What you need to know about the SG market 

#whatstrending feat. Beansprout

Ever wondered what is currently driving the local and regional markets? #whatstrending is a new series addressing some of the most trending questions/topics on the markets for investors. Designed to be educational, expect to get factual information on what is driving sectors and stocks listed on SGX, featuring insights from professionals in the community.

Today, we hear more from Beansprout, a MAS-licensed investment advisory platform offering expert insights on Singapore stocks, REITs, ETFs and bonds. Gerald Wong, founder and CEO, shares his thoughts on market developments.

Q: Thailand is waiving visa requirements for Chinese Tourists. What happened?

From Gerald, founder and CEO of Beansprout:

Tourists are returning to Thailand once again.

The total amount of tourist arrivals into Thailand reached 28 million in 2023, more than doubling from the 11.5 million arrivals in 2022.

However, they remain below its peak of 40 million in 2019.

The government is targeting 35 million foreign arrivals this year, an increase of 25% from 2023.

As the operator of six major airports in Thailand accounting for over 80% of Thailand’s air traffic, Airports of Thailand (AOT) has seen its earnings recover in fiscal year 2023 with a pickup in travel demand.

Q: What are some of the factors that may impact AOT’s share price in 2024?

From Gerald, founder and CEO of Beansprout:

# 1 – AOT’s earnings have recovered further in most recent quarter

AOT reported a further improvement in revenue in the first quarter of fiscal year 2024.

Its revenue more than doubled to Bt 15.7 billion when compared to the previous year. Compared to the previous quarter, AOT’s revenue also rose by 2.2% as the higher air traffic led to an increase in passenger service charges.

This was partly offset by a decline in its non-aeronautical revenue due to a one-time adjustment in office and state property rents in the previous quarter.

#2 - Increasing tourist arrivals

In 2023, number of Chinese arrivals of 3.5 million is only 32% of its peak in 2019.

The number of Chinese arrivals was below expectations through 2023 due to China’s economic slowdown, limited flight availability, and concerns about safety issues.

The momentum of Chinese tourist arrivals, however, has improved towards the end of the year by reaching 49% of 2019’s arrivals in December.

The recovery trend is expected to continue in 1Q24 supported by the visa waiver policy which has been effective since late September.

The visa waiver has been extended with a permanent mutual visa-waiver agreement that will take effect on 1^st March.

Thailand’s Ministry of Tourism and Sports expects the reciprocal visa-free scheme will attract about 8 million Chinese visitors in 2024.

This would be significantly higher than the 3.5 million visitors in 2023, but still lower than the 11 million visitors in 2019.

Tourist arrivals from other countries besides China have improved to 85% of 2019’s level. The momentum continued so far in January 2024.

This helps diversify the risks of AOT in case the return of Chinese tourists is slower-than-expected.

#3 – Concession revenue from King Power Duty-Free may also benefit from higher tourist arrivals

Non-Aeronautical revenue accounted for 54% of AOT’s revenue in 2023.

This includes concession revenue (from Duty Free, Food & Beverages, Airline Catering, etc.), service revenue, and property rental revenue.

During Covid-19, the concession revenue from King Power Duty-Free has been restructured from a fixed amount of payment to a variable amount that linked to the number of tourist arrivals.

With the change, AOT’s revenue and profit are expected to be more sensitive to the number of tourist arrivals, even more so than in the pre-COVID period.

#4 – Capacity increases

AOT’s capacity will increase after the launch of Satellite-1 (SAT-1) terminal at the Suvarnabhumi Airport in September 2023 and the upcoming start of the third runway.

SAT-1 increases Suvarnabhumi Airport’s capacity by 15 million passengers per year, an increase of 33% from its current capacity.

AOT’s third Runway at the Suvarnabhumi Airport is scheduled to open in July. Suvarnabhumi Airport is currently having 2 runways in operation, and the third runway will increase its capacity by 40%.

In addition to the six major airports it is running, AOT will also take over the management of three more airports, including the Krabi International Airport and two other airports in the northeastern part of Thailand.

#5 - Potential increase in Passenger Service Charge (PSC)

To fund the investments for its expansion, AOT is preparing a new proposal to the government to increase its Passenger Service Charge (PSC).

The increases are anticipated to be Bt900 (from Bt700) for international travellers and Bt150-200 (from Bt100) for domestic travellers.

The increase is subject to government approval, which may come through in 2025 rather than in 2024.

Q: What are some of the risks that AOT face?

From Gerald, founder and CEO of Beansprout:

Risks to AOT are disappointment in the number of tourist arrivals as a result of a global economic slowdown (especially in China), political unrest in Thailand, or further changes to the Duty Free Revenue Sharing scheme.

Beyond 2024, risks may come from the government’s decision to disapprove the proposed plan to increase PSC.

For more details on SDRs, read here.

For more insights on Singapore stocks, REITs, ETFs and bonds, visit growbeansprout.com.