Maybank Kim Eng has made an analysis of Airports of Thailand Public Company Limited (AOT) with a target price at ฿85.00/share, seeing visible short-term catalysts while maintaining the “BUY” recommendation.
Maybank states in the analysis that it believes AOT’s core profits will start to improve on the back of faster international-passenger growth in Jul-Sep. AOT also plans to start concession bidding for commercial space at DMK airport and for pick-up counters at BKK and DMK airports by year-end.
The aforementioned should provide short term catalysts, thus, Maybank maintains BUY recommendation and DCF TP of THB85.00 (WACC 8.2%, LTG 2%). Still, risks to Maybank’s view include any slowdown in international arrivals and delays in airport-expansion projects.
Concession bidding for DMK airport
Although upcoming concession bidding is small compared to the previous round for BKK airport on June 2019, Maybank believes the market has not fully factored in its potential upside. DMK’s current concession will end in FY22.
Maybank estimates that its minimum guaranteed duty-free/retail revenue will jump to THB4.4-5.7b in FY23-24E, from THB2.5b in FY18 and THB3.4b in FY22E. Maybank’s forecasts are conservative as its number for FY24E is just 15% of AOT’s total concession revenue from commercial areas in six airports, way below its 25% in 2018.
Potential upside from pick-up counters
To address monopoly concerns, AOT will operate its own duty-free pick-up counters at BKK and DMK while inviting concession bidding. This will allow other downtown duty-free operators to still run their businesses if they do not win the bid, by using AOT’s pick-up counters and paying a fee to AOT under revenue-sharing.
Maybank estimates that the winner of the bid will share revenue at a 3% rate while other downtown operators will pay 5% for using AOT’s pick-up counters. Maybank sees upside from this solution as the volume for products to be picked up at both airports should increase with more downtown duty-free operators using AOT’s pick-up counter services.
Strong growth to resume in 4QFY19E
Maybank expects 4QFY19E core EPS to grow again by 6% YoY vs -4% YoY in 3Q, thanks to international passenger growth of 7% in Jul-Sep – vs 3% in 1H19 – following a recovery in Chinese arrivals. Maybank expects the momentum to continue in 1QFY20E, given China’s Golden Week on 1-7 Oct and Thailand’s high tourism season in Nov-Dec.
Besides Maybank, Krungsri Securities also gives a buy recommendation on AOT with a target price of ฿87.00/share, AWS at ฿84.00/share, KTBST at ฿83.00/share.