Thailand Company Focus Thai Airways

Bloomberg: THAI TB | Reuters: THAI.BK

DBS Group Research . Equity 18 Jan 2011

BUY Bt44.75 Strong momentum in FY11F SET : 1,023.19 Price Target : 12-month Bt 64.50  Strong growth in FY11F with easing political Reason for Report : Post conference note uncertainty and supportive industry fundamentals.

Potential Catalyst: Launching low cost airlines, and exit from SOE status.  4Q10F to soften but momentum will pick up ahead.

Analyst  Trading at 1.1x P/BV, below peers’ average of 1.6x; Nalyne Viriyasathien +662 657 7823 [email protected] maintain Buy rating for upside to Bt64.50 TP Positive response from investors. Mr. Raj Tanta-Nanta (VP) represented THAI at our DBSV POA Conference in Singapore on 13 Jan11 with excellent investors’ response. THAI will focus on expanding yields, fleet modernization, Price Relative improve fuel-hedging, exiting from SOE status and launch of low cost airlines to capture the lower income market. Bt Relative Index We expect FY11F core profit to grow 37% y-o-y to 220 55 . 80 Bt12.4bn as easing political uncertainty and an improving 170 45 . 80 economy will boost operations. 35 . 80 120 25 . 80 What would have been the 70 A softer 4Q10F but still decent. 15 . 80 peak season was unfortunately affected by flooding in many

5 . 80 20 parts of Thailand in Oct-Nov10, hance lowering travel 2007 2008 2009 2010 2011 demand and driving cabin load factors down to 73.8% (vs Thai Airways ( LHS ) Relative SET INDEX ( RHS ) 75.4% a year ago). It would also book a Bt1.8bn provision in

Forecasts and Valuation 4Q10 relating to its employee early retirement plan. Despite these factors, 4Q10F result should remain strong as (i) ASK is FY Dec (Bt m) 2009A 2010F 2011F 2012F expected to rise 5% q-o-q and 3% y-o-y, (ii) passenger yields Turnover 161,603 179,131 195,269 205,836 EBITDA 31,758 39,310 46,952 51,444 should increase to Bt2.18/km in 4Q10F vs Bt2.03 in 3Q10 Pre-tax Profit 8,107 17,765 17,877 20,884 and Bt2.17 in 4Q09, and (iii) c.Bt800m gain (potential to be Net Profit 7,344 14,813 12,384 14,490 revised higher) from the reversal of a provision for an anti- Net Pft (Pre Ex.) 4,705 9,061 12,384 14,490 trust lawsuit as the European Commission (EC) dropped EPS (Bt) 4.3 6.8 5.7 6.6 charges against THAI in Oct10. EPS Pre Ex. (Bt) 2.8 4.2 5.7 6.6 EPS Gth Pre Ex (%) nm 50 37 17 Diluted EPS (Bt) 4.3 6.8 5.7 6.6 Reiterate Buy. We are retaining our Bt64.50 target price Net DPS (Bt) 0.3 0.9 1.5 1.7 that is pegged to 1.5x FY11F PBV, in line with regional BV Per Share (Bt) 31.4 37.2 42.0 47.2 peers’ average and its 7-year average historical PBV +1SD, PE (X) 10.4 6.6 7.9 6.7 implying 44% upside potential. Share price contracted PE Pre Ex. (X) 16.2 10.8 7.9 6.7 recently (-9% YTD) on expectation of a soft 4Q10F and P/Cash Flow (X) 2.7 2.7 2.7 2.5 EV/EBITDA (X) 6.8 5.5 4.3 4.1 concerns of rising fuel prices. We remain upbeat on THAI, Net Div Yield (%) 0.6 2.0 3.4 3.7 as moving into FY11F, operations should start to strenthen P/Book Value (X) 1.4 1.2 1.1 0.9 while fuel expenses should be efficiently handled by its Net Debt/Equity (X) 2.6 1.4 1.1 1.1 improved hedging policy. Valuations remain attractive at ROAE (%) 14.9 22.1 14.4 15.0 1.1x P/BV and 4.3x EV/EBITDA, below regional peers’ average of 1.6x and 7x, respectively. Earnings Rev (%): - - - Consensus EPS (Bt): 5.5 5.6 7.0 At A Glance ICB Industry : Consumer Services Issued Capital (m shrs) 2,183 ICB Sector: Travel & Leisure Mkt. Cap (Btm/US$m) 97,679 / 3,210 Principal Business: THAI operates domestic, regional and intercontinental flights to key destinations around the world and Major Shareholders within Thailand. Ministry of Finance (%) 51.0 Source of all data: Company, DBS Vickers, Bloomberg Vayupak Fund (%) 17.0 Thai NVDR (%) 4.2 Free Float (%) 27.4 Avg. Daily Vol.(‘000) 8,240

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Refer to important disclosures at the end of this report ed: JS / sa: CS Company Focus

Thai Airways

Pulse of Asia Conference – Singapore surcharge provides over 100% coverage of fuel cost as of Dec10. Positive response from investors. Mr. Raj Tanta-Nanta (Vice President, Investor Relations) represented Thai Airways (THAI THAI: Jet fuel price TB) in our DBSV Pulse of Asia Conference held in Singapore US$/bbl on 13 Jan 2011. Response from investors was excellent with all slots taken up. The management briefed investors on the 200 180 robust turnaround of its operations last year (FY10F), and the 160 positive momentum going forward given supportive industry 140 fundamentals as well as continued improvement in executing 120 100 the company’s strategy. Frequently asked questions centred 80 on the launch of Thai-Tiger airline, fuel hedging policy, 60 operations in 4Q10F and outlook as well as strategies going 40 20 forward. 0 07 08 09 10 07 07 08 08 09 09 10 10 11 Recap & outlook Jan- Sep- Jan- Sep- Jan- Sep- Jan- Sep- Jan- May- JetMay- Kerosene May- Brent May- Not much concerns on rising fuel cost. We should not be Source: Company, DBS Vickers overly concerned on rising fuel cost having an impact on margins as THAI has put in place several initiatives as part of Thai Tiger JV. The company is setting up a joint venture low its business restructuring program in 2009. These have been cost airline called ‘Thai Tiger Airways (TTA)’ with Tiger successfully implemented and will enable THAI to continue to Airways (Singapore-based budget airline) with total registered mange fuel cost effectively. THAI has adjusted its fuel capital of Bt200m to serve regional and domestic routes. The hedging policy to be more consistent thus minimising risks of venture has been approved by the board of directors (BoD), volatile fuel prices. The company will now hedge at least 20% and is now pending approval from the Ministry of but not more than 80% of its average monthly fuel Transportation and Ministry of Finance (MOF). consumption (outside these ranges will require BoD’s approval) with length of contracts averaging 12-18 months. Board is dominated by THAI. The shareholding structure will comprise of 49.9% THAI, 39% Tiger, 10% Ryan Asia Limited, THAI: Jet fuel hedging and fuel surcharge coverage and 1.1% TTA’s Thai nationality employees. Board comprises % of consumption % of fuel surcharge coverage 4, 2, and 1 from THAI, Tiger Airways, and Ryan Air, respectively. It is expected to start operation by Jun11 with a 80 200 70 fleet of 4 A320 aircraft (180 seats) and will add another 4 60 150 aircraft in 2012. These 8 aircraft were originally ordered from 50 Tiger airways under lease contracts. 40 100 30 TTA: Shareholder structure 20 50 10 Ryan Air TTA Thai 0 0 % Employ ee . % 10 1 1 11 11 10 10 10 09 09 09 08 08 08 10 09 08 Jul Jul Jul Jan Jan Jan Jan Apr Oct Apr Oct Apr Oct FuelApr heding F uel Surcharge Cov erage (RHS) Source: Company, DBS Vickers

Hedging policy in place. The current jet fuel price hedging collar is between US$90 and US$104/barrel (current jet fuel Tiger price: US$110). The percentage of fuel hedged to total THAI Airways % consumption is up to 41% for 1Q11F and 31% for 2Q11F; % 50 the company is likely to increase the hedging amount as it 39

moves along while monitoring the trend of fuel prices. For Source: Company, DBS Vickers fluctuations of fuel prices within this range, the company will use fuel surcharge to manage costs. At current levels, fuel

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Company Focus Thai Airways

Expanding routes. Thai Tiger Airways’ flights will be short aircraft retrofit program and new aircrafts acquisition) should haul with a maximum of five hours, focusing on existing also help. The management expects yield to improve by 4% routes with strong demand, and new routes that are more y-o-y to Bt2.2/km in FY11F from Bt2.12/km in FY10F. feasible for a low cost carrier to operate (compared to its current premium airline). The airline will also seek fifth THAI: Monthly passengers yield freedom rights from some countries for the right to fly THB/RPK between two foreign countries (rather than back to their . 2 45 own) for flights that originate or end in one’s own country. . 2 35 . Capturing low cost demand. The venture will help THAI to 2 25 . expand its network, diversify into new a customer segment, 2 15 . and exploit the fast growing budget travel demand as well as 2 05 . protect its market share against other low cost carriers. Low 1 95 . cost travel is the fastest growing segment of the airline 1 85 . industry during the past decade. Also, there is still a large 1 75 room for growth in the regional markets as currently low cost Jul Sep Jan Oct Dec Feb Apr Jun Mar Nov Aug carriers in Asia constitute only 15-20% of total air traffic, May compared to 26-27% in the US, and 36-37% in EU. 2008 2009 2010 Source: Company, DBS Vickers

Another brand is expected to be launched. Apart from the Modernizing fleet. THAI will buy up to 26 new planes and existing premium segment that THAI is now operating and retire 24 aging planes during FY10-FY14F. Hence, the soon-to-be-launched low cost carrier (TTA), THAI also plans to number of aircraft in its fleet will remain the same, but new launch another brand of airline targeting the medium and larger aircraft would raise seat capacity by 14% to help segment passenger market. This market will have a better ease its current capacity constraint. Also, the new aircraft will product compared to the low cost carrier, but with tickets still reduce fuel consumption and maintenance costs. priced at affordable levels. The name of the brand and other details is pending management disclosure, but we do not THAI: Aircrafts fleet plan expect this to happen very soon and should not be material in 2010 2011 2012 2013 2014 TOTAL the short to medium term. Incoming aircrafts A380-800 - - 3 3 - 6 Target reduction of MOF stake in THAI. THAI is also under A330-300 - 7 3 2 - 12 negotiation with its lenders to allow the Ministry of Finance B777-300 ER - 2 6 - 8 TOTAL - 7 8 11 - 26 (MOF) to reduce its stake in THAI to below 50% (but still Outgoing aircrafts remain a major shareholder) in order to move away from B747-400 - - 4 2 - 6 being a state-owned enterprise (SOE). MOF has currently a B777-300 ER - - - 3 - 3 51% stake in THAI, a requirement for loans covenants. It has B737-400 1 - - - 2 3 successfully unlocked all the domestic and some foreign loans A300-600 2 2 4 2 - 10 ATR-72 2 - - - - 2 covenants on this matter, with now three contracts left (c. TOTAL 5 2 8 7 2 24 Bt20bn). Without being a state enterprise, THAI can respond Source: Company, DBS Vickers to changes in market conditions, be more competitive and have more flexibility in implementation of new strategies. CAPEX plan. CAPEX for 2011 and 2012 are estimated at Currently, many changes in strategies are subject to long Bt23bn and Bt48bn per year, respectively. Bulk of the CAPEX approval processes at government bodies (e.g. investment of will be channeled to new aircraft purchases (Bt16bn in 2011 over Bt1bn requires approvals). and Bt42bn in 2012).

Recovering passenger yield. Passenger yield has not fully recovered to pre-economic crisis levels (Bt2.4/km in Jan08), but this should gradually inch up given improved real time dynamic pricing scheme to match higher prices in line with the higher demand. In addition, it targets improving its RBD (Reservation booking designator) by placing priority on selling higher priced tickets. Meanwhile, better product quality (from

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Company Focus

Thai Airways

THAI: CAPEX plan THAI: Passengers’ monthly cabin factor

Bt bn % 01 27 . .

2 % . 85 77 25 . 60 82 82 2 8 % . 34 . 1 80 . 2 . 34

1 20 78 63 . 4 48 . . 32 . . . 77 80 07 % 77 76 76 . 76 50 1 84 15 75 3 . 1 75 75 . 74 . 74 . 74

74 % 75 73 10 72 71 71 40 71 % 33

1 5 . 70 . %

25 2

. 0 65 30 23 65 . - % 16 4 65 62 5

67 - % 20 . 10 60 - % 56 15 10 - % 55 20 F 09 09 10 10 09 0 10 09 09 09 09 09 10 10 10 10 10 09 09 09 10 10 10 09 10

F F F 11 Jul 2009 2010 2011 2012 Jul Sep Jan Sep Jan Apr Jun Feb Oct Dec Oct Feb Dec Mar Mar Nov Nov Aug Aug May Apr- May Jun- Source: Company, DBS Vickers Cabin Factor y-o-y growth (RHS)Jan

Source: Company, DBS Vickers Stronger balance sheet. THAI successfully raised Bt15bn capital in 2H10 to ease financial risks and strengthen Stronger travel demand. Thailand’s tourism industry has operations. Coupled with higher cashflows from improving picked up rapidly after the end of the 10-week long Red operations, net gearing should drop to 1.4x and 1.2x at end Shirts rally in Bangkok in Mar-May10. Arrivals continued to FY10F and FY11F, respectively, against 2.6x at end FY09. improve in Nov10, rising 10% y-o-y and q-o-q to 1.5m visitors. We expect this to improve further in FY11F given a Bt8bn bond issue on the horizon. THAI plans to issue Bt8bn more stable political environment and the lifting of state of worth of bonds in May11 with expected maturity of 7-8 emergency in all provinces since 22 Dec. Thailand remains an years. The proceeds would mainly be use for aircraft attractive value-for-money holiday destination. acquisitions, refinance maturing debt and working capital. Apart from this, extension of credit lines would also be Expect tourists growth. Visitor arrival is expected to grow 8% targeted in order to allow more financial flexibility. y-o-y to 17m in 2011 from an estimated 15.7m in 2010. Hence, THAI will be prime beneficiary given that c.70% of its 4Q10F operations affected by flooding… What would have passengers are leisure travelers. been peak season for THAI was unfortunately affected by flooding in many parts of Thailand in Oct-Nov10. This caused Thailand: Monthly visitor arrivals travel plans to be cancelled or postponed, driving down ' People passenger cabin factors to 73.8% (vs 75.4% a year ago). It , 000 % 1 800 60 would also book a Bt1.8bn provision in 4Q10 relating to its % , 50 1 600 % early retirement benefit plan for employees. , 40 1 400 % , 30 1 200 % , 20 …but result should stay strong. Despite the above, 4Q10F 1 000 % 10 % result should remain decent given (i) passenger capacity or 800 0 - % 600 10 ASK (available seat per kilometer) is expected to rise 5% q-o- - % 400 20 q and 3% y-o-y, and (ii) passenger yield is expected to remain - % 200 30 - % strong at Bt2.18/km in 4Q10F vs Bt2.03 in 3Q10 and Bt2.17 0 40 potential to be revised in 4Q09, and (iii) c.Bt800m gain ( ) 07 07 08 08 09 09 10 10 07 07 08 08 09 09 10 10 from the reversal of a provision for an anti-trust lawsuit as the Feb Feb Feb Feb Nov Nov Nov Nov Aug Aug Aug Aug European Commission (EC) dropped charges against THAI in May Visitor arrivalsMay May % chg. y-o-yMay (RHS) Oct10. Source: BOT, DBS Vickers

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Company Focus Thai Airways

Valuation moving into FY11F, operations should regain their strength while fuel expenses would be efficiently handled by its Robust earnings growth. We remain upbeat on THAI. FY10F improved hedging policy. Currently, THAI’s valuation remains earnings should surge 102% y-o-y to Bt14.8bn premised on attractive at 1.1x P/BV and 4.3x EV/EBITDA, below regional improving travel demand, higher yields, significant increase in peers’ average of 1.6x and 7x (FY11F), respectively. freight capacity, effective management of fuel and other operating costs, and forex gains. Key risks to our call are: (i) lingering or worsening political uncertainty in Thailand, (ii) spiking fuel cost, and (iii) new Strong momentum into FY11F. Headline FY11F earnings are natural disasters at tourist destinations, and epidemics. expected to fall 16% y-o-y to Bt12.4bn in the absence of Bt7.3bn (9M10) forex gain. But, excluding the forex impact, THAI: P/BV Band core profit should grow 37% y-o-y as easing political PBV (x) uncertainty and an improving economy should boost . operations, with operating costs under control. We expect 2 5 passenger capacity or ASK (available seat per kilometer) to . + sd 2 0 2 edge up 5% y-o-y and RPK (revenue passenger per kilometer) . + sd should also increase, by 8% y-o-y on cabin load factor of 1 5 1 76% (vs 74% in FY10F). This is in line with the . Mean management’s expectations. 1 0 . - sd 0 5 1 Reiterate Buy. We are retaining our Bt64.50 target price that - sd is pegged to 1.5x FY11F PBV, in line with regional peers’ - 2 average and its 7-year average historical PBV +1SD, implying 04 05 06 07 08 09 10 11 44% upside potential. Share price contracted recently (-9% Source: Reuters, DBS Vickers YTD) on expectation of a soft 4Q10F and concerns of rising fuel prices impacting earnings. But, we remain positive that

Regional peers comparison

Market PE P/BV EV/EBITDA Divi Yield ROE Share Price

Cap (x) (x) (x) (%) (%) Performance

BB Ticker Name US$ 11F 12F 11F 12F 11F 12F 11F 11F 1M 3M YTD 1Y 293 HK Equity CATHAY PACIFIC AIRWAYS 11,635 7.7 8.8 1.7 1.5 6.2 6.3 4.1 25.2 3.6 5.0 7.2 59.3 2610 TT Equity CHINA AIRLINES LTD 3,588 6.6 6.3 1.8 1.6 7.5 8.6 1.1 31.6 (7.6) (5.5) (12.8) 98.2 1055 HK Equity CHINA SOUTHERN AIRLINES CO-H 11,365 7.5 8.9 1.8 1.5 10.0 9.7 0.2 26.4 3.6 (16.5) (2.1) 64.7 2618 TT Equity EVA AIRWAYS CORP 3,320 7.0 8.3 2.1 1.9 7.2 8.4 1.3 33.4 (7.1) 14.4 (11.5) 134.2 003490 KS Equity KOREAN AIR LINES CO LTD 4,586 8.5 7.8 1.3 1.1 7.4 7.1 0.5 17.0 0.1 (1.5) 2.3 18.3 MAS MK Equity MALAYSIAN AIRLINE SYSTEM BHD 2,360 nm 17.6 2.0 1.8 27.1 7.7 - 1.8 10.8 (4.8) 3.3 (10.3) SIA SP Equity SINGAPORE AIRLINES LTD 14,175 13.1 10.7 1.3 1.2 4.3 3.7 4.0 9.7 1.3 (5.8) (0.1) 6.3 THAI TB Equity THAI AIRWAYS INTERNATIONAL 3,210 7.9 6.7 1.1 0.9 4.3 4.1 3.4 14.4 (9.6) (0.6) (8.7) 133.1 Average (simple) 8.3 9.4 1.6 1.4 9.3 7.0 2.1 19.9

Source: Bloomberg, DBS Vickers

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Company Focus

Thai Airways

Income Statement (Bt m) Balance Sheet (Bt m) FY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012F Turnover 161,603 179,131 195,269 205,836 Net Fixed Assets 213,505 216,548 216,096 239,257 Cost of Goods Sold (137,514) (150,968) (160,021) (167,687) Invts in Associates & JVs 1,241 1,353 1,386 1,421 Gross Profit 24,089 28,164 35,248 38,149 Other LT Assets 9,823 9,812 9,377 8,964 Other Opng (Exp)/Inc (15,146) (14,642) (15,500) (15,886) Cash & ST Invts 14,650 44,726 41,241 23,732 Operating Profit 8,943 13,522 19,748 22,263 Inventory 6,198 7,687 8,032 8,399 Other Non Opg (Exp)/Inc 2,094 3,511 3,552 4,117 Debtors 16,204 17,913 19,527 20,584 Associates & JV Inc (9) 223 68 69 Other Current Assets 10,237 12,901 12,535 12,134 Net Interest (Exp)/Inc (5,559) (5,243) (5,491) (5,565) Total Assets 271,857 310,940 308,194 314,490 Exceptional Gain/(Loss) 2,638 5,752 0 0 Pre-tax Profit 8,107 17,765 17,877 20,884 ST Debt 25,490 31,301 18,288 17,104 Tax (691) (2,842) (5,363) (6,265) Other Current Liab 54,961 58,781 61,686 64,741 Minority Interest (72) (110) (130) (129) LT Debt 129,410 130,577 127,669 121,026 Preference Dividend 0 0 0 0 Other LT Liabilities 8,589 8,974 8,795 8,619 Net Profit 7,344 14,813 12,384 14,490 Shareholder’s Equity 53,056 80,845 91,164 102,280 Net Profit before Except. 4,705 9,061 12,384 14,490 Minority Interests 352 462 592 721 EBITDA 31,758 39,310 46,952 51,444 Total Cap. & Liab. 271,857 310,940 308,194 314,490

Sales Gth (%) (19.2) 10.8 9.0 5.4 Non-Cash Wkg. Capital (22,323) (20,280) (21,593) (23,625) EBITDA Gth (%) 112.4 23.8 19.4 9.6 Net Cash/(Debt) (140,250) (117,152) (104,716) (114,397) Opg Profit Gth (%) nm 51.2 46.0 12.7 Net Profit Gth (%) nm 101.7 (16.4) 17.0 Effective Tax Rate (%) 8.5 16.0 30.0 30.0 Cash Flow Statement (Bt m) Rates & Ratio FY Dec 2009A 2010F 2011F 2012F FY Dec 2009A 2010F 2011F 2012F Pre-Tax Profit 8,107 17,765 17,877 20,884 Gross Margins (%) 14.9 15.7 18.1 18.5 Dep. & Amort. 20,730 22,054 23,584 24,996 Opg Profit Margin (%) 5.5 7.5 10.1 10.8 Tax Paid 2,285 (691) (2,842) (5,363) Net Profit Margin (%) 4.5 8.3 6.3 7.0 Assoc. & JV Inc/(loss) 9 (223) (68) (69) ROAE (%) 14.9 22.1 14.4 15.0 Chg in Wkg.Cap. (8,885) (4,194) (1,208) 1,130 ROA (%) 2.8 5.1 4.0 4.7 Other Operating CF 6,165 (8,474) 27 27 ROCE (%) 4.0 4.8 5.5 6.3 Net Operating CF 28,411 26,237 37,370 41,604 Div Payout Ratio (%) 5.8 13.3 26.4 25.0 Capital Exp.(net) (16,428) (25,028) (23,064) (48,103) Net Interest Cover (x) 1.6 2.6 3.6 4.0 Other Invts.(net) 2 (2) (2) (2) Asset Turnover (x) 0.6 0.6 0.6 0.7 Invts in Assoc. & JV 96 (112) (34) (35) Debtors Turn (avg days) 36.2 34.8 35.0 35.6 Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 20.6 18.6 17.9 17.9 Other Investing CF 1,858 0 0 0 Inventory Turn (avg days) 20.3 19.7 21.0 21.0 Net Investing CF (14,472) (25,141) (23,100) (48,140) Current Ratio (x) 0.6 0.9 1.0 0.8 Div Paid (637) (425) (1,964) (3,274) Quick Ratio (x) 0.4 0.7 0.8 0.5 Chg in Gross Debt 15,444 14,296 (15,921) (7,828) Net Debt/Equity (X) 2.6 1.4 1.1 1.1 Capital Issues 0 15,000 0 0 Net Debt/Equity ex MI (X) 2.6 1.4 1.1 1.1 Other Financing CF (21,892) 110 130 129 Capex to Debt (%) 10.6 15.5 15.8 34.8 Net Financing CF (7,085) 28,981 (17,756) (10,973) Z-Score (X) 0.5 0.5 1.2 1.3 Net Cashflow 6,854 30,077 (3,485) (17,509) N. Cash/(Debt)PS (Bt) (82.6) (53.7) (48.0) (52.4) Opg CFPS (Bt) 22.0 13.9 17.7 18.5 Free CFPS (Bt) 7.1 0.6 6.6 (3.0) Quarterly / Interim Income Statement (Bt m) Segmental Breakdown / Assumptions FY Dec 4Q2009 1Q2010 2Q2010 3Q2010 FY Dec 2009A 2010F 2011F 2012F Turnover 47,709 48,913 38,759 44,433 Revenues (Bt m) Cost of Goods Sold (37,100) (38,896) (37,190) (37,129) Passenger and excess 134,479 143,893 158,507 166,082 Gross Profit 10,609 10,017 1,569 7,304 Freight 18,525 26,634 27,895 30,373 Other Oper. (Exp)/Inc (3,886) (3,860) (3,606) (3,673) Mail 823 815 855 872 Operating Profit 6,724 6,157 (2,037) 3,631 Other activities 7,775 7,791 8,011 8,509 Other Non Opg (Exp)/Inc 1,088 861 842 938 Associates & JV Inc (11) (7) 176 57 Total 161,603 179,131 195,269 205,836 Net Interest (Exp)/Inc (1,410) (1,314) (1,230) (1,272) Exceptional Gain/(Loss) 2,808 5,610 4,361 (3,220) Key Assumptions Pre-tax Profit 9,199 11,308 2,112 135 Passenger's cabin factor (%) 73.0 74.0 76.0 77.9 Tax (269) (564) (552) 14 Passenger's ASK (m) 72,031.0 74,471.9 78,179.2 82,100.3 Minority Interest (17) (20) (7) (13) Passenger's RPK (Btm) 52,593.0 55,086.3 59,417.0 63,940.7 Net Profit 8,913 10,724 1,552 136 Freight load factor (%) 52.1 62.5 63.0 64.0 Net profit bef Except. 6,104 5,114 (2,808) 3,356 Jet fuel price (US$/gallon) 1.8 2.1 2.3 2.4 EBITDA 13,221 12,227 4,099 9,619

Sales Gth (%) 22.8 2.5 (20.8) 14.6 EBITDA Gth (%) 133.0 (7.5) (66.5) 134.7 Opg Profit Gth (%) 8,538.0 (8.4) (133.1) (278.2) Net Profit Gth (%) (320.9) 20.3 (85.5) (91.2) Gross Margins (%) 22.2 20.5 4.0 16.4 Opg Profit Margins (%) 14.1 12.6 (5.3) 8.2 Net Profit Margins (%) 18.7 21.9 4.0 0.3

Source: Company, DBS Vickers

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Company Focus Thai Airways

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ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 18 Jan 2011, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Vickers Securities (Thailand) Co., Ltd. and its subsidiaries do not have a proprietary position in the mentioned company as of 17 Jan 2011 Except SIA SP

2. DBSVT, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA, may beneficially own a total of 1% or more of any class of common equity securities of the mentioned company as of 18 Jan 2011. 3. Compensation for investment banking services: i. DBSVT, DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA may have received compensation, within the past 12 months, and within the next 3 months receive or intends to seek compensation for investment banking services from the mentioned company.

ii. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

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Company Focus

Thai Airways

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

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