Airports of Thailand: Concerns emerge, but outlook intact
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- Management reaffirmed its pax target of 130mn for FY25F, with solid pax growth QTD
- A spike in non-current trade A/R raised market concerns over potential provisions or even a renegotiation of existing concession agreement with King Power
- Cut FY25F-26F earnings by 4-7%% to reflect higher expenses and more conservative concession revenue
- DCF-based TP slides from THB72 to THB60, maintain BUY for steady earnings outlook and 28% upside
Key takeaways from analyst meeting
Passenger growth remains intact. Management disclosed that international pax growth remained firm in January 2025 at 21% y/y despite concerns on Chinese tourists while domestic passengers showed firm improvement with 10% growth during the same period. AOT is confident that the company can achieve its total pax target for FY25 of 130mn from 119mn in FY24. This implies a small upside to our 127mn projection.
Kicking off new expansion in this year. Management notes that BKK’s current capacity is to be able to support 70mn pax per year, sufficient for BKK’s passenger growth this year. The company is kicking off the East Expansion project for BKK (with total budget of THB11bn over three years). After East Expansion completes, AOT will decide on the next expansion for BKK which is likely to be South Terminal (doubling existing BKK capacity). The mid-term projects that have been approved by the cabinet are Don Mueang Airport (DMK) expansion (in 2026) and Phuket and Chiang Mai Airport expansion (in 2027).
Non-aeronautical growth would still be impacted in the next few quarters while expenses stay elevated. In 2024, there were three reclamations of duty free and commercial areas from King Power in July and August 2024 – which have reduced the minimum guarantee per head for each contract as described in the table. We also spotted the rapid increase in expenses during 1QFY25 especially personnel expenses following the adjustments to salary and wages as well as the higher headcounts to support SAT-1 operation.
According to AOT, AOT has already hired c. 80% of their incremental target headcount so far (out of 700 positions) to support SAT-1, with more hiring will take place in FY25. Nonetheless, we believe the increase in non-aeronautical revenue should help to support the growth for this year.
Potential increase of Passenger Service Charges (PSC) and collection of transfer fee under study. AOT disclosed that it is evaluating a potential rate hike in PSC and transfer fee collection. The results of the study is likely to be concluded in July this year, before it makes a submission to The Civil Aviation Board and The Cabinet for approval.
Per our calculation, every THB50 increase in PSC rate for international departures (current rate at THB730) would lead to earnings upside of 5%-7% from FY26F (assuming it is effective from FY26F onwards) and should raise our TP by THB3.7 per share. Every THB20 increase in PSC rate for domestic departures (current rate at THB130) would lead to earnings upside of 1%-2% throughout out forecast from FY26F with TP upside of THB0.8 per share.
On the transfer fee, every THB500 collected per head should lead to earnings upside of 0.3%-0.5% throughout our forecast period with target price upside of THB0.2 per share. In our current forecast, we have not assumed any PSC hike or higher transfer fees.
Concerns on King Power payment
Spike in non-current trade A/R raising concerns on potential provision. In 1QFY25, non-current trade A/R increased substantially from THB2bn at end FY24 to THB5.7bn – mainly after King Power asked to delay its concession revenue payment for 18 months for the period of August 2024 to February 2025 – with penalty rate of 18% p.a. for the overdue amount. Nevertheless, we note that AOT is now considering to lower down the penalty rate to at least MLR +2% (which is still above AOT’s average finance costs of c.3%). Generally, AOT provides a one-month credit term for King Power for its monthly payment regarding concession agreements.
Although we believe AOT’s liquidity and net-cash balance sheet position should be sufficient to cover the delay of the payment, the market is concerned on potential provisions for King Power or re-negotiation of the existing concession agreements with AOT. At a result, the stock plunged 14% in one day after 1QFY25 results came out on 13 February 2025.
We have tracked the financial performance of AOT’s two counterparties on the concession agreements from King Power - King Power Duty Free Company Limited (KPD) and King Power Suvarnbhumi Company Limited (KPS). KPD manages duty-free business while KPS manages commercial retail business in AOT’s airports. We believe the financials look stretched for both companies especially KPS over the past three years.
Nonetheless, AOT has not set aside any provisions on King Power’s A/R as King Power’s bank guarantee that was provided since the beginning of the concession agreement still covers the A/R amount. Regarding our current forecasts, the concession revenue from King Power forms 74% of total concession revenue in FY25F (vs 76% in FY24). Every 5% provision on concession revenue from King Power could reduce earnings by 3% over FY25-26F with TP downside of THB0.40.
Our take
We believe King Power should be able to uphold existing concession agreements. In our current forecast, we still assume that King Power is able to make payments according to the existing agreement that ends on 31 March 2033. However, after expiration of the contract, we assume a new concession agreement for new operators would likely revert back to 20% of actual revenue where the minimum guarantee is likely to be equal or less compared to 20% revenue sharing.
To calculate the 20% revenue sharing, we refer to the spending per head baseline in 2019 (before existing agreements) and assume compounding growth of 2.5% p.a. Our current assumption on these concession revenue per head is described in the table below. Nevertheless, if King Power decides to terminate the contract immediately (effective from FY25F), this would lead to earnings downside of 20% in FY25F-26F with TP impacted by THB3.1 per share.
Reiterate BUY with lower DCF-based TP of THB60.00. In our current forecast, we cut our earnings forecast in FY25-26F to reflect higher-than-expected personnel expenses and lower-than-expected concession revenue (ex. King Power). In addition, as discussed earlier, we have now assumed the duty-free concession revenue for Suvarnabhumi Airport (BKK) and three regional airports as well as commercial concession revenue to be shared at 20% revenue sharing after the existing agreements with King Power expire on 31 March 2033. Thus, our DCF-based TP slides from THB72.00 to THB60.00. We note that our 10-year core earnings CAGR (FY24-FY34F) is now 9.1% vs 11.0% in our previous forecast. With potential share price upside and steady profit growth, we keep our BUY call on AOT.
| FY Sep | 1Q2024 | 4Q2024 | 1Q2025 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 15,708 | 16,774 | 17,664 | 12.5 | 5.3 |
| Cost of Goods Sold | (6,529) | (7,526) | (7,282) | 11.5 | (3.2) |
| Gross Profit | 9,178 | 9,248 | 10,382 | 13.1 | 12.3 |
| Other Oper. (Exp)/Inc | (2,635) | (3,544) | (3,000) | 13.8 | (15.3) |
| Operating Profit | 6,543 | 5,705 | 7,382 | 12.8 | 29.4 |
| Other Non Opg (Exp)/Inc | 47.7 | 164 | 139 | 190.7 | (15.7) |
| Associates & JV Inc | (0.08) | 0.00 | 0.58 | nm | nm |
| Net Interest (Exp)/Inc | (678) | (615) | (548) | 19.2 | 10.9 |
| Exceptional Gain/(Loss) | (82.4) | 191 | (46.9) | 43.0 | (124.6) |
| Pre-tax Profit | 5,831 | 5,445 | 6,926 | 18.8 | 27.2 |
| Tax | (1,148) | (1,076) | (1,415) | 23.2 | 31.5 |
| Minority Interest | (119) | (97.8) | (167) | (40.0) | 70.6 |
| Net Profit | 4,563 | 4,271 | 5,344 | 17.1 | 25.1 |
| Net profit bef Except. | 4,645 | 4,080 | 5,391 | 16.1 | 32.1 |
| EBITDA | 9,409 | 8,772 | 10,509 | 11.7 | 19.8 |
| Margins | |||||
| Gross Margins (%) | 58.4 | 55.1 | 58.8 | ||
| Opg Profit Margins (%) | 41.7 | 34.0 | 41.8 | ||
| Net Profit Margins (%) | 29.0 | 25.5 | 30.3 |
Source: Company, DBSTH
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