876
0.18
0.24
0.24
35.0
32.6
(1.2) 177.9
AAV
BTS** NOK
1,066
335
930
1,066
335
930
1.71
0.54
1.49
68.8
(68.6)
528
587
816
(421)
562
816
(0.40)
0.54
0.78
165.1
n.m.
45.1
THAI
(12,047)
(9,008)
1,203
(5,868)
(9,998)
1,203
(2.69)
(4.58)
0.55
(964.0)
70.4
n.m.
Total
24,456
9,633
22,955
9,621
8,533
22,955
PSL
Source: KT ZMICO Research Note: *Fiscal year ended September, **Fiscal year ended March
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 2 of 10
Tourist numbers fell sharply after coup The Department of Tourism reported that the number of foreign tourist arrivals to Thailand fell by -11% to 1.74mn in May-14, decelerating when compared to the decline of -2% in Apr-14, owing to the declaration of martial law, the coup d’etat on 22 May 2014, followed by a curfew being imposed. Although the curfew has been lifted currently, martial law is still in effect. As a result, we expect the number of tourist arrivals to continue falling sharply for the next couple months. For 5M14, Thailand’s tourist arrivals fell by -6% YoY, led by the Asian region, owing to the prolonged political protests. Revise tourist arrival growth to -8% this year, +14% next year 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. Previously, we expected the number of tourist arrivals to Thailand to increase by 8% YoY in 2014E, decelerating when compared to the growth of 20% in 2013, owing to the prolonged political protests since Nov-13. However, now we assume the number of tourist arrivals to fall by -8% YoY in 2014E and improve to +14% YoY in 2015E on the easing of the political crisis currently and the bright prospects of the global economy.
Figure 5: Tourist arrival growth in 5M14
Figure 6: Tourist arrivals by quarter
Source: Department of Tourism
AOT: Valuation still rich Revise passenger and aircraft volume Although the number of international passengers is likely to decline, AOT’s passengers in FY14E will still be supported by domestic volume owing to the expansion of low cost carriers (LCC). As a result, we believe AOT’s passengers in FY14E will still increase slightly. We revise down our assumption for AOT’s passenger volume growth in FY14E to +2%, vs. +7% previously. However, aircraft movement growth is revised up to +11%, vs. +8% previously. For FY15E, we still assume passenger volume will improve significantly after the relieving of the political crisis, so we revise up passenger volume growth in FY15E to +14%, vs. +12% previously. Meanwhile, we revise down aircraft movement volume growth in FY15E to +10%, vs. +12% previously, owing to the high base this year from the aggressive expansion of LCC flights.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 3 of 10
Earnings revision Although we slightly upgrade the passenger volume growth figure in FY15E, the lowering of the traffic volume base this year will not offset the growth figure next year. As a result, we revise down AOT’s earnings in FY14-15E by 9% and 6% to Bt11.6bn and Bt13.2bn, respectively. For FY16E, we maintain our assumption for an increase in PSC for AOT. Switch to “Sell into Strength” with new target price of Bt200 We switch our DCF-based target price (TP) for AOT to FY15E of Bt200, vs. FY14E TP of Bt175 previously, based on WACC of 11% and long-term growth of 3%. AOT’s share price performance has been better than peers over the last twelve months despite being impacted by the political unrest. This is due to the visibility of earnings and the nature of its business as a monopoly. However, the share price currently trading at PER of 25x looks expensive, in our view, compared to the PER of 15x for regional peers. Nevertheless, we expect the share price to continue to be strong over the next three months owing to the easing of the political situation and the prospects for better tourist numbers in the peak season this year. As a result, we switch our rating for AOT to Sell into Strength (from Sell).
Figure 7: Key changes to our assumptions and revision to earnings forecasts: AOT FY14E Ended Sep
Current
Previous
Passenger volume growth (%)
1.8
Aircraft movement growth (%)
FY15E % chg
Current
Previous
7.0
13.7
12.0
% chg
11.0
8.0
10.0
12.0
Revenue (Btmn)
38,026
40,154
(5.3)
41,915
44,896
(6.6)
Normalized profit (Btmn)
11,478
12,558
(8.6)
13,176
13,992
(5.8)
93
93
0.0
0
0
0.0
11,571
12,651
(8.5)
13,176
13,992
(5.8)
Forecast changes
Extra items (Btmn) Net profit (Btmn)
Source: KT ZMICO Research
Figure 8: Summary of assumptions for DCF-based valuation for AOT
Risk-free rate (Rf) % Market return (Rm)% Market risk premium (Rm-Rf)% Beta Cost of equity (Ke) % Debt-to-capital ratio (%) Perpetual growth rate (%) WACC (%)
5.00 14.50 9.50 0.90 13.80 24.00 3.00 11.00
Present value of free cash flow (FY15-30E) Present value of terminal value Total present value of FCF Less: debt as of end-FY14E Plus: cash as of end-FY14E Total equity value
Outstanding shares at end-FY14E
Equity value / share (Bt)
(Btmn) 140,241 136,418 276,659 33,510 42,501 285,651 1,429 200
Source: KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 4 of 10
Figure 9: AOT’s historical PER Band
Figure 10: AOT’s historical P/BV Band
Source: Bloomberg
LCC: volume intact, but not fares Domestic passengers support LCC volume in 2014E According to AOT’s figures, LCC passenger volume at AOT’s six airports in Jan-Apr 14 remained intact at +20% YoY, comprised of +10% YoY for international passengers and +25% YoY for domestic. Although we believe passenger numbers in the next couple months may be impacted by the martial law remaining in effect, the growth figure will likely accelerate in the last quarter of the year as we enter the high season of the tourism industry. As a result, we expect LCC passenger volume to grow by +16% in 2014E, followed by +20% in 2015E, owing to LCC flight expansion, both short and long haul, and the turnaround of the Thai tourism industry. Fare rate hurt by both competition and low demand Although volume growth remained strong, the average fare rate of LCC in 1Q14 fell significantly (AAV; -14% YoY, NOK; -12% YoY) owing to fierce competition amidst the lower travel demand resulting from political uncertainty, especially for international routes. We expect this situation to continue until 3Q14 before improving in the last quarter of this year. For 2015E, we assume the average fare rate to slightly increase by 2%. AAV: revise down normalized profit in 2014-15E by 46% and 7% We revise down our normalized profit estimates in 2014-15E for AAV by 46% and 7% to Bt476mn and Bt1bn, respectively. In 2014E, we revise down our passenger volume assumption for AAV by 3% to 12.4mn (+18% YoY) and lower the average fare rate assumption by 7% to Bt1,640/passenger (-13% YoY) to reflect the intense competition in the LCC industry. AAV’s cabin factor in 2014E is likely to fall to 82%, vs. 84% in 2013. For 2015E, we believe AAV’s earnings will come back to normal after passenger volume rebounds, with the cabin factor turning back to 84% and earnings likely jumping by 122% YoY. AAV: Upgrade to BUY with new target price of Bt4.70 We switch our target price (TP) for AAV to be based on the earnings performance in 15E to Bt4.70 vs. the 14E TP of Bt4.00 previously. Our multiple valuation for AAV is still based on PER of 22x, -1SD of the historical average PER since listing in the SET. As the share price currently offers significant capital gains compared to the new target price, we switch our recommendation for AAV to BUY (from Sell).
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 5 of 10
Figure 11: Key changes to our assumptions and revision to earnings forecasts for AAV 2014E Ended Dec
Current
ASK growth (% YoY)
16.0
2015E
Previous
% +/-
Current
Previous
22.9
17.3
14.0
% +/-
RPK growth (% YoY)
14.0
22.0
20.0
15.0
Cabin factor (%)
82.2
83.0
84.1
83.8
Passengers carried (mn)
12.4
12.8
(3.1)
14.9
14.7
1.4
1,640
1,772
(7.4)
1,673
1,745
(4.1)
369
369
0.0
380
380
0.0
25,386
28,017
(9.4)
31,129
31,986
(0.2)
476
884
(46.2)
1,039
1,113
(6.6)
Average fare (Bt/passenger) Average ancillary (Bt/passenger) Revenue (Btmn) Normalized profit (Btmn) FX gains (Btmn)
(8)
0
n.m.
0
0
-
Net profit (Btmn)
468
884
(47.1)
1,039
1,113
(6.6)
Source: KT ZMICO Research
Figure 12: AAV’s historical PER band
Figure 13: AAV’s historical P/BV Band
Source: KT ZMICO Research
NOK: revise down normalized profit in 2014-15E by 69% and 25% We revise down our normalized profit estimates in 2014-15E for NOK by 69% and 25% to Bt335mn and Bt930mn, respectively. In 2014E, we revise down our passenger volume assumption for NOK by 1% to 7.0mn (+19% YoY) and lower the average fare rate assumption by 4% to Bt1,609/passenger (-10% YoY) to reflect the intense competition in the LCC industry. For 2015E, we believe NOK’s earnings will come back to normal just like AAV. NOK-SCOOT long haul LCC to contribute loss in 2014-15E We already include the new long haul LCC, NOK-SCOOT SPV (NOK’s 49%owned subsidiary), in our earnings projections starting from 4Q14E onwards. NOK will start to operate this airlines with two aircraft in 2014-15E, which will likely compete with Thai Air Asia X. We assume the new airline to achieve cabin factors of 72% and 76% in 2014-15E. NOK-SCOOT SPV is likely to contribute a net loss (after minority interest) to NOK of around Bt130mn and Bt204mn in 2014-15E. We expect this new airline to start generating a net profit in 2017E. NOK: Switch to Trading BUY with new target price of Bt19.30 We switch our target price (TP) for NOK to be based on the earnings performance in 15E to Bt19.30 vs. the 14E TP of Bt21.00 previously. The lowering of the 15E TP compared with 14E TP owes to the significant downward earnings revision for both 2014E and 2015E. Our multiple REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 6 of 10
valuation for NOK is shifted from PER of 12x to PER of 13x, -1SD of the historical average PER since listing in the SET. As NOK is currently trading close to our new TP but still has a short-term catalyst from the peak season of the tourism industry, we switch our rating to Trading BUY (from BUY).
Figure 14: Key changes to our assumptions and revision to earnings forecasts: NOK 2014E Ended Dec
Current
2015E
Previous
% +/-
Current
Previous
% +/-
ASK growth (% YoY)
24.3
22.9
18.3
15.6
RPK growth (% YoY)
20.9
21.0
21.0
16.0
Cabin factor (%)
81.7
82.7
83.5
83.0
7.0
7.1
(1.4)
8.5
8.3
2.4
1,609
1,681
(4.3)
1,641
1,656
(0.9)
119
111
7.2
125
115
8.7
Passengers carried (mn) Average fare (Bt/passenger) Average ancillary (Bt/passenger) NOK-SCOOT assumption (start 4Q14) Cabin factor (%) Passengers carried (mn) Average fare (Bt/Passenger) Revenue (Btmn) Normalized profit (Btmn) FX gains (Btmn) Net profit (Btmn)
76.0
72.0 0.1
0.6
4,100
4,300
12,605
12,773
(1.3)
18,098
14.635
23.7
930
1,233
(24.6)
335
1,080
(69.0)
0
0
0.0
0
0
0.0
(69.0)
930
1,233
(24.6)
335
1,080
Source: KT ZMICO Research
Figure 15: NOK’s historical PER band
Figure 16: NOK’s historical P/BV Band
Source: KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 7 of 10
THAI: balance sheet concerns Expect net loss of Bt9bn in 2014E We revise down THAI’s earnings in 2014E to a net loss of Bt9bn, vs. the net loss of Bt2.8bn previously expected, owing mainly to our downward revision of RPK growth to -3.7%, vs. +5% previously. THAI’s cabin factor in 2014E is likely to fall to 71%, vs. the 75% previously expected. However, as ticket promotions decline in light of lower demand, THAI’s passenger yields this year are expected to slightly increase to Bt2.77/RPK (+2% YoY). For 2015E, although we believe THAI’s earnings will turn around just like other airlines, we slightly downgrade the net profit estimate by 5% to Bt1.2bn for THAI as we believe the passenger yield will likely falling as the airline tries to attract passenger volume following the turnaround of the tourism industry. THAI plans to launch hybrid bond to lower D/E After the earnings revision, THAI’s financial status is likely to weaken with net D/E expected to increase to 3.8x in 2014E, from 2.9x in 2013. The company plans to launch a hybrid bond to reduce D/E to below 3x. Maintain Trading BUY with new target price of Bt18 We switch our target price (TP) for THAI to be based on the earnings performance in 15E to Bt18 vs. the 14E TP of Bt19 previously. Just as with NOK, the lowering of the 15E TP compared with the 14E TP for THAI owes to the significant downward earnings revision, especially the huge loss in 2014E, which will drag down the company’s equity. Our multiple valuations for THAI are still based on P/BV of 0.8x, -0.5SD of the historical average P/BV for the last ten years. THAI’s share price has increased significantly over the last month as the military junta is likely to reform THAI’s operation, especially in regard to personal benefit expenses. However, implementing reform will not be easy or quick since there will likely be resistance from THAI’s labor union. Nevertheless, as earnings are likely to improve in 4Q14E during the peak season, we maintain our Trading BUY call for THAI.
Figure 17: Key changes to our assumptions and revision to earnings forecasts 2014E Current ASK growth (% YoY)
0.7
RPK growth (% YoY) Cabin factor (%) Passenger Yield (Bt/RPK)
2015E
Previous
% +/-
Current
Previous
% +/-
4.0
2.2
(3.7)
5.0
11.9
5.0
70.8
74.8
77.6
74.8
2.77
2.71
2.1
1.1
Freight load factor (%)
51.1
52.1
Freight Yield (%)
9.37
9.10
3.0
Revenue (Btmn)
204,684
217,535
(5.9)
223,713
230,016
(2.7)
(225,112)
(2.9)
Passenger Yield growth (% YoY)
Operating expenses (Btmn) Normalized profit (Btmn) FX gains (Btmn) Extra items (Btmn) Net profit (Btmn)
2.2
5.0
2.73
2.74
(1.7)
1.1
52.6
53.6
9.37
9.10
(0.4)
3.0
(211,588)
(217,319)
(2.6)
(218,574)
(9,998)
(2,839)
1,203
1,267
(5.1)
0
n.m. n.m.
0
0
0.0
0
n.m.
0
0
0.0
(2,839)
n.m.
1,203
1,267
(5.1)
990 0 (9,008)
Source: KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 8 of 10
Figure 18: THAI’s historical P/E Band
Figure 19: THAI’s historical P/BV Band
Source: Bloomberg
Figure 20: 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
Airport Beijing Capital Intl
China
2,866
12.4
10.8
9.8 1.0
1.0
0.9
3.2
3.8
7.6
8.6
9.3
9.6
7.3
6.8
6.4
Guangzhou Baiyun Intl
China
1,267
7.8
7.3
6.7 0.9
0.9
0.8
5.8
4.7
1.2
11.8
11.7
11.7
3.4
3.2
3.0
Shanghai International
China
3,976
11.5
10.2
9.2 1.3
1.2
1.1
2.7
3.1
3.3
11.7
12.2
12.7
6.5
5.9
5.2
Shenzhen Airport
China
1,011
19.2
13.6
13.3 0.8
0.7
0.7
0.5
1.4
0.9
3.7
5.7
6.6
7.0
6.4
6.2
Xiamen Intl.
China
667
8.5
7.3
6.3 1.4
1.2
1.1
3.2
3.9
4.2
17.8
17.5
18.5
3.8
3.4
3.0
25.9
22.3
19.4 1.9
1.8
1.7
1.8
2.2
2.6
8.0
7.8
8.8
13.8
12.2
11.5
18.9
17.3
16.2 2.4
2.4
2.3
4.3
4.6
5.1
12.8
14.1
14.4
13.2
12.0
11.3
14.9
12.7
11.6 1.4
1.3
1.2
3.1
3.4
3.6
10.6
11.2
11.7
7.8
7.1
6.6
24.8
21.6
2.7
2.4
1.6
1.9
2.4
12.1
12.9
15.5
13.6
12.0
10.0
Malaysia Airports Holdings
Malaysia
3,377
Singapore Airport Terminal
Singapore
2,808
Average (simple) Thailand
AOT*
9,025
16.5
2.9
Airline - LCC AIR ASIA BHD
Malaysia
2,006
9.8
8.4
6.8
1.2
1.0
0.9
2.0
2.4
2.6
12.4
13.2
14.4
8.9
7.9
6.9
AIRARABI
UAE
1,639
12.8
10.8
10.0
1.1
1.0
1.0
5.7
6.4
7.1
9.0
9.7
10.8
9.9
8.1
7.0
CEBU AIR INC
Philippines
795
16.1
12.4
12.1
1.6
1.4
1.3
1.4
2.0
2.2
9.0
12.5
12.2
8.8
7.6
7.5
EASYJET PLC
Britain
9,625
12.6
11.0
9.8
2.6
2.2
1.9
2.6
3.2
3.4
20.9
21.8
20.9
7.4
6.5
5.8
RYANAIR HOLDINGS PLC
Ireland
12,892
20.6
14.5
12.8
3.2
2.7
2.3
0.0
3.2
0.4
15.9
19.3
19.1
10.3
7.8
7.1
SOUTHWEST AIRLINES
USA
18,451
17.4
14.9
12.7
2.4
2.1
2.0
0.6
0.7
0.8
13.7
13.9
14.3
6.4
5.7
5.3 25.5
TIGER AIRWAYS HLDG
Singapore
390
n.a.
n.a.
n.a.
6.6
2.5
2.6
0.0
0.0
0.0
n.m.
n.m.
n.m.
n.a.
n.a.
VIRGIN AUSTRALIA HLDG
Australia
1,404
n.a.
n.a.
47.5
1.3
1.4
1.3
0.0
0.0
0.5
(15.0)
(6.9)
2.4
17.8
10.5
7.1
WESTJET AIRLINES LTD
Canada
2,875
12.2
10.3
8.8
1.8
1.6
1.4
1.9
2.2
2.6
16.0
16.6
n.a.
4.5
3.9
3.4
14.5
11.7
15.1
2.4
1.8
1.6
1.6
2.2
2.2
10.2
12.5
13.4
9.3
7.3
8.4
AAV
Average (simple) Thailand
662
42.4
19.4
15.8
1.0
1.0
1.0
0.0
2.1
2.5
2.4
5.2
6.1
12.3
6.9
5.8
NOK
Thailand
355
32.3
11.6
9.0
2.3
2.1
1.9
1.6
4.3
5.6
7.2
18.8
22.0
4.1
3.2
2.6
Airline - Conventional CHINA SOUTHERN AIRLINES
Hong Kong
3,426
11.3
6.2
5.3
0.5
0.5
0.5
1.5
2.7
3.2
5.0
8.2
9.1
5.8
5.2
4.6
AIR CHINA LTD-H
Hong Kong
7,122
11.2
9.0
7.9
0.8
0.7
0.7
0.9
1.3
1.4
5.8
7.2
7.4
6.6
6.0
5.4
CATHAY PACIFIC AIRWAYS
Hong Kong
7,349
14.5
10.3
8.3
0.9
0.8
0.8
2.4
3.3
3.9
6.3
8.2
9.4
7.2
6.3
5.7
CHINA EASTERN AIRLINES
Hong Kong
4,439
11.3
7.6
6.8
0.9
0.8
0.7
0.1
0.3
0.5
7.5
10.5
9.7
6.9
6.0
5.4
KOREAN AIR LINES
Korea
1,903
n.a.
12.3
8.6
0.8
0.8
0.7
0.9
1.2
0.7
1.1
2.5
5.0
7.2
6.8
6.2
SINGAPORE AIRLINES
Singapore
9,813
34.2
21.7
16.5
0.9
0.9
0.9
2.0
3.1
3.9
2.7
4.4
5.8
4.4
3.7
3.3
EVA AIRWAYS
Taiwan
1,591
19.4
14.3
15.7 n.a.
n.a.
n.a.
0.1
0.9
0.2
n.a.
n.a.
n.a.
6.6
6.4
6.2
CHINA AIRLINES
Taiwan
1,759
24.2
22.1
18.4 n.a.
n.a.
n.a.
0.0
0.4
1.0
n.a.
n.a.
n.a.
10.3
10.1
9.7
Average (simple) THAI
Thailand
847
18.0
12.9
10.9
0.8
0.8
0.7
1.0
1.7
1.8
4.7
6.8
7.7
6.9
6.3
5.8
n.m.
28.5
20.1
0.7
0.7
0.7
0.0
1.4
2.0
(17.2)
2.5
3.5
15.3
7.6
6.7
Source: Bloomberg, KT ZMICO, *AOT fiscal year ended September
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES
page 9 of 10
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
The industry, as defined by the NEUTRAL: 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 10 of 10
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
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Fax. (66-2) 627-3582, 627-3600
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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,
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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.
