Krungsri Securities (KSS) expects Airports of Thailand Public Company Limited (AOT) to report Bt5,725m core profit for 4Q19F (Jul-Sep; +7.5% YoY), driven by a recovery in Passenger Service Charge (PSC) and concession revenues. But, a one-off Bt740m provision charge to comply with labor regulation would lead to a lower net profit of Bt5,015m.
In this regard, KSS remains optimistic about the outlook for AOT on as rising tourist arrivals will support core revenue. KSS maintains a BUY rating for AOT with a target price of Bt87.00/share (+11.5% from Bt78.00). The stock is trading at 24.1x fwd EV/EBITDA, or +1.5SD of its mean multiple vs KSS’ target valuation of 27.8x FY20F EV/EBITDA or +2.5SD of mean.
4Q19F (Jul-Sep) net profit to hit by provision complying with labor law
Expect net profit to come in at Bt5,015m (-7.3% YoY, -14.8% QoQ) due to a one-off provision charge of Bt740m (Bt30m to be booked under SG&A). Excluding this, core profit should come in at Bt5,725m (+7.5% YoY, -6.7% QoQ) driven by recovering PSC (passenger service charge) and concession revenues on the back of improving tourist arrivals from July to September.
Recovering tourist arrival will boost core revenue components
Despite the bomb incidents in Bangkok in July and a strong THB, AOT’s PSC and concession revenues should resume high single-digit growth driven by rising tourist arrivals. KSS estimates PSC income at Bt6,505m (+7.2% YoY, +2% QoQ), supported by a strong 20.4m international passenger throughput (+7.6% YoY, +4.4% QoQ), which should offset weak domestic passenger throughput of 13.3m (-4.8% YoY, -2.5% QoQ).
KSS also expects concession revenue to improve to Bt4,591m (+9% YoY, +7.3% QoQ) on the back of higher international passenger throughput and the return of high-spender Chinese tourists (up 17.3% YoY in Jul-Sep).
Rising tourist arrivals will continue to support 1Q20 (Oct-Dec) earnings
There was strong growth in international passenger throughput on 1-19 October, at +11.7% YoY (vs full-month of +10.2% YoY in Sep and +8.4% YoY in Aug). This will continue to support core revenue (70% is generated from PSC and concessions) in 1Q20.
Maintain BUY, Bt87 TP; several downside risks
KSS’ 2020F TP is based on DCF valuation (8.4% WACC) and implies 27.8x FY20F EV/EBITDA (at +1SD of its 5-year historical average multiple). Key downside risks include disruptions such as political unrest, natural disasters, and terrorist attacks, weaker inbound tourism, weak consumption dampening domestic tourism, rise/reduction in PSC rate, and larger-than-expected CAPEX plan.
Besides KSS, various analysts have made a recommendation on AOT.
Kasikorn Securities – TP Bt84.70
Asia Wealth Securities – TP Bt84.00
Phillip Securities – TP Bt82.00
RHB Securities – TP Bt82.00
CGS-CIMB Securities – TP Bt82.00
Kingsford Securities – TP Bt80.00