BUY (Unchanged) TP: Bt 150.00 (From: Bt 123.00 ) 11 APRIL 2013 Change in Numbers Upside : 33.9% Airports of Thailand Pcl (AOT TB) The art of inefficiency Thanachart Securities Suvarnabhumi Airport is at full capacity and, despite passenger complaints of overcrowding, AOT s shareholders benefit via higher asset return. Despite lower efficiency, AOT can run beyond full capacity by 15% with a high leverage effect. We lift our FY13-15 EPS forecasts by 2-8% and TP to Bt150.0. BUY. Enjoying its operating leverage cycle Suvarnabhumi Airport is running at full capacity and is very crowded. Despite passenger complaints of some inefficiency, we see this as good news for AOT s shareholders given the strong passenger growth, rising asset turnover and positive operating leverage effect. After average 25% y-y passenger growth at Suvarnabhumi and Don Mueang airports in 5MFY13 (October 2012 to February 2013), we lift our passenger growth forecasts from 12.0% to 16.1% in FY13 (ending September 2013) and 7.5% to 9.3% in FY14. Note that Suvarnabhumi Airport can run at ~15% above its full capacity. We revise up our earnings forecasts by 2% in FY13 and 7-8% in FY14-15. Note that our earnings upgrades from 2015 onward are at 10-25% as we expect AOT to enjoy greater economies of scale longer term. As a result, we boost our TP from Bt123.0 to Bt150.0. Reaffirm BUY. Better chance of ramping up Don Mueang AOT moved low-cost airlines to the old Don Mueang Airport in October 2012. With fast-growing low-cost airlines, Don Mueang is already running at over 30% utilization. While we see low-cost airline traffic continuing to grow strongly with regional fleet expansions, we expect AOT to move some full-service airline traffic to Don Mueang to ease capacity at Suvarnabhumi, whose phase 2 expansion is only due for completion in 2017. Again we see this as a story of asset turnover and operating leverage benefit. Bigger capex burden Despite the positive stories mentioned above, we also see two negative factors arising. First, AOT plans to spend Bt10bn to upgrade its facilities at Don Mueang, especially the runways, to be able to handle A380 flights. Second, running above optimal capacity we expect higher SG&A expenses at Suvarnabhumi. Suvarnabhumi plans to expand the capacity with completion scheduled in 2017. Capex is set at Bt62.5bn for construction over four years. Financing has yet to be finalized but we believe it could be a mix of internal cash flow (Bt18bn EBITDA p.a.), debt and the infrastructure fund. A play on many themes We see AOT as a play on many themes. We view it as an asset play with monopolistic power, a tourism play, a local airline boom play, a consumption play via its duty-free business and an operating leverage play. We believe AOT deserves to trade at above 20x versus 15.2-18.8x in FY13F-14F given the assets it has, and a stable cash flow business with strong earnings growth of an average 24% in FY13F-15F. Our Bt150.0 TP implies normalized PE of 25.1x in FY13F and 20.4x in FY14F. COMPANY VALUATION SAKSID PHADTHANANARAK 662 617 4900 saksid.pha@thanachartsec.co.th Y/E Sep (Bt m) 2012A 2013F 2014F 2015F Sales 30,472 34,487 38,007 42,812 Net profit 6,500 10,529 10,502 12,610 Consensus NP 9,633 10,695 12,210 Diff frm cons (%) 9.3 (1.8) 3.3 Norm profit 6,550 8,529 10,502 12,610 Prev. Norm profit 8,340 9,724 11,748 Chg frm prev (%) 2.3 8.0 7.3 Norm EPS (Bt) 4.6 6.0 7.4 8.8 Norm EPS grw (%) 59.6 30.2 23.1 20.1 Norm PE (x) 24.4 18.8 15.2 12.7 EV/EBITDA (x) 13.8 12.2 11.2 10.2 P/BV (x) 2.1 1.9 1.8 1.6 Div yield (%) 1.6 2.6 2.6 3.2 ROE (%) 8.7 10.5 11.9 13.3 Net D/E (%) 68.1 67.0 70.7 77.3 PRICE PERFORMANCE (Bt/shr) 14 0 12 0 10 0 80 60 40 AOT Rel to SET Index 10 0 20 (20) A p r - 12 A ug - 12 D ec- 12 A p r - 13 COMPANY INFORMATION Price as of 10-Apr-13 (Bt) 112.00 Market Cap (US$ m) 5,513.4 Listed Shares (m shares) 1,428.6 Free Float (%) 30.0 Avg Daily Turnover (US$ m) 11.3 12M Price H/L (Bt) 127.0/53.3 Sector Transportation Major Shareholder Ministry of Finance 70% Sources: Bloomberg, Company data, Thanachart estimates (%) 80 60 40 20 0 This report is prepared by Thanachart Securities. Please contact our salesperson for authorisation. Please see the important notice on the back page
COMPANY NOTE AOT SAKSID PHADTHANANARAK Enjoying its operating leverage cycle Strong pent-up demand has led SIA to reach full capacity again Airports of Thailand Pcl (AOT) continues to face capacity constraints at Suvarnabhumi Airport (SIA), although this is actually positive for the company. Despite moving low-cost airlines with 6.9m passengers a year in FY12 (AOT s fiscal year ends September) to the old Don Mueang Airport (DMA) in October 2012, SIA has now reached its full capacity again because of a sudden burst of pent-up demand. Passenger numbers at both SIA and DMA grew by 25% y-y in 5MFY13, during which SIA served 21.3m passengers versus its 12- month capacity of 45m passengers while DMA saw 6.1m passengers versus its 12-month capacity of 36.5m passengers. Ex 1: SIA s Total Passengers ('000 passengers) 60,000 Ex 2: DMA s Total Passengers ('000 passengers) 7,000 50,000 6,000 40,000 30,000 20,000 10,000 5,000 4,000 3,000 2,000 1,000 0 0 FY07 FY08 FY09 FY10 FY11 FY12 5MFY13 FY07 FY08 FY09 FY10 FY11 FY12 5MFY13 Source: Company data Source: Company data Earnings forecasts up by 2-8% in FY13-15 We raise our passenger growth assumptions to 16.1% in FY13 and 9.3% in FY14 SG&A-to-sales ratio assumptions are raised to 22.5% in FY13 and 22% in FY14 Landing & parking charge assumptions are revised down by 3-9% in FY13-15. We revise up our earnings projections by 2-8% in FY13-15 due to the following reasons: First, we raise our passenger growth assumptions to 16.1% (from 12%) in FY13, 9.3% (from 7.5%) in FY14 and 7.2% (from 6.8%) in FY15. In October 2012-February 2013, AOT reported total passenger growth of 22.8% for all of its six airports. Besides the low base last year due to the flood impact in 1QFY12, we believe the strong passenger growth this year has been a result of the continued low-cost airline boom, the change in Thai people s behavior to travel more by air instead of by trains and buses, and huge pent-up demand. Second, we revise up our SG&A-to-sales ratio assumptions to 22.5% (from 21.5%) in FY13 and 22% (from 21.5%) in FY14 as DMA s operating expenses have been higher than we had expected. Moreover, we also see higher SG&A expenses at SIA because it is running above its optimal level. Third, our forecast for AOT s landing and parking charges was too high as we underestimated the impact of AOT s incentives in getting low-cost airlines to move to DMA. Currently, the incentives include a 30% discount on landing, parking and terminal servicing fees in FY13, 20% in FY14 and 10% in FY15. AOT also has a plan to open DMA to full-service airlines. We therefore believe that AOT will give the same incentive scheme to full-service airlines as it offers to low-cost airlines (please see more details in the next section). We therefore lower our landing and parking charge per flight assumptions by 3-9% in FY13-15. We raise our capex assumption Fourth, given the opening of DMA to full-service airlines, we expect AOT to invest Bt10bn to improve the facilities there. This also includes a runway upgrade to serve A380 flights. THANACHART RESEARCH 2
COMPANY NOTE AOT SAKSID PHADTHANANARAK Likely FX gain from Yen depreciation Finally, given the baht s appreciation against the Japanese Yen, we forecast AOT to book a forex gain of Bt2bn. Ex 3: Baht s Appreciation Against Japanese Yen Ex 4: AOT s Long-term Loans (Bt/100JPY) 44 (As of Dec 31, 2012) 42 Total loans (JPY m) 199,243.00 40 Disbursed amount (JPY m) 194,409.73 38 Repayment amount (JPY m) (58,732.08) 36 Outstanding amount (JPY m) 135,677.66 34 Outstanding amount (Bt m) 48,567.17 32 Hedged % of the remaining loan 77.76% 30 28 Average interest rate 5.02% Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 Source: Bloomberg Source: Company data We boost our TP to Bt150.0 from Bt123.0 Please also note that our earnings upgrade in 2015 onward is about 10-25% as we expect AOT to enjoy greater economies of scale in the longer term. As a result, we raise our 12- month DCF-based TP to Bt150.0/share from Bt123.0 and we reaffirm our BUY recommendation. Ex 5: Changes In Our Key Assumptions FY13F FY14F FY15F Passenger growth (%) New 16.1 9.3 7.2 Old 12.0 7.5 6.8 Aircraft movement growth (%) New 16.9 9.6 7.4 Old 12.4 7.9 7.0 SG&A to sales ratio (x) New 22.5 22.0 21.5 Old 21.5 21.5 21.5 Landing & parking charge (Bt/flight) New 8,500.0 8,750.0 9,000.0 Old 9,000.0 9,000.0 9,900.0 Capex (Bt bn) New 14.5 17.7 23.8 Old 10.5 11.7 23.8 Source: Thanachart estimates THANACHART RESEARCH 3
COMPANY NOTE AOT SAKSID PHADTHANANARAK Better chance of ramping up Don Mueang DMA is now running at over 30% utilization AOT now uses DMA only for point-to-point flights (low-cost airlines and charter flights) with no connection activities. There are three terminals at DMA with capacity of 16m passengers at Terminal 1, 10m passengers at Terminal 2 and 10.5m passengers at Terminal 3. After moving low-cost airlines back to DMA in October 2012, the airport s utilization rate is now at over 30% from 11% in FY11 and 7% (due to the flood impact) in FY12. Without capacity constraints at DMA, low-cost airlines passenger numbers rose by 28% y-y in 5MFY13 while low-cost airlines aircraft movements grew by 16% y-y. Ex 6: Low-cost Airlines Passengers Ex 7: Low-cost Airlines Aircraft Movements ('000 passengers) 25,000 20,000 15,000 10,000 5,000 0 (Flights) 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 5MFY13 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 5MFY13 Source: Company data Source: Company data Low-cost airlines aggressive expansions are driving AOT s business AOT is negotiating with oneworld for it to move to DMA We expect low-cost airline traffic to continue to grow strongly at DMA due to aggressive fleet expansions. According to Aviation Week, Lion Air group plans to receive 24 Boeing 737-900ERs and 12 ATR 72s in 2013. AirAsia group has ordered 100 additional A320s on top of the 200 A320 aircraft it ordered in June 2011. AirAsia plans to receive 33 A320 aircraft this year. Cebu Pacific Air in the Philippines plans to add seven A320s and two A330-300s this year while Philippine Airlines has ordered 54 Airbus aircraft, due for delivery in three years, to achieve its plan to buy up to 100 aircraft. Moreover, AOT has a plan to move some full-service airline traffic to DMA as SIA has now reached full capacity again. Also, as Terminal 1 has been dominated by fast-growing lowcost airlines, we expect AOT to open Terminal 2 for full-service connecting flights. AOT is now negotiating with the "oneworld" airline alliance, which includes Airberlin, American Airlines, British Airways, Cathay Pacific and Japan Airlines, for them to move to DMA. Even though oneworld has expressed no interest in moving the group to DMA, we believe AOT will continue trying to persuade it to do so by giving incentives like it previously did with lowcost airlines. Meanwhile, oneworld, in our opinion, would also benefit from moving as it could expand its business with better time slots at DMA much more easily than at SIA which has capacity constraints. THANACHART RESEARCH 4
COMPANY NOTE AOT SAKSID PHADTHANANARAK Ex 8: Thailand s Passengers By Region (m pax) 2010 2011 2012 2M13 2M12 y-y % Asia 9.2 11.5 13.5 2.6 2.0 33.6 - Asean 4.5 5.6 6.0 1.0 0.9 13.2 - North Asia 3.6 4.8 6.2 1.4 0.9 57.3 - South Asia 1.0 1.2 1.3 0.2 0.2 15.2 Oceania 0.8 1.0 1.0 0.2 0.2 3.2 Europe 4.4 5.0 5.6 1.5 1.4 6.9 Americas 0.8 1.0 1.1 0.2 0.2 8.3 - US 0.6 0.7 0.8 0.2 0.1 8.7 Middle East 0.6 0.6 0.6 0.1 0.1 (1.3) Africa 0.1 0.1 0.2 0.0 0.0 4.3 Total 25.7 31.4 36.3 7.3 5.9 24.4 Source: Department of Tourism We view this as a good move by AOT to unlock SIA s capacity for further growth generate more nonaeronautical revenues, and enjoy greater asset turnover and operating leverage benefits We see this is a good move by AOT due to the following reasons: First, we expect more pent-up demand which has yet to be served because of SIA s capacity constraints. In our view, the opening of DMA to full-service airlines would allow AOT to continue to enjoy airlines aggressive expansions and strong passenger growth in the future. Second, more traffic at DMA would also allow AOT to generate more non-aeronautical revenues, such as concession revenues from duty-free shops and space rental. Given the move by low-cost airlines to DMA in October 2012, AOT currently generates at least Bt1bn in additional concession revenues a year from the 10-year duty-free concession and the 10- year management contract for the food & beverage area at DMA s Terminal 1. As DMA has three terminals, we expect more upside in the future. Third, given strong top-line growth, we expect AOT to continue to enjoy greater asset turnover and operating leverage benefits. Bigger capex burden Bt10bn of capex during 2013-14 to improve DMA s facilities Bt62.5bn of capex during 2013-17 for SIA s phase II expansion However, DMA is 89 years old and the airport was closed in 2006 following the opening of SIA before it was partly reopened in 2007. Given its intention to open DMA to full-service airlines, we expect AOT to spend Bt10bn during 2013-14 to upgrade DMA s facilities, especially the runways, to be able to serve A380 flights. This would be additional capex besides SIA s phase-ii expansion for which AOT plans to invest Bt62.5bn during FY13-17 to add 15m passengers. Unlike the investment in SIA s phase I when 60% of the total Bt120bn investment came from loans, 15% from the IPO and 25% from internal cash flow, we expect investment in phase II to mostly be funded by AOT s internal cash flow as we forecast AOT to generate huge EBITDA of around Bt17.9bn- 23.3bn a year during FY13-15. Based on our calculations, AOT s net D/E ratio should not exceed 0.9x during this investment period. THANACHART RESEARCH 5
COMPANY NOTE AOT SAKSID PHADTHANANARAK Ex 9: AOT s Forecasted Capex FY13F FY14F FY15F Suvarnabhumi Airport s phase-ii expansion 3.8 6.9 20.8 Phuket Airport s expansion 1.7 1.7 Noise compensation 3.5 1.5 1.5 Maintenance capex 1.5 1.5 1.5 Don Mueang Airport s facility improvement 4.0 6.0 Total 14.5 17.7 23.8 Sources: Company data, Thanachart estimates A play on many things We like AOT because it s a play on many things. 1) A monopolistic asset and tourism play 2) A defensive play First, we view AOT as a monopolistic asset play and the best tourism play on the Stock Exchange of Thailand (SET) as it owns six major airports in the country, including SIA and DMA while it is also enjoying robust passenger growth mainly due to Thailand s strong tourism industry, airlines aggressive expansions and the low-cost airline boom. Second, we see it is a defensive play. Despite many negative factors such as disease outbreaks (SARS and bird flu), natural disasters (the tsunami that hit Thailand and Japan s earthquake), global economic woes (US subprime, EU debt crises) and unrest in Thailand (southern violence and red- and yellow-shirt violence) over the last seven years, AOT s passengers have still grown by 7.3% a year on average during FY03-12. We believe this has proven the resilience of Thailand s tourism industry. Thus, we expect the current bird flu outbreak in China to only have a short-term negative impact, if any, on AOT s passenger numbers. Ex 10: Thailand s Tourism Has Been Resilient (y-y %) Passenger numbers (RHS) Passenger grow th (LHS) (m passengers) 90 70 Bird flu Bombing at Hadyai Airport Coup US subprime Lehman filed for bankruptcy Songkran riots Yellow shirts' second rally Thai flood 25 20 50 30 10 7.3% CAGR during 2003-12 15 10 5 0 (10) Tsunami Sondhi's first Bangkok Red shirts' Airport Violence Curfew Tsunami rally bombings first rally closure in BKK in BKK in Japan (30) 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 (5) (10) Source: Thanachart compilation 3) An operating leverage and earnings growth play Third, we believe AOT is an operating leverage and earnings growth play. AOT is enjoying high operating leverage and, as most of its costs are fixed, we see its top-line growth equating to faster earnings growth. This is why we forecast a 24% three-year EPS CAGR for FY13-FY15 and 30% EPS growth in FY13 alone. THANACHART RESEARCH 6
COMPANY NOTE AOT SAKSID PHADTHANANARAK 4) a play on consumption 5) and a valuation rerating play Fourth, we also see it as a consumption play via its duty-free concession business. Finally, we expect AOT to be a valuation re-rating play too. We believe AOT deserves to trade at above 20x versus 15.2-18.8x in FY13F-14F given the assets it owns and its stable cash flow business with strong forecast earnings growth at an average of 24% in FY13-15. Our Bt150.0 TP implies PE of 25.1x in FY13F and 20.4x in FY14F. Ex 11: AOT s EV/EBITDA Band Chart Ex 12: AOT s PE Band Chart (Bt/share) 225 200 15x 13x (Bt/share) 170 30x 25x 20x 175 150 125 100 11x 9x 7x 120 70 15x 10x 5x 75 50 5x 20 25 (30) 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F Sources: Company data; Thanachart estimates Sources: Company data; Thanachart estimates Valuation Comparison Ex 13: Valuation Comparison With Regional Peers EPS growth PE P/BV EV/EBITDA Div Yield Name BBG Code Country 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F (%) (%) (x) (x) (x) (x) (x) (x) (%) (%) Hong Kong Aircraft Engineer 44 HK Hong Kong (4.6) 26.6 21.5 17.0 2.9 2.6 20.6 15.4 2.6 3.2 Beijing Capital Int l 694 HK China 24.8 16.9 16.4 14.0 1.5 1.4 7.8 7.2 2.1 2.5 Malaysia Airports Holdings MAHB MK Malaysia (13.1) 15.9 20.7 17.8 1.6 1.5 11.1 9.5 2.4 2.7 SATS SATS SP Singapore 11.0 8.8 17.5 16.1 2.4 2.3 11.6 10.8 4.6 4.9 Airports of Thailand* AOT TB Thailand 30.2 23.1 18.8 15.2 1.9 1.8 12.2 11.2 2.6 2.6 Average 9.7 18.3 19.0 16.0 2.1 1.9 12.7 10.8 2.9 3.2 Source: Bloomberg Note: * Thanachart estimates using Normalized EPS Based on 10 April 2013 closing prices THANACHART RESEARCH 7
APPENDIX AOT SAKSID PHADTHANANARAK COMPANY DESCRIPTION COMPANY RATING The Airports of Thailand (AOT) was corporatized from a state enterprise and is Thailand's leading airport business operator. AOT is responsible for six international airports: Don Mueang, Phuket, Chiang Mai, Hat Yai, Chiang Rai and Suvarnabhumi, all of which accommodate both domestic and international flights. With commercial operations beginning on 28 September 2006, Suvarnabhumi serves as the main airport and can accommodate up to 45m passengers and 3m tonnes of cargo a year. Within a single hour, the airport can operate up to 76 flights. Manage ment Liquidity Financial management 5 4 3 2 0 1 Risk manage ment *Corp. governance Rating Scale Very Strong 5 Strong 4 Good 3 Fair 2 Weak 1 None 0 Source: Thanachart Source: Thanachart; *CG Awards THANACHART S SWOT ANALYSIS S Strength AOT is an airport monopoly. As a state enterprise, the company s operations and finances receive support from the government. O Opportunity Thailand is a very popular destination for tourists. Strong economic growth in the Asia-Pacific is boosting the tourism industry in the region. The Thai healthcare industry is also spurring medical tourism to Thailand. W Weakness AOT has little revenue diversity so its quarterly earnings are volatile and follow the different tourism seasons. Unclear direction due to changes in government policies has caused AOT to miss out on the chance of benefiting fully from Thailand s strong tourism industry. T Threat Airport competition is fierce. Many airports in Asia are reducing fees to attract airlines. Disease outbreaks such as SARS and bird flu present a threat to the industry. CONSENSUS COMPARISON Consensus Thanachart Diff Target price (Bt) 120.00 150.00 25% Net profit 13F (Bt m) 9,633 10,529 9% Net profit 14F (Bt m) 10,695 10,502-2% Consensus REC BUY: 13 HOLD: 4 SELL: 7 HOW ARE WE DIFFERENT FROM THE STREET? Our net earnings estimate in 2013 is higher than other brokers as we are more aggressive on AOT s passenger growth assumption. Our TP is higher than the Street s following our higher earnings growth forecast. Sources: Bloomberg consensus, Thanachart forecasts RISKS TO OUR INVESTMENT CASE Thailand s tourism industry is a component of the world economy and there is no doubt that tourism would be affected by any global economic volatility. Political unrest in Thailand is another concern as it has a significant impact upon the tourism industry. Political interference and corruption are also concerns. As a state enterprise, AOT s major investments still have to be approved by the cabinet. If the bird flu in China spreads widely around Asia, it could have a significant impact on AOT s passengers. Source: Thanachart THANACHART RESEARCH 8
FINANCIAL SUMMARY AOT SAKSID PHADTHANANARAK EBITDA margin is very high as depreciation accounts for almost 35% of AOT s operating costs An increase in passenger service charges is likely to lift AOT s earnings significantly from FY15F INCOME STATEMENT FY ending Sep (Bt m ) 2011A 2012A 2013F 2014F 2015F Sales 28,641 30,472 34,487 38,007 42,812 Cost of sales 15,568 12,897 13,716 14,538 15,580 Gross profit 13,073 17,575 20,771 23,469 27,232 % gross margin 45.6% 57.7% 60.2% 61.7% 63.6% Selling & administration expenses 6,099 6,795 7,760 8,362 9,205 Operating profit 6,974 10,780 13,011 15,107 18,027 % operating margin 24.3% 35.4% 37.7% 39.7% 42.1% Depreciation & amortization 7,866 4,669 4,840 5,021 5,267 EBITDA 14,840 15,449 17,852 20,128 23,294 % EBITDA margin 51.8% 50.7% 51.8% 53.0% 54.4% Non-operating income 913 1,387 1,234 1,065 902 Non-operating expenses (342) (57) (100) (100) (100) Interest expense (2,224) (2,060) (1,951) (2,060) (2,004) Pre-tax profit 5,321 10,050 12,194 14,013 16,825 Income tax 1,262 3,494 3,658 3,503 4,206 After-tax profit 4,059 6,556 8,536 10,510 12,618 % net margin 14.2% 21.5% 24.8% 27.7% 29.5% Shares in affiliates' Earnings 0 0 0 0 0 Minority interests 44 (6) (7) (8) (9) Extraordinary items (1,888) (50) 2,000 0 0 NET PROFIT 2,215 6,500 10,529 10,502 12,610 Norm alized profit 4,103 6,550 8,529 10,502 12,610 EPS (Bt) 1.6 4.5 7.4 7.4 8.8 Normalized EPS (Bt) 2.9 4.6 6.0 7.4 8.8 BALANCE SHEET FY ending Sep (Bt m ) 2011A 2012A 2013F 2014F 2015F ASSETS: Current assets: 31,954 37,183 37,852 38,438 39,237 Cash & cash equivalent 5,179 3,653 3,653 3,653 3,653 Account receivables 1,660 1,766 1,999 2,203 2,481 Inventories 0 0 0 0 0 Others 25,115 31,765 32,200 32,582 33,104 Investments & loans 6,252 3,665 3,665 3,665 3,665 Net fixed assets 90,014 88,662 98,364 111,011 129,535 Other assets 22,379 20,500 23,201 25,570 28,802 Total assets 150,599 150,012 163,083 178,683 201,240 LIABILITIES: Current liabilities: 16,567 17,418 19,256 21,317 24,268 Account payables 1,042 1,259 1,339 1,420 1,521 Bank overdraft & ST loans 0 0 0 0 0 Current LT debt 5,518 5,445 5,829 6,555 7,729 Others current liabilities 10,007 10,714 12,088 13,342 15,017 Total LT debt 57,514 51,153 54,762 61,577 72,612 Others LT liabilities 4,241 3,645 4,126 4,547 5,122 Total liabilities 78,322 72,217 78,144 87,441 102,001 Minority interest 145 152 159 166 175 Preferreds shares 0 0 0 0 0 Paid-up capital 14,286 14,286 14,286 14,286 14,286 Share premium 12,568 12,568 12,568 12,568 12,568 Warrants 0 0 0 0 0 Surplus 165 320 320 320 320 Retained earnings 45,113 50,470 57,607 63,903 71,890 Shareholders' equity 72,132 77,643 84,780 91,076 99,063 Liabilities & equity 150,599 150,012 163,083 178,683 201,240 Sources: Company data, Thanachart estimates THANACHART RESEARCH 9
FINANCIAL SUMMARY AOT SAKSID PHADTHANANARAK CASH FLOW STATEMENT FY ending Sep (Bt m ) 2011A 2012A 2013F 2014F 2015F Earnings before tax 5,321 10,050 12,194 14,013 16,825 Tax paid (1,262) (3,494) (3,658) (3,503) (4,206) Depreciation & amortization 7,866 4,669 4,840 5,021 5,267 Chg In w orking capital 1,867 112 (153) (124) (177) Chg In other CA & CL / minorities 591 (69) 721 358 (183) Cash flow from operations 14,383 11,268 13,945 15,764 17,526 Capex (7,276) (3,317) (14,542) (17,667) (23,791) ST loans & investments (3,165) (6,745) 0 0 0 LT loans & investments (893) 2,586 0 0 0 Adj for asset revaluation 0 0 0 0 0 Chg In other assets & liabilities (1,948) 1,881 (2,004) (1,432) (1,321) Cash flow from investm ents (13,283) (5,596) (16,546) (19,099) (25,112) Debt financing 300 (6,210) 5,993 7,541 12,209 Capital increase 0 0 0 0 0 Dividends paid (786) (1,143) (3,391) (4,206) (4,622) Warrants & other surplus 1,046 155 0 0 0 Cash flow from financing 560 (7,199) 2,601 3,335 7,587 Free cash flow 7,106 7,950 (597) (1,903) (6,265) AOT s clear earnings visibility should allow it to trade at a premium to its peers VALUATION FY ending Sep 2011A 2012A 2013F 2014F 2015F Normalized PE (x) 39.0 24.4 18.8 15.2 12.7 Normalized PE - at target price (x) 52.2 32.7 25.1 20.4 17.0 PE (x) 72.2 24.6 15.2 15.2 12.7 PE - at target price (x) 96.8 33.0 20.4 20.4 17.0 EV/EBITDA (x) 14.7 13.8 12.2 11.2 10.2 EV/EBITDA - at target price (x) 18.3 17.3 15.2 13.8 12.5 P/BV (x) 2.2 2.1 1.9 1.8 1.6 P/BV - at target price (x) 3.0 2.8 2.5 2.4 2.2 P/CFO (x) 11.1 14.2 11.5 10.1 9.1 Price/sales (x) 5.6 5.3 4.6 4.2 3.7 Dividend yield (%) 0.7 1.6 2.6 2.6 3.2 FCF Yield (%) 4.4 5.0 (0.4) (1.2) (3.9) (Bt) Normalized EPS 2.9 4.6 6.0 7.4 8.8 EPS 1.6 4.5 7.4 7.4 8.8 DPS 0.8 1.8 2.9 2.9 3.5 BV/share 50.5 54.4 59.3 63.8 69.3 CFO/share 10.1 7.9 9.8 11.0 12.3 FCF/share 5.0 5.6 (0.4) (1.3) (4.4) Sources: Company data, Thanachart estimates THANACHART RESEARCH 10
FINANCIAL SUMMARY AOT SAKSID PHADTHANANARAK FINANCIAL RATIOS FY ending Sep 2011A 2012A 2013F 2014F 2015F Grow th Rate Sales (%) 19.2 6.4 13.2 10.2 12.6 Net profit (%) 8.6 193.5 62.0 (0.3) 20.1 EPS (%) 8.6 193.5 62.0 (0.3) 20.1 Normalized profit (%) 120.2 59.6 30.2 23.1 20.1 Normalized EPS (%) 120.2 59.6 30.2 23.1 20.1 Dividend payout ratio (%) 51.6 39.6 40.0 40.0 40.0 Despite investments in the Suvarnabhumi phase II, Phuket and Don Mueang airports, we don t expect its net D/E ratio to exceed 0.9x Operating performance Gross margin (%) 45.6 57.7 60.2 61.7 63.6 Operating margin (%) 24.3 35.4 37.7 39.7 42.1 EBITDA margin (%) 51.8 50.7 51.8 53.0 54.4 Net margin (%) 14.2 21.5 24.8 27.7 29.5 D/E (incl. minor) (x) 0.9 0.7 0.7 0.7 0.8 Net D/E (incl. minor) (x) 0.8 0.7 0.7 0.7 0.8 Interest coverage - EBIT (x) 3.1 5.2 6.7 7.3 9.0 Interest coverage - EBITDA (x) 6.7 7.5 9.1 9.8 11.6 ROA - using norm profit (%) 2.8 4.4 5.4 6.1 6.6 ROE - using norm profit (%) 5.8 8.7 10.5 11.9 13.3 DuPont ROE - using after tax profit (%) 5.7 8.8 10.5 12.0 13.3 - asset turnover (x) 0.2 0.2 0.2 0.2 0.2 - operating margin (%) 26.3 39.7 41.0 42.3 44.0 - leverage (x) 2.1 2.0 1.9 1.9 2.0 - interest burden (%) 70.5 83.0 86.2 87.2 89.4 - tax burden (%) 76.3 65.2 70.0 75.0 75.0 WACC (%) 8.0 8.0 8.0 8.0 8.0 ROIC (%) 4.2 5.4 7.0 8.0 8.7 NOPAT (Bt m) 5,320 7,032 9,108 11,330 13,520 Sources: Company data, Thanachart estimates THANACHART RESEARCH 11
DISCLAIMER AOT SAKSID PHADTHANANARAK General Disclaimers And Disclosures: This report is prepared and issued by Thanachart Securities Public Company Limited (TNS) as a resource only for clients of TNS, Thanachart Capital Public Company Limited (TCAP) and its group companies. Copyright Thanachart Securities Public Company Limited. All rights reserved. The report may not be reproduced in whole or in part or delivered to other persons without our written consent. This report is prepared by analysts who are employed by the research department of TNS. While the information is from sources believed to be reliable, neither the information nor the forecasts shall be taken as a representation or warranty for which TNS or TCAP or its group companies or any of their employees incur any responsibility. This report is provided to you for informational purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities. Neither TNS, TCAP nor its group companies accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. The information and opinions contained herein have been compiled or arrived at from sources believed reliable. However, TNS, TCAP and its group companies make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in this report shall be at the sole discretion and risk of the user. TNS, TCAP and its group companies perform and seek to perform business with companies covered in this report. TNS, TCAP, its group companies, their employees and directors may have positions and financial interest in securities mentioned in this report. TNS, TCAP or its group companies may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this report. THANACHART RESEARCH 12
DISCLAIMER AOT SAKSID PHADTHANANARAK Recommendation Structure: Recommendations are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the recommendation is BUY. If the downside is 10% or more, the recommendation is SELL. For stocks where the upside or downside is less than 10%, the recommendation is HOLD. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal recommendation. For sectors, we look at two areas, ie, the sector outlook and the sector weighting. For the sector outlook, an arrow pointing up, or the word Positive, is used when we see the industry trend improving. An arrow pointing down, or the word Negative, is used when we see the industry trend deteriorating. A double-tipped horizontal arrow, or the word Unchanged, is used when the industry trend does not look as if it will alter. The industry trend view is our top-down perspective on the industry rather than a bottom-up interpretation from the stocks we cover. An Overweight sector weighting is used when we have BUYs on majority of the stocks under our coverage by market cap. Underweight is used when we have SELLs on majority of the stocks we cover by market cap. Neutral is used when there are relatively equal weightings of BUYs and SELLs. Thanachart Securities Pcl. Research Team 28 Floor, Siam Tower Unit A1 989 Rama 1, Pathumwan Road, Bangkok 10330 Tel: 662-617 4900 Email: research@thanachartsec.co.th Pimpaka Nichgaroon, CFA Head of Research Economics & Strategy pimpaka.nic@thanachartsec.co.th Sarachada Sornsong Banks, Telecom sarachada.sor@thanachartsec.co.th Phannarai Tiyapittayarut Property, Retail phannarai.von@thanachartsec.co.th Supanna Suwankird Energy, Utilities supanna.suw@thanachartsec.co.th Saksid Phadthananarak Construction, Electronics, Transportation saksid.pha@thanachartsec.co.th Kalvalee Thongsomaung Food, Hotel, Media kalvalee.tho@thanachartsec.co.th Siriporn Arunothai Ad Hoc Research, Healthcare siriporn.aru@thanachartsec.co.th Noppadol Pririyawut Senior Technical Analyst noppadol.pri@thanachartsec.co.th Adisak Phupiphathirungul, CFA Retail Market Strategy adisak.phu@thanachartsec.co.th Warayut Luangmettakul, CFA Assistant Analyst warayut.lua@thanachartsec.co.th THANACHART RESEARCH 13