• Keep BUY, new THB80 DCF-based TP from THB84, 27% upside and c.2% yield. Airports of Thailand saw an improvement in air traffic in the first half of Feb 2024, owing to the Lunar New Year period. We expect core profit to continue increasing YoY and QoQ in 2QFY24 (Sep), and to surge 148% YoY in FY24. Its strong balance sheet should support its new investment plans in the pipeline for this year and next year.

• Latest flight data. On Monday, AOT reported its air traffic volumes for 1-17 Feb 2024. International flights and passenger numbers rose 40% YoY and 49% YoY, while domestic flights and passenger numbers fell modestly by 5% YoY and flat YoY, respectively. International flights and passenger numbers for the period improved to 84.8% and 86.3% of 2019’s pre-pandemic levels, from 81.6% and 82.0% during 1-31 Jan 2024. Concurrently, domestic flights and passenger numbers fell to 75.1% and 76.3% of 2019’s levels from 76.7% and 79.5% in Jan 2024. Therefore, total flights and passengers for this period stood at 80.4% and 82.2% of 2019’s numbers vs 79.3% and 81.0% in Jan 2024. We believe this was mainly supported by the influx of international air traffic during the Lunar New Year period.

• 2QFY24 outlook. 1QFY24 core profit jumped 966% YoY and 28% QoQ, but this was 10-11% below our and consensus’ forecasts. We maintain our view that AOT’s earnings will continue to expand YoY and QoQ in 2QFY24F, based on a recovery of international visitors during the high tourism season – we expect a total of 9.2m arrivals during the quarter (+41% YoY, +14% QoQ). Key drivers include: i) The Government’s visa-free entry measure for visitors from China, Kazakhstan, India, Japan, and Taiwan, ii) an extension of the visa-free stay for Russian tourists to 90 days from 30 days until end-Apr 2024, and iii) increasing traffic from long-haul markets.

• Capex and expansions. AOT will spend up to THB11bn capex in FY24F. Of this figure, c.60% will be spent on the THB28bn Survarnabhumi Airport’s (BKK) third runway, which is slated to open in Jul 2024 – raising the maximum capacity by 38% to handle 94 flights/hour. Meanwhile, the THB8bn BKK east terminal expansion and THB36.8bn Don Mueang Airport third phase expansion should begin construction works in 2025, before completion in 2026 and 2030 respectively. While AOT may also apply for debt financing for these projects, we still expect its net D/E ratio to gradually decline to 0.3x in FY24F (FY23: 0.5x).

• We lower FY24F-FY26F core profit forecasts by 12-14% in line with: i) AOT’s FY24F target of c.120m total air passengers, ii) higher-than-expected depreciation costs for BKK’s new satellite terminal of c.THB195m/month from c.THB100m/month, and iii) fine-tuning of finance costs. AOT should see core earnings growth of 148% YoY in FY24F, and another 28% to THB29.29bn in FY25F (17% above FY19 levels).

• Valuations. Our new THB80 DCF-derived TP for the 12-month investment horizon includes a 4% ESG premium based on AOT’s 3.4 ESG score (above the country median). As a first-tier proxy to the tourism sector’s recovery, AOT remains our Thai hospitality sector Top Pick.

Source: RHB Research - 20 Feb 2024