Airports of Thailand (AOT), the world's largest airport operator in terms of market capitalisation, has returned to the spotlight this year as the reopening of borders to tourists has led to skyrocketing passenger arrivals.
One of the flagship stocks on the Stock Exchange of Thailand (SET), AOT has a market capitalisation of 1.07 trillion baht as of Dec 1, up by about 200 billion baht from the beginning of the year as share prices increased.
AOT shares have attracted many investors, with the stock gaining 22% year-to-date, outperforming the SET Index. The firm's business outlook is positive, with executives expressing confidence AOT will return to profitability for every quarter of next year.
The optimism is underpinned by increasing flight numbers and passenger traffic approaching 300,000 per day as the Thai tourism industry revs back into high gear.
"As flights and passenger traffic continue to increase, for the first quarter of our fiscal 2023, which started in October this year, we expect to post a slight net profit. Next year we project a profit every quarter," AOT president Nitinai Sirismatthakarn said recently. "If Chinese tourists return, that will mean more revenue and profits."
The net profit projected for 2023 is in the billions of baht, compared with tens of billions of baht in the pre-Covid era, he said.
FOCUS ON HIGH SEASON
The firm's first quarter (October to December) occurs during the bulk of the tourism high season. Last month, AOT's passengers totalled 260,000 to 270,000 per day, up from 190,000 passengers in October.
Flight volume has returned to 60-70% of the level prior to the pandemic.
For fiscal 2024, AOT projects the number of flights and passengers will be on par with the levels in 2019.
Domestic passengers have nearly matched the tally in 2019, while foreign travellers are at 70% of that level. Chinese visitors, which previously accounted for 26% of total passenger traffic, have yet to return. That void has been offset by arrivals from the Middle East, particularly Saudi Arabia, and South Asia, namely India.
AOT averaged 60 billion baht in revenue per year before the pandemic, with expenditures of 30 billion and a net profit of more than 26 billion. The company operates six airports in Thailand with average passenger traffic of 380,000-390,000 a day.
Mr Nitinai said AOT is scheduled to launch the Secondary Aircraft Concourse 1 (SAT-1) at Suvarnabhumi airport in September 2023. However, congestion at immigration counters as well as ground service and luggage handling remain obstacles, he said.
In terms of baggage handling at Suvarnabhumi airport, AOT sent a letter to Thai Airways International Plc (THAI) on Nov 24, asking the flag carrier to take action within 90 days based on its contract with AOT. THAI indicated it is recruiting more workers to address the problem in a timely manner.
Transport Minister Saksayam Chidchob said a short-term solution is needed for this issue. For the long term, the ministry is likely to open bidding in January and February for a new service provider to support the expected increase of flights operating at the airport.
BUSINESS MODEL
The six airports AOT operates account for 80% of Thailand's air traffic. The company is considered a gateway to Thailand, with Suvarnabhumi and Don Mueang in Bangkok and four airports in the provinces: Phuket, Chiang Mai, Chiang Rai and Hat Yai.
Due to the high exposure of Thailand's tourism industry, market analysts said AOT was adversely affected by the pandemic and risks remain.
To help those affected by the pandemic, AOT cut its rent by 15-50% for all of its tenants (office and retail), reduced the landing and parking charges for airlines by 50%, and extended credit terms for all suppliers by one year, from April 2022 to March 2023.
The company is looking into increasing non-aeronautical revenue, with a major source duty-free concessions. King Power is the main concessionaire for the duty-free space at Suvarnabhumi airport.
Teerapol Udomvej, an analyst at Finansia International Investment Advisory (FSSIA), said AOT passed its floor and is now in recovery mode. Domestic passenger volume closed to the pre-Covid level in October and international passenger volume was at 70% of the pre-Covid level on Dec 1. That momentum should continue in 2023, he said.
Despite waiving the minimum guarantee (MG) until March 2023 and changing its calculation scheme to a sharing per head basis for concession contracts, FSSIA expects AOT to collect an MG amount equivalent to the amount King Power proposed by 2025.
AOT has a healthy balance sheet that is sufficient to support project expansion over the next three years, including the third runway as well as the east and north expansions at Suvarnabhumi airport, said the advisory.
According to KGI Securities (Thailand), AOT's overall performance is improving thanks to easing restrictions on international travel. The performance showed positive developments, in line with expectations, KGI said in its recent report.
CONTINUED RECOVERY
KGI expects AOT's net profit to improve significantly in 2023 to 22.7 billion baht and continue this momentum the next few years, following net losses of 16.3 billion baht in 2021 and 11.1 billion projected this year.
AOT's revenue in 2022 is split into 44% generated from aeronautical and 56% non-aeronautical, compared with 33% and 67%, respectively, in 2021, the brokerage said.
KGI's positive forecast for AOT's earnings performance in fiscal 2023 is mainly driven by Thailand's full reopening, which should play a key role in driving the company's earnings the next few years.
The strong recovery would be driven by the return of foreign tourists and more domestic travellers as Covid infections have improved significantly, said KGI.
"AOT will be a prime beneficiary of continued improvements in its aero- and non-aero business segments, although the performance in 2023 is expected to be lower than the pre-Covid level," KGI said in a recent report.
KGI forecasts AOT posting a net profit exceeding the pre-Covid level in 2024, with potential upside/downside gains of around 2.7% or 0.2 baht per share from the 2023 earnings estimates and discount cashflow target price for every 1 million international tourists.
In addition to higher passenger arrivals, AOT also has a north expansion project at Suvarnabhumi airport and the transfer of new airports from the Department of Airports to the company.
Investment risks remain, led by a potential new Covid outbreak and a slowdown in the rebound of international passengers. An economic recession is also possible, as is political unrest in Thailand, said the brokerage. The Suvarnabhumi expansions (satellite terminal and northern expansion) and impacts from the termination of the duty-free concession contracts with King Power are other risks, said KGI.
