BUY (Unchanged) TP: Bt 80.00 (From: Bt 72.00 ) 7 JUNE 2018
Change in Numbers Upside : 15.9%
Airports of Thailand Pcl (AOT TB)
Capex for growth
A capex cycle is not always negative, especially as AOT can use its
Bt63bn cash on hand and EBITDA base of Bt37-45bn/year to unlock capacity constraints without extra interest costs, driving a 14% EPS SAKSID PHADTHANANARAK CAGR for FY17-21F and rising ROE to 21% in FY21F from 17% in 662 – 617 4969 [email protected] FY17. On a base-year rollover to FY19F, we raise our TP to Bt80. BUY.
Raising our TP to Bt80; still a country top pick COMPANY VALUATION We fine-tune down our FY18-20F earnings for AOT by 2-3% as Y/E Sep (Bt m) 2017A 2018F 2019F 2020F we trim our passenger growth assumption to 9.4% y-y (from 12.4% previously and vs. 10% in 7MFY18) in FY18F but maintain Sales 54,901 61,215 66,931 72,410
our numbers at 8.8% in FY19F and 7.6% in FY20F. Despite its Net profit 20,684 25,687 28,749 31,530 additional plan to build second airports in Chiang Mai and Phuket Consensus NP 25,509 28,196 29,770 with an investment cost of Bt120bn, we decide not to factor this in Diff frm cons (%) 0.7 2.0 5.9 yet as we see this plan still requiring many processes to be Norm profit 21,683 25,687 28,749 31,530 carried out, which will likely take time and be subject to change. Prev. Norm profit 26,594 29,631 32,066 We therefore maintain our capex projection of Bt213bn over Chg frm prev (%) (3.4) (3.0) (1.7) FY18-26F. Rolling over the base year in our valuation to FY19F Norm EPS (Bt) 1.5 1.8 2.0 2.2 (AOT’s fiscal year ends in September), we raise our DCF-based Norm EPS grw (%) 12.8 18.5 11.9 9.7 12-month TP to Bt80/share (from Bt72 previously) and reaffirm Securities Norm PE (x) 45.5 38.4 34.3 31.3 our BUY rating on AOT. It remains one of our country top picks. EV/EBITDA (x) 28.9 25.3 23.2 21.7
Rising ROE trend continues P/BV (x) 7.5 7.0 6.4 5.9
Div yield (%) 1.2 1.6 1.7 1.9 AOT’s plan to spend capex of Bt220bn over FY16-25 to lift capacity from 101m to 185m passengers is not a negative, in our ROE (%) 17.2 18.8 19.5 19.7
view, as most of the funding is to come from internal cash flow of Net D/E (%) (33.2) (29.1) (17.4) (5.8)
Bt63bn in cash on hand and Bt37-45bn of EBITDA/year in FY18- 20F. Without additional funding costs, we expect AOT’s earnings PRICE PERFORMANCE to continue to grow by 10-19% y-y in FY18-20F (driven by 7.6- 9.4% passenger growth a year) and 15% y-y in FY21F (driven by (Bt/shr) AOT Rel to SET Index (%) Thanachart 7.4% passenger growth and higher concession revenues from 84 60 new duty-free concession contracts). This should further drive its 74 50 40 64 ROE from 17% in FY17 to 20% in FY20F and 21% in FY21F. 30 54 20 High PE multiples for a reason 44 10 AOT’s shares traded in a PE range of 22-29x in 2014-16 before 34 0 Jun-17 Oct-17 Feb-18 Jun-18 re-rating in 2017, and are trading at PEs of 38x this year and 34x next (on our forecasts). Besides the political stability after the coup in 2014 and its solid fundamentals, we believe AOT’s COMPANY INFORMATION potential strong earnings growth after Suvarnabhumi Airport’s Price as of 7-Jun-18 (Bt) 69.00 phase II starts operations in FY21 have caused a share price re- rating and we don’t think its current valuation is too high. We look Market Cap (US$ m) 30,867.2 for an earnings CAGR of 14% in FY17-21F to bring down its PEs Listed Shares (m shares) 14,285.7 from 38x in FY18F to 31x in FY20F and 27x in FY21F. This has Free Float (%) 30.0 yet to even factor in potential upside from the airport city project. Avg Daily Turnover (US$ m) 75.6 12M Price H/L (Bt) 74.25/44.00 Near-term catalysts Sector Transportation AOT’s management continues to state that by end 2018 or early 2019, it intends to open bids for: 1) new duty-free concession Major Shareholder Ministry of Finance 70% contracts for which we already assume a 30% hike in the Sources: Bloomberg, Company data, Thanachart estimates
revenue-sharing amount per sqm from FY21F onward, and 2) the airport city project which we have yet to factor in. Based on our sensitivity analysis of 25-75% of raw land being developed for the airport city project, we estimate an additional Bt2-6 per share in upside potential to our current TP.
Please see the important notice on the back page
COMPANY NOTE AOT SAKSID PHADTHANANARAK
Raising our TP to Bt80
After rolling over our base We slightly revise down our earnings estimates for Airports of Thailand (AOT) by 2-3% in year to FY19F, our TP is FY18-20F as we lower our FY18F passenger growth assumption to 9.4% y-y (from 12.4% raised to Bt80/share previously and versus 10% in 7M FY18). However, we maintain our passenger growth assumptions of 8.8% y-y in FY19F and 7.6% y-y in FY20F. Moreover, as AOT’s fiscal year ends in September, we now roll over the base year in our valuation to FY19F. This causes our DCF-based 12-month TP to increase to Bt80/share from Bt72 previously and we reaffirm our BUY rating on AOT. The counter remains one of our country top picks.
Ex 1: Key Assumption Changes
FY18F FY19F FY20F FY21F Passenger growth (%) New 9.4 8.8 7.6 7.4 Old 12.4 8.8 7.6 7.4 Change (pp) (3.0) — — — Normalized profit (Bt m) New 25,687 28,749 31,530 36,362 Old 26,594 29,631 32,066 37,308 Change (pp) (3.4) (3.0) (1.7) (2.5)
Source: Thanachart estimates
Last month, AOT’s board approved an additional plan to build second airports for Chiang Mai and Phuket. This is because the existing Chiang Mai Airport can only expand maximum capacity to 18m passengers (from 8m at present and vs. 10m in FY17) while Phuket Airport can only accommodate 25m passengers (from 18m now and vs. 16m in FY17). The investment cost is estimated at Bt120bn with initial capacity of 10m passengers each.
However, we decide not to factor this plan into our model yet as it still requires many processes to be carried out, such as approval from the Transport Ministry and the cabinet, environmental impact assessments and land expropriation, which would likely take time and be subject to changes. We therefore maintain our capex assumption of Bt213bn in aggregate over FY18-26F and for AOT’s capacity to expand from 101m passengers to 185m passengers over the period.
Ex 2: AOT’s Current Passenger Capacity vs. Actual Passengers
Airport Aircraft (Flights/hour) Passenger (Million/year)
Capacity Actual utilization Utilization rate Capacity Actual utilization Utilization rate FY16 FY17 (%) FY16 FY17 (%) BKK 68 63 61 90 45 56 59 131 DMK 50 54 60 120 30 35 37 124 HKT 20 22 24 120 13 15 16 130 CNX 24 20 22 92 8 9 10 125 HDY 12 11 10 83 3 4 4 174 CEI 16 9 8 50 3 2 2 80
Source: Company data
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 2
COMPANY NOTE AOT SAKSID PHADTHANANARAK
Rising ROE trend look set to continue
Despite its capex cycle, we There have been some concerns raised in the market about AOT’s capex cycle incurring still expect AOT’s ROE to higher operating, depreciation and interest expenses and that this could derail AOT’s rising continue to rise ROE trend. We don’t think this will be the case as:
We forecast AOT’s earnings First, as interest expenses are to be capitalized during the construction period and to grow by 10-19% in FY18- depreciation expenses booked after Suvarnabhumi Airport’s (SIA) phase II starts operation, 20… scheduled for FY21, we estimate AOT’s earnings to grow by 10-19% y-y in FY18-20F, mainly driven by our passenger growth assumptions of 7.6-9.4% a year along with operating leverage benefits.
…before growing a further Second, even though we expect higher operating and depreciation expenses from SIA’s 15% in FY21 phase II to cause AOT’s gross margin to fall from 70.6% in FY20F to 69.6% in FY21F, we expect revenue growth of 17% y-y in FY21F due to our passenger growth assumption of 7.4% y-y and higher concession revenues from the new duty-free concession contracts to more than cover the higher costs and drive earnings growth of 15% y-y in FY21F.
Third, as we expect the funding for SIA’s phase II to come from AOT’s Bt63bn of cash on hand and Bt37-45bn of EBITDA/year over FY18-20F, we do not expect additional interest expenses from the investment in SIA’s phase II.
We therefore expect AOT’s ROE to continue rising from 17% in FY17 to 21% in FY21F.
Ex 3: Capex Cycle Is Not A Concern To Us Given… Ex 4: …High EBITDA Generation (Bt m) (Bt m)
40,000 60,000 35,000 50,000 30,000 40,000 25,000 20,000 30,000 15,000 20,000 10,000 10,000 5,000
0 0
FY13 FY17 FY13 FY17 FY12 FY14 FY15 FY16 FY12 FY14 FY15 FY16
FY18F FY19F FY20F FY21F
FY19F FY20F FY21F FY18F Sources: Company data, Thanachart estimates Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 3
COMPANY NOTE AOT SAKSID PHADTHANANARAK
Ex 5: AOT’s ROE vs. Share Price (Bt/share) (%) ROE (RHS) Price (LHS) 120 21
100 18
15 80 12 60 9 40 6
20 3
0 0 FY12 FY13 FY14 FY15 FY16 FY17 FY18F FY19F FY20F FY21F
Sources: Company data, Bloomberg, Thanachart estimates
High PE multiples for a reason
Given strong earnings AOT’s shares traded in a PE range of 22-29x in 2014-16 before they experienced a re- growth with potential rating in 2017 to trade at PE multiples of 38x this year and 34x next, on our forecasts. We upside, we don’t see AOT’s believe the reasons for the re-rating have been: valuation as excessive 1) Thailand’s political stability after the coup in 2014.
2) AOT’s solid fundamentals from its monopoly business, cash-cow position and Thailand’s strong tourism industry.
3) Potential strong earnings growth after Suvarnabhumi Airport’s phase II starts operations, scheduled for FY21.
As we forecast AOT’s earnings CAGR at 14% in FY17-21F to bring down its PE multiples from 38x in FY18F to 31x in FY20F and 27x in FY21, we don’t regard its current valuation as excessive. Moreover, we have yet to even take into account potential earnings upside from the airport city project that AOT plans to open a bid for by end 2018 or early 2019 (please see more details in the next section).
Ex 6: AOT’s PE Band (Bt/share) 100 43x 90 36x 80 70 29x 60 22x 50 40 15x 30 20 8x 10
0
2019F 2020F 2021F 2018F Sources: Bloomberg, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 4
COMPANY NOTE AOT SAKSID PHADTHANANARAK
Near-term catalysts
AOT’s management continues to expect that, by end 2018 or early 2019, it will open bids for:
We factored in a 30% hike 1) New duty-free concession contracts and we already assume a 30% hike in the revenue- in the revenue-sharing sharing amount per sqm from FY21F onward. amount per sqm but… 2) The airport city project which we have yet to factor in. To recap briefly, AOT is working …we have yet to include on the process to open bids for the concession contract to develop 990 rai (391 acres) the airport city project of raw land in the Suvarnabhumi Airport area and 723 rai (286 acres) near the airport. The potential projects include hotels, logistic/business parks, shopping malls,
recreation, exhibition halls, residence, sport facilities and medical facilities.
Exhibit 7 shows our rough sensitivity analysis for additional earnings and our TP for AOT if 25-75% of the total raw land is developed for the airport city project. Based on our analysis, we estimate an additional Bt2-6 per share of potential upside to our current TP.
Ex 7: Sensitivity Analysis Of Our TP For AOT To The Airport City Project
Airport City Project Raw land Being Rent/month Total Rev. Rev. to After tax earnings Addition developed revenue sharing AOT to AOT to TP (sqm) (sqm) (Bt/sqm/month) (Bt m/year) (%) (Bt m/year) (Bt m/year) (Bt/share)
Scenario 1: 25% being developed - Land rented from the Treasury Department 1,584,000 396,000 2,000 9,504 15 1,426 1,140
- Land owned by AOT 1,156,800 289,200 2,000 6,941 15 1,041 833
Total 1,973 2.0 Scenario 2: 50% being developed
- Land rented from the Treasury Department 1,584,000 792,000 2,000 19,008 15 2,851 2,281
- Land owned by AOT 1,156,800 578,400 2,000 13,882 15 2,082 1,666 Total 3,947 4.0
Scenario 3: 75% being developed
- Land rented from the Treasury Department 1,584,000 1,188,000 2,000 28,512 15 4,277 3,421 - Land owned by AOT 1,156,800 867,600 2,000 20,822 15 3,123 2,499
Total 5,920 6.0
Sources: Company data, Thanachart estimates
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COMPANY NOTE AOT SAKSID PHADTHANANARAK
Ex 8: 12-month DCF-based TP Calculation Using A Base Year Of FY19F
Terminal (Bt m) FY18F FY19F FY20F FY21F FY22F FY23F FY24F FY25F FY26F FY27F FY28F FY29F FY30F value
EBITDA 37,352 41,292 45,073 53,936 59,176 69,530 76,293 83,853 92,724 102,528 113,461 125,727 139,325 — Free cash flow 12,979 1,555 375 11,016 24,040 37,170 39,144 58,748 69,902 78,314 87,705 97,584 108,768 2,462,944
PV of free cash flow — 1,429 316 8,541 17,125 24,325 23,528 32,441 35,462 36,499 37,544 38,376 39,297 633,719
Risk-free rate (%) 4.5
Market risk premium (%) 7.5
Beta 0.9 WACC (%) 8.9
Terminal growth (%) 2.0
Enterprise value - add investments 1,094,375
Net debt (FY18F) (41,257) Minority interest 375
Equity value 1,135,257
# of shares (m) 14,286 Equity value/share (Bt) 80
Sources: Company data, Thanachart estimates
Valuation Comparison
Ex 9: Valuation Comparison With Regional Peers EPS growth —— PE —— — P/BV — EV/EBITDA — Div yield — Name BBG code Country 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F (%) (%) (x) (x) (%) (%) (x) (x) (%) (%)
Sydney Airport SYD AU Australia 8.4 12.2 39.9 35.5 na na 19.0 17.8 5.3 5.7
Beijing Capital Int’l 694 HK China 33.1 4.4 15.7 15.0 2.2 2.0 7.5 7.2 2.6 2.8 Shenzhen Airport Co 000089 CH China 12.8 16.4 21.1 18.1 1.5 1.4 10.0 8.7 1.4 1.5 Xiamen Int’l Airport 600897 CH China 9.3 8.9 13.8 12.6 1.9 1.8 8.1 7.7 5.2 2.3 Shanghai Int’l Airport 600009 CH China 20.7 14.6 25.2 22.0 3.8 3.4 18.3 15.1 1.2 1.4
Fraport Frankfurt Airport FRA GR Germany 14.6 9.0 19.5 17.9 1.8 1.7 10.5 9.9 2.1 2.3 Japan Airport Terminal 9706 JP Japan 48.0 134.5 39.0 16.7 3.5 2.9 20.2 11.3 0.7 0.8 Grupo Aeroportuario ASURB MM Mexico 11.0 11.3 18.6 16.7 3.2 2.9 11.9 11.3 2.7 2.9 SATS Ltd SATS SP Singapore 1.4 4.9 23.1 22.1 3.4 3.3 18.0 17.5 3.4 3.6
Airports of Thailand* AOT TB Thailand 18.5 11.9 38.4 34.3 7.0 6.4 25.3 23.2 1.6 1.7
Average 17.8 22.8 25.4 21.1 3.1 2.9 14.9 13.0 2.6 2.5
Source: Bloomberg Note: * Thanachart estimates using normalized EPS
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 6
APPENDIX AOT SAKSID PHADTHANANARAK
COMPANY DESCRIPTION COMPANY RATING
Rating Scale The Airports of Thailand (AOT) was corporatized from a state Industry enterprise and is Thailand's leading airport business operator. AOT is Outlook 5 Very Strong 5 responsible for six international airports: Don Mueang, Phuket, Analyst 4 Business 3 Chiang Mai, Hat Yai, Chiang Rai and Suvarnabhumi, all of which REC. Outlook Strong 4 2 1 accommodate both domestic and international flights. With Good 3 0 commercial operations beginning on 28 September 2006, CG Manage rating* ment Suvarnabhumi serves as the main airport and can accommodate up Fair 2 to 45m passengers and 3m tonnes of cargo a year. Within a single Weak 1 hour, the airport can operate up to 76 flights. Financials Operating None 0
Source: Thanachart Source: Thanachart; *CG rating
THANACHART’S SWOT ANALYSIS
S — Strength W — Weakness
. AOT is an airport monopoly. . AOT has little revenue diversity so its quarterly earnings are volatile and follow the different tourism seasons. . As a state enterprise, the company’s operations and finances
receive support from the government. . Unclear direction due to changes in government policies
have caused AOT to miss out on the chance of benefiting
fully from Thailand’s strong tourism industry.
O — Opportunity T — Threat
. Thailand is a very popular destination for tourists. . Airport competition is fierce. Many airports in Asia are reducing fees to attract airlines. . Strong economic growth in the Asia-Pacific is boosting the
tourism industry in the region. . Disease outbreaks present a threat to the industry.
. The Thai healthcare industry is also spurring medical tourism to Thailand.
CONSENSUS COMPARISON RISKS TO OUR INVESTMENT CASE
Consensus Thanachart Diff . Thailand’s tourism industry is a component of the world Target price (Bt) 74.14 80.00 8% economy and there is no doubt that tourism would be Net profit 18F (Bt m) 25,509 25,687 1% negatively affected by any global economic volatility. Net profit 19F (Bt m) 28,196 28,749 2% . Political unrest in Thailand is another concern as it has a Consensus REC BUY: 14 HOLD: 10 SELL: 4 significant impact on the tourism industry.
HOW ARE WE DIFFERENT FROM THE STREET? . Political interference and corruption are also concerns. As a state enterprise, AOT’s major investments still have to be . Our FY18-19F earnings are 1-2% higher than the Bloomberg approved by the cabinet. Hence, any delays in getting consensus estimates. cabinet approval would have a negative impact on AOT’s earnings streams. . However, our DCF-based TP is 8% above the Street’s number, which we attribute to us already rolling over the base year in our valuation to FY19F.
Sources: Bloomberg consensus, Thanachart forecasts Source: Thanachart
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FINANCIAL SUMMARY AOT SAKSID PHADTHANANARAK
INCOME STATEMENT FY ending Sep (Bt m) 2016A 2017A 2018F 2019F 2020F Sales 50,962 54,901 61,215 66,931 72,410 Cost of sales 17,273 17,686 18,705 19,962 21,303 Gross profit 33,689 37,215 42,510 46,969 51,107 % gross margin 66.1% 67.8% 69.4% 70.2% 70.6% Selling & administration expenses 9,587 10,236 10,713 11,378 11,948 Operating profit 24,102 26,979 31,797 35,590 39,159 % operating margin 47.3% 49.1% 51.9% 53.2% 54.1% Depreciation & amortization 6,404 5,645 5,555 5,701 5,914 EBITDA margin should EBITDA 30,506 32,624 37,352 41,292 45,073 stay high, with D&A at 28- % EBITDA margin 59.9% 59.4% 61.0% 61.7% 62.2% 30% of COGS in FY18-20F Non-operating income 1,357 1,400 1,405 1,279 1,043 Non-operating expenses 0 0 0 0 0 Interest expense (1,377) (1,195) (1,016) (847) (697) Pre-tax profit 24,082 27,185 32,187 36,022 39,505 Income tax 4,821 5,445 6,437 7,204 7,901 After-tax profit 19,261 21,739 25,749 28,817 31,604 % net margin 37.8% 39.6% 42.1% 43.1% 43.6% Shares in affiliates' Earnings 0 0 0 0 0 Minority interests (32) (56) (62) (68) (74) Extraordinary items 90 (1,000) 0 0 0 NET PROFIT 19,318 20,684 25,687 28,749 31,530 Normalized profit 19,229 21,683 25,687 28,749 31,530 EPS (Bt) 1.4 1.4 1.8 2.0 2.2 Normalized EPS (Bt) 1.3 1.5 1.8 2.0 2.2
BALANCE SHEET FY ending Sep (Bt m) 2016A 2017A 2018F 2019F 2020F ASSETS: Current assets: 64,158 71,655 66,941 50,356 31,253 AOT had total cash on hand Cash & cash equivalent 60,490 67,672 62,500 45,500 26,000 of Bt63bn at end-2Q FY18 Account receivables 2,871 3,069 3,421 3,741 4,047 Inventories 0 0 0 0 0 Others 796 915 1,020 1,115 1,206 Investments & loans 1,222 1,576 1,576 1,576 1,576 Net fixed assets 91,692 93,625 106,821 134,368 165,698 Other assets 15,145 11,553 12,882 14,085 15,238 Total assets 172,216 178,410 188,220 200,385 213,765
LIABILITIES: Current liabilities: 19,693 20,728 22,055 23,217 24,402 Account payables 1,370 1,955 2,067 2,206 2,355 Bank overdraft & ST loans 30 30 0 0 0 Current LT debt 4,767 4,252 3,785 3,320 2,894 Others current liabilities 13,526 14,491 16,203 17,691 19,153 Total LT debt 27,261 19,609 17,458 15,309 13,349 Others LT liabilities 4,949 6,384 7,118 7,783 8,420 Total liabilities 51,902 46,721 46,631 46,309 46,170 Minority interest 257 312 375 443 517 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 916 1,199 1,199 1,199 1,199 Retained earnings 92,288 103,324 113,162 125,580 139,026 Shareholders' equity 120,058 131,376 141,214 153,633 167,079 Liabilities & equity 172,216 178,410 188,220 200,385 213,765 Sources: Company data, Thanachart estimates
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 8
FINANCIAL SUMMARY AOT SAKSID PHADTHANANARAK
CASH FLOW STATEMENT FY ending Sep (Bt m) 2016A 2017A 2018F 2019F 2020F Earnings before tax 24,082 27,185 32,187 36,022 39,505 Tax paid (4,821) (5,445) (6,437) (7,204) (7,901) Depreciation & amortization 6,404 5,645 5,555 5,701 5,914 Chg In w orking capital (295) 387 (240) (181) (158) Chg In other CA & CL / minorities 3,258 671 1,493 1,244 1,196 Cash flow from operations 28,627 28,442 32,557 35,582 38,555
Capex (2,844) (7,578) (18,750) (33,248) (37,244) ST loans & investments 0 0 0 0 0 LT loans & investments (382) (354) 0 0 0 Adj for asset revaluation 0 0 0 0 0 Chg In other assets & liabilities (4,995) 3,761 (482) (389) (342) Cash flow from investments (8,221) (4,172) (19,232) (33,637) (37,586) Debt financing (557) (7,724) (2,648) (2,614) (2,386) Capital increase 0 0 0 0 0 Dividends paid (7,142) (9,757) (13,849) (16,331) (18,084) Warrants & other surplus (706) 392 (2,000) 0 0 Cash flow from financing (8,406) (17,088) (18,497) (18,945) (20,469)
Free cash flow 25,783 20,864 13,807 2,334 1,311
VALUATION FY ending Sep 2016A 2017A 2018F 2019F 2020F We believe AOT deserves a Normalized PE (x) 51.3 45.5 38.4 34.3 31.3 premium valuation vs. Normalized PE - at target price (x) 59.4 52.7 44.5 39.8 36.2 peers… PE (x) 51.0 47.7 38.4 34.3 31.3 PE - at target price (x) 59.2 55.3 44.5 39.8 36.2 EV/EBITDA (x) 31.4 28.9 25.3 23.2 21.7 …for its defensive qualities, EV/EBITDA - at target price (x) 36.5 33.7 29.5 27.0 25.1 continued earnings growth, P/BV (x) 8.2 7.5 7.0 6.4 5.9 solid balance sheet and P/BV - at target price (x) 9.5 8.7 8.1 7.4 6.8 P/CFO (x) 34.4 34.7 30.3 27.7 25.6 upside potential Price/sales (x) 19.3 18.0 16.1 14.7 13.6 Dividend yield (%) 1.0 1.2 1.6 1.7 1.9 FCF Yield (%) 2.6 2.1 1.4 0.2 0.1
(Bt) Normalized EPS 1.3 1.5 1.8 2.0 2.2 EPS 1.4 1.4 1.8 2.0 2.2 DPS 0.7 0.9 1.1 1.2 1.3 BV/share 8.4 9.2 9.9 10.8 11.7 CFO/share 2.0 2.0 2.3 2.5 2.7 FCF/share 1.8 1.5 1.0 0.2 0.1
Sources: Company data, Thanachart estimates
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FINANCIAL SUMMARY AOT SAKSID PHADTHANANARAK
FINANCIAL RATIOS FY ending Sep 2016A 2017A 2018F 2019F 2020F Grow th Rate Sales (%) 15.9 7.7 11.5 9.3 8.2 Net profit (%) 3.1 7.1 24.2 11.9 9.7 EPS (%) 3.1 7.1 24.2 11.9 9.7 Normalized profit (%) 22.0 12.8 18.5 11.9 9.7 Normalized EPS (%) 22.0 12.8 18.5 11.9 9.7 Dividend payout ratio (%) 50.5 59.4 60.0 60.0 60.0
Operating performance Gross margin (%) 66.1 67.8 69.4 70.2 70.6 Operating margin (%) 47.3 49.1 51.9 53.2 54.1 EBITDA margin (%) 59.9 59.4 61.0 61.7 62.2 Despite high capex, AOT Net margin (%) 37.8 39.6 42.1 43.1 43.6 should remain in a net D/E (incl. minor) (x) 0.3 0.2 0.2 0.1 0.1 cash position given its Net D/E (incl. minor) (x) (0.2) (0.3) (0.3) (0.2) (0.1) robust CFFO Interest coverage - EBIT (x) 17.5 22.6 31.3 42.0 56.1 Interest coverage - EBITDA (x) 22.2 27.3 36.8 48.7 64.6 ROA - using norm profit (%) 11.6 12.4 14.0 14.8 15.2 ROE - using norm profit (%) 16.8 17.2 18.8 19.5 19.7
DuPont ROE - using after tax profit (%) 16.8 17.3 18.9 19.5 19.7 - asset turnover (x) 0.3 0.3 0.3 0.3 0.3 - operating margin (%) 50.0 51.7 54.2 55.1 55.5 - leverage (x) 1.5 1.4 1.3 1.3 1.3 - interest burden (%) 94.6 95.8 96.9 97.7 98.3 - tax burden (%) 80.0 80.0 80.0 80.0 80.0 WACC (%) 8.9 8.9 8.9 8.9 8.9 ROIC (%) 20.8 23.5 29.0 28.5 24.7 NOPAT (Bt m) 19,277 21,575 25,438 28,472 31,327
Sources: Company data, Thanachart estimates
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DISCLAIMER AOT SAKSID PHADTHANANARAK
Important Disclosures and Disclaimers:
This publication is prepared by Thanachart Securities Public Company Limited (“Thanachart Securities”) and distributed outside Thailand by Daiwa Securities Group Inc. and/or its non-U.S. affiliates except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Thanachart Securities , Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Thanachart Securities, Daiwa Securities Group Inc. and/or their respective affiliates nor any of their respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person.
Thanachart Securities, Daiwa Securities Group Inc., their respective subsidiaries or affiliates, or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including market making activities, derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. Thanachart Securities, Daiwa Securities Group Inc., their respective subsidiaries or affiliates do and seek to do business with the company(s) covered in this research report. Therefore, investors should be aware that a conflict of interest may exist. The following are additional disclosures. Ownership of Securities of Thanachart Securities, Daiwa Securities Group Inc, their subsidiaries and affiliates For “Ownership of Securities” information, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship of Thanachart Securities, Daiwa Securities Group Inc, their subsidiaries and affiliates For “Investment Banking Relationship”, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Japan Disclosure of Interest of Daiwa Securities Group Inc. Investment Banking Relationship Within the preceding 12 months, the subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: PT Integra Indocabinet Tbk (WOOD IJ), PT Buyung Putera Sembada (HOKI IJ) and PT Totalindo Eka Persada Tbk (TOPS IJ), Cromwell European REIT (CERT_SP), Beijing Enterprises Water Group Ltd (371_HK), MIRAE ASSET DAEWOO CO LTD (006800 KS)
*Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司), Daiwa Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd.
This research may only be distributed in Japan to “qualified institutional investors”, as defined in the Financial Instruments and Exchange Act (Article 2 (3) (i)), as amended from time to time.
Disclosure of Interest of Thanachart Securities Investment Banking Relationship Within the preceding 12 months, Thanachart Securities has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Ratchaphruek Hospital (RPH TB), Thonburi Healthcare Group (THG TB), TOA Paint Thailand PCL (TOA TB).
Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.
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DISCLAIMER AOT SAKSID PHADTHANANARAK
Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Securities and Futures Act, Chapter 289 of Singapore, as amended from time to time and is not for, nor intended for, distribution to any other persons in Singapore. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore should contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research.
Australia This research is distributed in Australia by Daiwa Capital Markets Australia Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research.
India This research is distributed in India to Institutional Clients only by Daiwa Capital Markets India Private Limited (Daiwa India) which is an intermediary registered with Securities & Exchange Board of India as a Stock Broker, Merchant Bank and Research Analyst. Daiwa India, its Research Analyst and their family members and its associates do not have any financial interest save as disclosed or other undisclosed material conflict of interest in the securities or derivatives of any companies under coverage. Daiwa India and its associates, may have received compensation for any products other than Investment Banking (as disclosed)or brokerage services from the subject company in this report or from any third party during the past 12 months. Daiwa India and its associates may have debt holdings in the subject company. For information on ownership of equity, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. There is no material disciplinary action against Daiwa India by any regulatory authority impacting equity research analysis activities as of the date of this report.
Associates of Daiwa India, registered with Indian regulators, include Daiwa Capital Markets Singapore Limited and Daiwa Portfolio Advisory (India) Private Limited.
Taiwan This research is solely for reference and not intended to provide tailored investment recommendations. This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd. and it may only be distributed in Taiwan to specific customers who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd. and non-customers including (i) professional institutional investors, (ii) TWSE or TPEx listed companies, upstream and downstream vendors, and specialists that offer or seek advice, and (iii) potential customers with an actual need for business development in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research including non-customer recipients of this research shall not provide it to others or engage in any activities in connection with this research which may involve conflicts of interests. Neither Daiwa-Cathay Capital Markets Co., Ltd. nor its personnel who writes or reviews the research report has any conflict of interest in this research. Since Daiwa-Cathay Capital Markets Co., Ltd. does not operate brokerage trading business in foreign markets, this research is prepared on a “without recommendation” to any foreign securities basis and Daiwa-Cathay Capital Markets Co., Ltd. does not accept orders from customers to trade in such foreign securities. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd. in respect of any matter arising from or in connection with the research.
Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE link at http://www.sec.gov.ph and http://www.pse.com.ph/ respectively.
United Kingdom This research report is produced by Daiwa Securities Co. Ltd. and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange and Eurex. This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.
Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory.
Germany This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.
Bahrain This research material is distributed in Bahrain by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113.
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 12
DISCLAIMER AOT SAKSID PHADTHANANARAK
United States This research is distributed into the United States directly by Daiwa Capital Markets Hong Kong Limited and indirectly by Daiwa Capital Markets America Inc. (DCMA), a U.S. Securities and Exchange Commission registered broker-dealer and FINRA member firm, exclusively to “major U.S. institutional investors”, as defined under Rule a-6 promulgated under the U.S. Securities Exchange Act of 1934, as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission (SEC). This report is not an offer to sell or the solicitation of any offer to buy securities. U.S. customers wishing to effect transactions in any designated investment discussed in this report should do so through a qualified salesperson of DCMA. Non-U.S. customers wishing to effect transactions in any designated investment discussed in this report should contact a Daiwa entity in their local jurisdiction. The securities or other investment products discussed in this report may not be eligible for sale in some jurisdictions.
Analysts employed outside the U.S., as specifically indicated elsewhere in this report, are not registered as research analysts with FINRA. These analysts may not be associated persons of DCMA, and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
ADDITIONAL IMPORTANT DISCLOSURES CAN BE FOUND AT: https://daiwa3.bluematrix.com/sellside/Disclosures.action
Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Investment Banking Relationships For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
DCMA Market Making For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa .bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.
Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analyst is named on the report); and no part of the compensation of such analyst (or no part of the compensation of the firm if no individual analyst is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.
For stocks in Thailand covered by Thanachart Securities, the following rating system is in effect: Ratings 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 rating is BUY. If the downside is 10% or more, the rating is SELL. For stocks where the upside or downside is less than 10%, the rating is HOLD. Unless otherwise specified, these ratings 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 rating.
For the sector, Thanachart looks 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 Thanachart sees the industry trend improving. An arrow pointing down, or the word “Negative”, is used when Thanachart sees 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 Thanachart’s top-down perspective on the industry rather than a bottom-up interpretation from the stocks that Thanachart covers. An “Overweight” sector weighting is used when Thanachart has BUYs on majority of the stocks under its coverage by market cap. “Underweight” is used when Thanachart has SELLs on majority of the stocks it covers by market cap. “Neutral” is used when there are relatively equal weightings of BUYs and SELLs].
Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.
Relevant Relationships (TNS) TNS may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.
TNS market making TNS may from time to time make a market in securities covered by this research.
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 13
DISCLAIMER AOT SAKSID PHADTHANANARAK
Additional information may be available upon request.
Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)
. If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. . In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. . In some cases, we may also charge a maximum of ¥2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. . For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. . There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. . There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. . Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants.
* The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.
When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.
Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association
Thanachart Securities Pcl. Research Team 19 Floor, MBK Tower 444 Phayathai Road, Pathumwan Road, Bangkok 10330 Tel: 662 - 617 4900 Email: [email protected]
Pimpaka Nichgaroon, CFA Adisak Phupiphathirungul, CFA Chak Reungsinpinya Head of Research Retail Market Strategy Energy, Petrochemical [email protected] [email protected] [email protected]
Kalvalee Thongsomaung Pattarawan Wangmingmat Nuttapop Prasitsuksant Food, Hotel, Media Senior Technical Analyst Electronics [email protected] [email protected] [email protected]
Phannarai Tiyapittayarut Saksid Phadthananarak Sarachada Sornsong Property, Retail Construction, Transportation Bank, Financial, Telecom [email protected] [email protected] [email protected]
Siriporn Arunothai Supanna Suwankird Small Cap Research, Healthcare Energy, Utilities [email protected] [email protected]
Wichaya Wongpanuwich, CFA, FRM Witchanan Tambamroong Analyst, Retail Market Technical Analyst [email protected] [email protected]
Pattadol Bunnak Sittichet Rungrassameephat Thaloengsak Kucharoenpaisan Assistant Analyst Assistant Analyst, Quantitative Assistant Analyst [email protected] [email protected] [email protected]
THANACHART SECURITIES | DAIWA CAPITAL MARKETS 14