Nok Airlines AWS
Nok Airlines Buy (15E TP Bt21.40)
Company Update
Close Bt15.10
Transport & Logistics January 29, 2015
Earnings upgrade/Earnings downgrade/Overview unchanged
Rebound starts in 4Q14E Maintain BUY with revised target price of Bt21.40 We maintain our BUY recommendation for NOK with a revised target price of Bt21.40, vs. Bt18.90 previously, after revising up the net profit estimate in 2015E by 14%. We pegged NOK’s target price at PER of 15x, higher than PER of 14x for peers, owing mainly to outstanding earnings growth prospects.
FY14
FY15
Consensus EPS (Bt)
‐0.604
1.391
KT ZMICO vs. consensus Share data
24.2%
2.8%
Reuters / Bloomberg
NOK.BK/NOK TB
Paid‐up Shares (m)
625.00
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
9.00/291.00
Foreign limit / actual (%)
49.00/4.98
52 week High / Low (Bt)
20.50/11.40
Avg. daily T/O (shares 000) NVDR (%)
4,078.00 1.93
Estimated free float (%)
31.75
Beta
0.70
URL
www.nokair.com ‐
CGR
Raenoo Bhandasukdi Analyst no. 17989 [email protected] 66 (0) 2695‐5836
Net profit to break even in 4Q14E We expect net profit of Bt25mn in 4Q14E for NOK, improving from a net loss of Bt372mn in 3Q14 but declining by 83% YoY. On a quarterly basis, earnings should improve mainly due to airfare and passenger increases. Even though the global jet fuel price this quarter declined to US$92/barrel (‐24% YoY, ‐22% QoQ), NOK will not receive much positive impact as fuel hedging is around 35% of fuel usage with an average cost of ~US$120/barrel. Expands fuel hedging tenor to one year NOK recently expanded the hedging contract tenor to 12 months, vs. six months previously, in order to have more hedging flexibility in dealing with the fluctuations of the global oil price. The fuel hedging position in 2‐4Q15E was 17%, 10%, and 4% of quarterly fuel usage with the average cost dropping to US$60‐70/barrel. Hence, we believe earnings will continue to improve in 1Q15E and 2015E. Upgrade net profit estimate in 2015E We have another net profit upgrade for NOK in 2015E by 14% to Bt892mn owing to the recent downward revision of the global oil price by the KT ZMICO Research team. We expect passenger volume of 9.1mn (+20% YoY) with flat average airfares. Including revenue from the long‐ haul LCC, NOK‐SCOOT, NOK’s revenue in 2015E is likely to jump by 40% YoY to Bt16.8bn, with the GPM expected to improve to 11% vs. 1% in 2014E. Financial and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) Norm. profit (Btmn) Norm. EPS (Bt) Norm. EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) P/BV (x) Dividend yield (%) ROE (%) Net gearing (%)
2012 8,218 258 0.52 505 1.01 152.8 0.50 1.78 2012 14.94 14.70 8.50 3.31 59.95 cash
2013 11,180 1,066 1.71 1,066 1.71 68.8 1.03 7.27 2013 8.85 4.00 2.08 6.82 39.25 cash
2014E 12,047 (466) (0.75) (466) (0.75) n.m. 0.00 6.90 2014E n.m. n.m. 2.19 0.00 (10.53) cash
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 6
2015E 16,849 892 1.43 892 1.43 n.m. 0.71 7.61 2015E 10.58 5.21 1.98 4.73 19.68 cash
2016E 26,198 1,046 1.67 1,046 1.67 17.25 0.84 8.45 2016E 9.02 2.72 1.79 5.54 20.85 cash
Maintain BUY with revised target price of Bt21.40 (based on PER of 15x) We maintain our BUY recommendation for NOK with a revised target price of Bt21.40, vs. Bt18.90 previously, after revising up the net profit estimate in 2015E by 14% to Bt892mn owing to the downward revision of global oil price. We expect NOK’s earnings to turn around in 2015E owing to passenger volume growth, lower fuel costs, and the contribution from NOK‐ SCOOT. We still believe the fierce competition in the LCC industry in Thailand will be relieved this year as demand growth is likely to outpace supply growth. However, to be conservative we keep our 0% airfare growth assumption this year. We pegged NOK’s target price at PER of 15x, higher than PER of 14x for peers, owing mainly to outstanding earnings growth prospects. Figure 1: Peer comparison COUNTRY Mkt Cap
PER (x)
US$mn 14E
Airline ‐ LCC
2,142
15.2
15E 9.0
PBV (x) 16E 7.7
14E 1.4
15E 1.2
Yield (%) 16E 1.1
14E 1.4
15E 2.2
ROE (%) 16E 2.5
14E 9.6
15E 14.5
EV/EBITDA (x) 16E 15.0
14E 11.2
15E 8.9
16E 8.2
AIR ASIA BHD
Malaysia
AIRARABI
UAE
2,096
14.2
12.5
11.6
1.4
1.4
1.3
4.4
5.0
5.5
10.1
11.6
11.7
11.2
9.2
8.4
CEBU AIR INC
Philippines
1,313
19.3
13.2
11.6
2.5
2.1
1.8
1.3
1.6
1.2
14.7
19.9
17.7
10.7
8.5
7.5
EASYJET PLC
Britain
10,827
12.4
14.1
12.5
2.6
2.9
2.5
3.2
3.3
3.3
21.5
21.4
21.4
7.5
8.5
7.7
RYANAIR HOLDINGS PLC
Ireland
16,745
20.6
18.1
16.0
3.2
4.0
3.3
0.0
2.5
0.3
15.9
23.3
22.6
10.3
10.3
9.2
SOUTHWEST AIRLINES
USA
31,494
22.6
13.8
12.8
4.2
3.3
2.8
0.5
0.5
0.7
16.1
29.6
24.3
9.0
6.4
6.1
TIGER AIRWAYS HLDG
Singapore
506
n.a.
n.a.
n.a.
6.6
2.5
2.5
0.0
0.0
0.0
n.m.
n.m.
n.m.
n.a.
n.a.
15.7
VIRGIN AUSTRALIA HLDG
Australia
1,318
n.a.
n.a.
33.6
1.4
1.4
1.3
0.0
0.0
0.0
(33.1)
(5.9)
5.1 151.1
9.7
6.7
WESTJET AIRLINES LTD
Canada
2,723
13.1
9.4
9.0
2.3
1.9
1.7
1.5
1.9
2.2
17.8
20.7
AAV *
Thailand
746
n.m.
20.2
18.2
1.3
1.2
1.2
0.0
2.0
2.2
0.3
16.8
13.8
14.8
2.7
2.2
2.0
1.2
1.9
1.8
8.1
Hong Kong
7,377
19.4
8.7
7.3
0.9
0.8
0.7
0.8
2.0
2.2
3.9
10.3
Average (simple) Airline – Conventional CHINA SOUTHERN AIRLINES
16.6
4.6
3.4
3.2
6.0
6.5
25.3
7.9
7.0
15.6
15.7
26.8
8.1
8.0
10.5
7.4
5.4
5.2
AIR CHINA LTD‐H
Hong Kong
15,502
21.9
11.9
9.6
1.3
1.2
1.1
0.8
1.7
1.8
6.2
11.4
11.6
9.4
7.2
6.8
CATHAY PACIFIC AIRWAYS
Hong Kong
9,093
20.2
11.9
9.8
1.1
1.0
1.0
1.7
2.9
3.4
5.7
8.8
10.3
7.9
6.3
5.9
CHINA EASTERN AIRLINES
Hong Kong
9,461
17.2
8.8
7.3
1.3
1.1
1.0
0.2
0.8
0.6
6.9
14.6
14.8
9.1
6.7
6.1
KOREAN AIR LINES
Korea
2,420
n.a.
9.2
8.4
1.2
1.1
0.9
0.0
0.0
0.0
(11.0)
11.7
11.2
8.9
7.2
7.0 4.4
SINGAPORE AIRLINES
Singapore
11,004
34.2
38.5
20.6
0.9
1.1
1.1
2.0
1.9
3.1
2.7
2.9
5.8
4.4
5.4
EVA AIRWAYS
Taiwan
3,008
54.5
15.2
16.4
2.1
1.9
1.8
0.0
0.5
0.0
4.7
12.3
8.7
9.6
7.2
7.6
CHINA AIRLINES
Taiwan
2,733
n.a.
13.8
14.3
1.7
1.6
1.5
0.0
0.8
0.0
(1.7)
7.7
6.4
10.0
7.3
8.1
THAI*
Thailand
1,007
n.m.
27.4
19.2
0.7
0.6
0.6
0.0
0.0
0.0
(11.2)
2.3
3.3
25.9
7.7
6.8
27.9
16.2
12.5
1.2
1.2
1.1
0.6
1.2
1.2
0.7
9.1
9.2
10.3
6.7
6.4
Average (simple)
Source: Bloomberg Note: *KT ZMICO Research estimates Net profit to break even in 4Q14E We expect net profit of Bt25mn in 4Q14E for NOK, improving from a net loss of Bt372mn in 3Q14 but still declining by 83% YoY. We believe the average airfare will increase QoQ to Bt1,410/passenger, ‐22% YoY, +6% QoQ, thanks to improvement of the LCC industry after the demand turnaround as seen from passenger volume growth of +47% YoY and +26% QoQ to 6.7mn at Don Muang International Airport (DMK) in 4Q14. NOK’s passenger volume this quarter is expected to reach 2.2mn, +39% YoY and +18% QoQ, which will push the cabin factor to 83%. The gross profit margin (GPM is likely to improve to 6%, vs. ‐8% in 3Q14, thanks to an increase in ticket fares. Even though the global jet fuel price this quarter declined to US$92/barrel (‐24% YoY, ‐22% QoQ), NOK will not receive much positive impact as fuel hedging this quarter is around 35% of fuel usage with an average cost of around US$120/barrel. For 2014E, we revise down the earnings estimate to a net loss of Bt466mn, vs. a net loss of Bt430mn previously, owing mainly to higher‐than‐expected fuel costs. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 6
Figure 2: 4Q14E Earnings preview Profit and Loss (Btmn) Year‐end 31 Dec Revenue Gross profit SG&A expenses EBITDA Interest expenses Other income Income tax Forex gain (loss) Other extra items Minority interests Net profit (loss) Normalized profit (loss) Reported EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%) Current ratio (x) Interest coverage (x) Debt/equity (x) BVPS (Bt) ROE (%)
4Q13 3,049 340 (242) 111 ‐ 51 (3) (0) ‐ ‐ 146 146 0.23
3Q14 2,750 (210) (240) (434) (1) 19 0 ‐ ‐ 59 (372) (372) (0.60)
4Q14E 3,402 196 (257) (48) 1 22 (0) ‐ ‐ 63 25 25 0.04
% YoY 11.6 (42.3) 6.2 (143.1) ‐ (56.6) (94.0) ‐ ‐ ‐ (82.7) (82.7) (82.7)
% QoQ 23.7 (193.4) 7.3 (88.9) ‐ 13.4 (679.4) ‐ ‐ 7.0 n.m. n.m. n.m.
2013 11,180 1,701 (737) 1,015 ‐ 135 (33) ‐ ‐ ‐ 1,066 1,066 1.87
2014E 12,047 167 (867) (645) (1) 113 ‐ ‐ ‐ 122 (466) (466) (0.75)
11.2 3.7 4.8 3.8 cash cash 7.3 13.0
(7.6) (15.8) (13.5) 2.4 cash cash 5.9 (38.2)
5.8 (1.4) 0.7
15.2 9.1 9.5 3.8 cash cash 7.3 39.3
1.4 (5.4) (3.9) 3.2 cash cash 6.9 (10.5)
% YoY 7.8 (90.2) 17.6 (163.6) ‐ (16.1) (100.0) ‐ ‐ ‐ (143.7) (143.7) (139.8)
Source: NOK, KT ZMICO Research Expands fuel hedging contract tenor to one year, vs. six months previously We believe earnings will continue to improve in 1Q15E and 2015E, thanks to ongoing improvement of the LCC industry (passenger and fare increases) and lower jet fuel costs. In 1Q15, NOK’s fuel hedging is 38% of fuel usage with a ~US$100/barrel average cost. Meanwhile, NOK recently expanded the hedging contract tenor to 12 months, vs. six months previously, in order to have more hedging flexibility in dealing with the fluctuations of the global oil price. The fuel hedging position in 2‐4Q15E was 17%, 10%, and 4% of quarterly fuel usage with the average cost dropping to US$60‐70/barrel. Upgrade net profit estimate in 2015E by 14% on lower jet fuel assumption We continue to believe earnings for LCC operators will turn around in 2015E owing to LCC industry improvement. We have another net profit upgrade for NOK in 2015E by 14% to Bt892mn owing to the recent downward revision of the global oil price by the KT ZMICO Research team. We expect NOK’s passenger volume to increase by 20% YoY to 9.1mn in 2015E with flat average airfares. Including revenue from the long‐haul LCC, NOK‐SCOOT, which is expected to start scheduled flights to Japan in 2Q15E, NOK’s revenue in 2015E is likely to jump by 40% YoY to Bt16.8bn, with the GPM expected to improve to 11% vs. 1% in 2014E. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 6
Figure 3: Key changes to our assumptions and revision to earnings forecasts of NOK
2014E
Ended Dec
Current
No. of aircraft Cabin factor (%) Passengers carried (mn)
2015E
Previous
% +/‐
Current
Previous
% +/‐
24
24
28
28
81.3
81.4
83.2
83.3
7.6
7.5
1.3
9.1
9.0
1.1 0.0
Average fare (Bt/passenger)*
1,466
1,466
0.0
1,466
1,466
Average fare change (% YoY)*
(18.0)
(18.0)
0.0
0.0
Average ancillary (Bt/passenger)
119
119
0.0
125
125
0.0
Jet fuel price (US$/barrel)
113
117
(3.4)
66
93
(29.0)
Normalized profit (Btmn)
(466)
(430)
8.4
892
786
13.5
Net profit (Btmn)
(466)
(430)
8.4
892
786
13.5
Source: KT ZMICO Research Note: Not including ticket fares of NOK‐SCOOT
Figure 4: NOK’s average ticket fare by quarter Figure 5: AOT’s LCC passenger & flight volume growth
Source: AOT, NOK, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 6
Financial tables PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A expense EBITDA Depreciation & amortization EBIT Interest expense Equity earnings Other income / exp. EBT Corporate tax Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btm) Cash and equivalents Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Minority interests Shareholder equity Total liab. & shareholder equity CASH FLOW (Btm) Net income Depreciation & amortization Change in working capital FX, non‐cash adjustment & others Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) Core EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%) FINANCIAL QUALITY Total debt to capital employed (x) Net debt to equity (x) Interest coverage (x)
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 12,047 (11,880) 167 (867) (625) (74) (700) (1) 0 113 (588) 0 122 (466) (0.75) (0.75) (466) (0.75) 0.00
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 4,163 9 166 1,722 6,060 0 0 1,628 122 4,310 6,060
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 (466) 54 586 0 174 (100) 1,530 1,430 0 0 (306) 0 (306) 1,298 1,604 2.57
2011 44.5 (53.6) (66.8) 12.2 5.0 4.2 3.3 3.3 31.6
2012 36.1 73.9 152.8 12.7 6.4 5.8 3.1 6.1 5.6
2013 36.0 92.5 68.8 15.2 9.1 8.6 9.5 9.5 3.0
2014E 7.8 (161.4) n.m. 1.4 (5.2) (5.8) (3.9) (3.9) 0.0
2011 cash cash cash
2012 cash cash cash
2013 cash cash cash
2014E cash cash cash
2015E 16,849 (14,986) 1,864 (1,060) 898 (94) 803 0 0 109 912 (27) 8 892 1.43 1.43 892 1.43 0.71
2015E 4,763 13 226 1,898 6,900 0 0 2,014 129 4,756 6,900
2016E 5,620 20 267 2,223 8,130 0 0 3,052 (202) 5,280 8,130
2015E 892 74 (44) 0 923 (100) 0 (100) 0 0 (223) 0 (223) 600 823 1.32
2016E 26,198 (23,315) 2,883 (1,593) 1,405 (114) 1,290 0 0 130 1,420 (43) (331) 1,046 1.67 1.67 1,046 1.67 0.84
2016E 1,046 94 301 0 1,442 (100) 0 (100) 0 0 (485) 0 (485) 857 1,342 2.15
2015E 39.9 (243.5) n.m. 11.1 5.3 4.8 5.3 5.3 3.0
2016E 55.5 56.5 17.3 11.0 5.4 4.9 4.0 4.0 3.0
2015E cash cash cash
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 6
2015E cash cash cash
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 OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market return over six months period because of specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to below market return over six months period because of specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 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. 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. 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 6 of 6
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
Company Update
Close Bt15.10
Transport & Logistics January 29, 2015
Earnings upgrade/Earnings downgrade/Overview unchanged
Rebound starts in 4Q14E Maintain BUY with revised target price of Bt21.40 We maintain our BUY recommendation for NOK with a revised target price of Bt21.40, vs. Bt18.90 previously, after revising up the net profit estimate in 2015E by 14%. We pegged NOK’s target price at PER of 15x, higher than PER of 14x for peers, owing mainly to outstanding earnings growth prospects.
FY14
FY15
Consensus EPS (Bt)
‐0.604
1.391
KT ZMICO vs. consensus Share data
24.2%
2.8%
Reuters / Bloomberg
NOK.BK/NOK TB
Paid‐up Shares (m)
625.00
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
9.00/291.00
Foreign limit / actual (%)
49.00/4.98
52 week High / Low (Bt)
20.50/11.40
Avg. daily T/O (shares 000) NVDR (%)
4,078.00 1.93
Estimated free float (%)
31.75
Beta
0.70
URL
www.nokair.com ‐
CGR
Raenoo Bhandasukdi Analyst no. 17989 [email protected] 66 (0) 2695‐5836
Net profit to break even in 4Q14E We expect net profit of Bt25mn in 4Q14E for NOK, improving from a net loss of Bt372mn in 3Q14 but declining by 83% YoY. On a quarterly basis, earnings should improve mainly due to airfare and passenger increases. Even though the global jet fuel price this quarter declined to US$92/barrel (‐24% YoY, ‐22% QoQ), NOK will not receive much positive impact as fuel hedging is around 35% of fuel usage with an average cost of ~US$120/barrel. Expands fuel hedging tenor to one year NOK recently expanded the hedging contract tenor to 12 months, vs. six months previously, in order to have more hedging flexibility in dealing with the fluctuations of the global oil price. The fuel hedging position in 2‐4Q15E was 17%, 10%, and 4% of quarterly fuel usage with the average cost dropping to US$60‐70/barrel. Hence, we believe earnings will continue to improve in 1Q15E and 2015E. Upgrade net profit estimate in 2015E We have another net profit upgrade for NOK in 2015E by 14% to Bt892mn owing to the recent downward revision of the global oil price by the KT ZMICO Research team. We expect passenger volume of 9.1mn (+20% YoY) with flat average airfares. Including revenue from the long‐ haul LCC, NOK‐SCOOT, NOK’s revenue in 2015E is likely to jump by 40% YoY to Bt16.8bn, with the GPM expected to improve to 11% vs. 1% in 2014E. Financial and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) Norm. profit (Btmn) Norm. EPS (Bt) Norm. EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec Norm. PER (x) EV/EBITDA (x) P/BV (x) Dividend yield (%) ROE (%) Net gearing (%)
2012 8,218 258 0.52 505 1.01 152.8 0.50 1.78 2012 14.94 14.70 8.50 3.31 59.95 cash
2013 11,180 1,066 1.71 1,066 1.71 68.8 1.03 7.27 2013 8.85 4.00 2.08 6.82 39.25 cash
2014E 12,047 (466) (0.75) (466) (0.75) n.m. 0.00 6.90 2014E n.m. n.m. 2.19 0.00 (10.53) cash
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 6
2015E 16,849 892 1.43 892 1.43 n.m. 0.71 7.61 2015E 10.58 5.21 1.98 4.73 19.68 cash
2016E 26,198 1,046 1.67 1,046 1.67 17.25 0.84 8.45 2016E 9.02 2.72 1.79 5.54 20.85 cash
Maintain BUY with revised target price of Bt21.40 (based on PER of 15x) We maintain our BUY recommendation for NOK with a revised target price of Bt21.40, vs. Bt18.90 previously, after revising up the net profit estimate in 2015E by 14% to Bt892mn owing to the downward revision of global oil price. We expect NOK’s earnings to turn around in 2015E owing to passenger volume growth, lower fuel costs, and the contribution from NOK‐ SCOOT. We still believe the fierce competition in the LCC industry in Thailand will be relieved this year as demand growth is likely to outpace supply growth. However, to be conservative we keep our 0% airfare growth assumption this year. We pegged NOK’s target price at PER of 15x, higher than PER of 14x for peers, owing mainly to outstanding earnings growth prospects. Figure 1: Peer comparison COUNTRY Mkt Cap
PER (x)
US$mn 14E
Airline ‐ LCC
2,142
15.2
15E 9.0
PBV (x) 16E 7.7
14E 1.4
15E 1.2
Yield (%) 16E 1.1
14E 1.4
15E 2.2
ROE (%) 16E 2.5
14E 9.6
15E 14.5
EV/EBITDA (x) 16E 15.0
14E 11.2
15E 8.9
16E 8.2
AIR ASIA BHD
Malaysia
AIRARABI
UAE
2,096
14.2
12.5
11.6
1.4
1.4
1.3
4.4
5.0
5.5
10.1
11.6
11.7
11.2
9.2
8.4
CEBU AIR INC
Philippines
1,313
19.3
13.2
11.6
2.5
2.1
1.8
1.3
1.6
1.2
14.7
19.9
17.7
10.7
8.5
7.5
EASYJET PLC
Britain
10,827
12.4
14.1
12.5
2.6
2.9
2.5
3.2
3.3
3.3
21.5
21.4
21.4
7.5
8.5
7.7
RYANAIR HOLDINGS PLC
Ireland
16,745
20.6
18.1
16.0
3.2
4.0
3.3
0.0
2.5
0.3
15.9
23.3
22.6
10.3
10.3
9.2
SOUTHWEST AIRLINES
USA
31,494
22.6
13.8
12.8
4.2
3.3
2.8
0.5
0.5
0.7
16.1
29.6
24.3
9.0
6.4
6.1
TIGER AIRWAYS HLDG
Singapore
506
n.a.
n.a.
n.a.
6.6
2.5
2.5
0.0
0.0
0.0
n.m.
n.m.
n.m.
n.a.
n.a.
15.7
VIRGIN AUSTRALIA HLDG
Australia
1,318
n.a.
n.a.
33.6
1.4
1.4
1.3
0.0
0.0
0.0
(33.1)
(5.9)
5.1 151.1
9.7
6.7
WESTJET AIRLINES LTD
Canada
2,723
13.1
9.4
9.0
2.3
1.9
1.7
1.5
1.9
2.2
17.8
20.7
AAV *
Thailand
746
n.m.
20.2
18.2
1.3
1.2
1.2
0.0
2.0
2.2
0.3
16.8
13.8
14.8
2.7
2.2
2.0
1.2
1.9
1.8
8.1
Hong Kong
7,377
19.4
8.7
7.3
0.9
0.8
0.7
0.8
2.0
2.2
3.9
10.3
Average (simple) Airline – Conventional CHINA SOUTHERN AIRLINES
16.6
4.6
3.4
3.2
6.0
6.5
25.3
7.9
7.0
15.6
15.7
26.8
8.1
8.0
10.5
7.4
5.4
5.2
AIR CHINA LTD‐H
Hong Kong
15,502
21.9
11.9
9.6
1.3
1.2
1.1
0.8
1.7
1.8
6.2
11.4
11.6
9.4
7.2
6.8
CATHAY PACIFIC AIRWAYS
Hong Kong
9,093
20.2
11.9
9.8
1.1
1.0
1.0
1.7
2.9
3.4
5.7
8.8
10.3
7.9
6.3
5.9
CHINA EASTERN AIRLINES
Hong Kong
9,461
17.2
8.8
7.3
1.3
1.1
1.0
0.2
0.8
0.6
6.9
14.6
14.8
9.1
6.7
6.1
KOREAN AIR LINES
Korea
2,420
n.a.
9.2
8.4
1.2
1.1
0.9
0.0
0.0
0.0
(11.0)
11.7
11.2
8.9
7.2
7.0 4.4
SINGAPORE AIRLINES
Singapore
11,004
34.2
38.5
20.6
0.9
1.1
1.1
2.0
1.9
3.1
2.7
2.9
5.8
4.4
5.4
EVA AIRWAYS
Taiwan
3,008
54.5
15.2
16.4
2.1
1.9
1.8
0.0
0.5
0.0
4.7
12.3
8.7
9.6
7.2
7.6
CHINA AIRLINES
Taiwan
2,733
n.a.
13.8
14.3
1.7
1.6
1.5
0.0
0.8
0.0
(1.7)
7.7
6.4
10.0
7.3
8.1
THAI*
Thailand
1,007
n.m.
27.4
19.2
0.7
0.6
0.6
0.0
0.0
0.0
(11.2)
2.3
3.3
25.9
7.7
6.8
27.9
16.2
12.5
1.2
1.2
1.1
0.6
1.2
1.2
0.7
9.1
9.2
10.3
6.7
6.4
Average (simple)
Source: Bloomberg Note: *KT ZMICO Research estimates Net profit to break even in 4Q14E We expect net profit of Bt25mn in 4Q14E for NOK, improving from a net loss of Bt372mn in 3Q14 but still declining by 83% YoY. We believe the average airfare will increase QoQ to Bt1,410/passenger, ‐22% YoY, +6% QoQ, thanks to improvement of the LCC industry after the demand turnaround as seen from passenger volume growth of +47% YoY and +26% QoQ to 6.7mn at Don Muang International Airport (DMK) in 4Q14. NOK’s passenger volume this quarter is expected to reach 2.2mn, +39% YoY and +18% QoQ, which will push the cabin factor to 83%. The gross profit margin (GPM is likely to improve to 6%, vs. ‐8% in 3Q14, thanks to an increase in ticket fares. Even though the global jet fuel price this quarter declined to US$92/barrel (‐24% YoY, ‐22% QoQ), NOK will not receive much positive impact as fuel hedging this quarter is around 35% of fuel usage with an average cost of around US$120/barrel. For 2014E, we revise down the earnings estimate to a net loss of Bt466mn, vs. a net loss of Bt430mn previously, owing mainly to higher‐than‐expected fuel costs. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 6
Figure 2: 4Q14E Earnings preview Profit and Loss (Btmn) Year‐end 31 Dec Revenue Gross profit SG&A expenses EBITDA Interest expenses Other income Income tax Forex gain (loss) Other extra items Minority interests Net profit (loss) Normalized profit (loss) Reported EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%) Current ratio (x) Interest coverage (x) Debt/equity (x) BVPS (Bt) ROE (%)
4Q13 3,049 340 (242) 111 ‐ 51 (3) (0) ‐ ‐ 146 146 0.23
3Q14 2,750 (210) (240) (434) (1) 19 0 ‐ ‐ 59 (372) (372) (0.60)
4Q14E 3,402 196 (257) (48) 1 22 (0) ‐ ‐ 63 25 25 0.04
% YoY 11.6 (42.3) 6.2 (143.1) ‐ (56.6) (94.0) ‐ ‐ ‐ (82.7) (82.7) (82.7)
% QoQ 23.7 (193.4) 7.3 (88.9) ‐ 13.4 (679.4) ‐ ‐ 7.0 n.m. n.m. n.m.
2013 11,180 1,701 (737) 1,015 ‐ 135 (33) ‐ ‐ ‐ 1,066 1,066 1.87
2014E 12,047 167 (867) (645) (1) 113 ‐ ‐ ‐ 122 (466) (466) (0.75)
11.2 3.7 4.8 3.8 cash cash 7.3 13.0
(7.6) (15.8) (13.5) 2.4 cash cash 5.9 (38.2)
5.8 (1.4) 0.7
15.2 9.1 9.5 3.8 cash cash 7.3 39.3
1.4 (5.4) (3.9) 3.2 cash cash 6.9 (10.5)
% YoY 7.8 (90.2) 17.6 (163.6) ‐ (16.1) (100.0) ‐ ‐ ‐ (143.7) (143.7) (139.8)
Source: NOK, KT ZMICO Research Expands fuel hedging contract tenor to one year, vs. six months previously We believe earnings will continue to improve in 1Q15E and 2015E, thanks to ongoing improvement of the LCC industry (passenger and fare increases) and lower jet fuel costs. In 1Q15, NOK’s fuel hedging is 38% of fuel usage with a ~US$100/barrel average cost. Meanwhile, NOK recently expanded the hedging contract tenor to 12 months, vs. six months previously, in order to have more hedging flexibility in dealing with the fluctuations of the global oil price. The fuel hedging position in 2‐4Q15E was 17%, 10%, and 4% of quarterly fuel usage with the average cost dropping to US$60‐70/barrel. Upgrade net profit estimate in 2015E by 14% on lower jet fuel assumption We continue to believe earnings for LCC operators will turn around in 2015E owing to LCC industry improvement. We have another net profit upgrade for NOK in 2015E by 14% to Bt892mn owing to the recent downward revision of the global oil price by the KT ZMICO Research team. We expect NOK’s passenger volume to increase by 20% YoY to 9.1mn in 2015E with flat average airfares. Including revenue from the long‐haul LCC, NOK‐SCOOT, which is expected to start scheduled flights to Japan in 2Q15E, NOK’s revenue in 2015E is likely to jump by 40% YoY to Bt16.8bn, with the GPM expected to improve to 11% vs. 1% in 2014E. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 6
Figure 3: Key changes to our assumptions and revision to earnings forecasts of NOK
2014E
Ended Dec
Current
No. of aircraft Cabin factor (%) Passengers carried (mn)
2015E
Previous
% +/‐
Current
Previous
% +/‐
24
24
28
28
81.3
81.4
83.2
83.3
7.6
7.5
1.3
9.1
9.0
1.1 0.0
Average fare (Bt/passenger)*
1,466
1,466
0.0
1,466
1,466
Average fare change (% YoY)*
(18.0)
(18.0)
0.0
0.0
Average ancillary (Bt/passenger)
119
119
0.0
125
125
0.0
Jet fuel price (US$/barrel)
113
117
(3.4)
66
93
(29.0)
Normalized profit (Btmn)
(466)
(430)
8.4
892
786
13.5
Net profit (Btmn)
(466)
(430)
8.4
892
786
13.5
Source: KT ZMICO Research Note: Not including ticket fares of NOK‐SCOOT
Figure 4: NOK’s average ticket fare by quarter Figure 5: AOT’s LCC passenger & flight volume growth
Source: AOT, NOK, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 6
Financial tables PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A expense EBITDA Depreciation & amortization EBIT Interest expense Equity earnings Other income / exp. EBT Corporate tax Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btm) Cash and equivalents Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Minority interests Shareholder equity Total liab. & shareholder equity CASH FLOW (Btm) Net income Depreciation & amortization Change in working capital FX, non‐cash adjustment & others Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) Core EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%) FINANCIAL QUALITY Total debt to capital employed (x) Net debt to equity (x) Interest coverage (x)
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 12,047 (11,880) 167 (867) (625) (74) (700) (1) 0 113 (588) 0 122 (466) (0.75) (0.75) (466) (0.75) 0.00
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 4,163 9 166 1,722 6,060 0 0 1,628 122 4,310 6,060
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 (466) 54 586 0 174 (100) 1,530 1,430 0 0 (306) 0 (306) 1,298 1,604 2.57
2011 44.5 (53.6) (66.8) 12.2 5.0 4.2 3.3 3.3 31.6
2012 36.1 73.9 152.8 12.7 6.4 5.8 3.1 6.1 5.6
2013 36.0 92.5 68.8 15.2 9.1 8.6 9.5 9.5 3.0
2014E 7.8 (161.4) n.m. 1.4 (5.2) (5.8) (3.9) (3.9) 0.0
2011 cash cash cash
2012 cash cash cash
2013 cash cash cash
2014E cash cash cash
2015E 16,849 (14,986) 1,864 (1,060) 898 (94) 803 0 0 109 912 (27) 8 892 1.43 1.43 892 1.43 0.71
2015E 4,763 13 226 1,898 6,900 0 0 2,014 129 4,756 6,900
2016E 5,620 20 267 2,223 8,130 0 0 3,052 (202) 5,280 8,130
2015E 892 74 (44) 0 923 (100) 0 (100) 0 0 (223) 0 (223) 600 823 1.32
2016E 26,198 (23,315) 2,883 (1,593) 1,405 (114) 1,290 0 0 130 1,420 (43) (331) 1,046 1.67 1.67 1,046 1.67 0.84
2016E 1,046 94 301 0 1,442 (100) 0 (100) 0 0 (485) 0 (485) 857 1,342 2.15
2015E 39.9 (243.5) n.m. 11.1 5.3 4.8 5.3 5.3 3.0
2016E 55.5 56.5 17.3 11.0 5.4 4.9 4.0 4.0 3.0
2015E cash cash cash
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 6
2015E cash cash cash
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 OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market return over six months period because of specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to below market return over six months period because of specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 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. 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. 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 6 of 6
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
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Pak Chong Branch
Cyber Branch @ North Nana
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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.
