Airports of Thailand: Forecasts slashed; still offering hefty growth
- Reclaiming specific areas in Suvarnabhumi and Phuket airports to enhance passenger facilities
- Potential c.THB1.1bn p.a. (4% of net profit) drop in revenue
- Forecasts cut by 8-11% for FY2024-25, reflecting more conservative assumptions on traffic volume, lower concession revenue
- Maintain BUY with a lower DCF-based TP of THB75
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Reclaiming specific commercial and office areas in Suvarnabhumi and Phuket airports. On 21 June 2024, the Board of Directors at AOT approved the reclamation of specific commercial and office areas from concessionaires and government agencies. This decision encompasses 1,097.14 sq. m. within Concourses and the SAT-1 Building at Suvarnabhumi Airport, and 491.22 sq. m. within the International Passenger Terminal at Phuket International Airport. These changes will take effect from 1 July 2024. The reclaimed areas represent approximately 7.5% and 19% of total commercial areas from concessionaires at Suvarnabhumi and Phuket International airports, respectively.
Rationale. The aim of reclaiming these areas is to optimise airport operations and enhance passenger facilities, including increasing passenger waiting areas, providing more restroom facilities, and establishing additional kid zones. This initiative aligns with recommendations from Skytrax and the AOT Airport Service Quality Strategy Committee. AOT aims to rank among the world’s top 50 best airports by 2025 and within the top 20 within the next five years. In the latest 2023-2024 World Airport Survey, Suvarnabhumi airport climbed to 58th place, up 10 spots from the previous year, while Don Mueang International Airport ranked 10th among the world’s best low-cost airline terminals.
Potential loss of THB1.1bn p.a., 4% of net profit, in revenue. The reclamation is expected to result in a projected decrease of THB 1.015mn per month in office and state property rents. Minimum guaranteed revenue is also anticipated to decrease by THB74mn and THB19mn per month at Suvarnabhumi Airport and Phuket International Airport, respectively. The impact will be felt for one quarter in 4QFY24, with full-year effects becoming apparent FY2025 onwards. The estimated loss of revenue is projected to be THB1.1bn annually, equivalent to approximately 1% of net profit in FY2024 and 4% in FY2025.
King Power to switch to 20% revenue-sharing rents in 3-5 years. King Power, currently paying a minimum guarantee of THB233 per passenger at Suvarnabhumi Airport and THB127 per head at Phuket International Airport, will transition to a revenue-sharing model of 20% once international passengers at Suvarnabhumi reach 66mn. Management estimates this milestone could be achieved within 3-5 years. This transition would mitigate the impact of revenue loss from the reclaimed areas, as King Power's payments would then be based on a percentage of their revenue.
In FY2023, Suvarnabhumi Airport served a total of 36mn international passengers. With an 8MFY24 figure of 32mn international passengers (up 38% y/y), projections suggest international passenger numbers could reach 50mn in FY2024. Assuming continued growth rates of 15% in FY2025, and 10% annually in FY2026 and FY2027, we estimate that total international passengers at Suvarnabhumi Airport will exceed 66mn by FY2027.
Total passenger volume grew 22.1% y/y to 81mn people in 8MFY24. Of the total, 48.9mn (+42.6%) were international passengers and 32.1mn (+0.1% y/y) were domestic passengers. Of the total, 40mn (50%) were at Suvarnabhumi Airport, 20mn (25%) from Don Mueang Airport, and the rest from the four smaller airports (Phuket, Chiang Mai, Chiang Rai, and Had Yai). We now expect AOT’s passenger volume to increase from 100mn in FY23 to 123mn (vs 129mn earlier) in FY24 and 131mn (vs 136mn earlier) in FY25.
Key takeaways from the Don Mueang International airport site visit. Yesterday, we participated in a site visit to Don Mueang International Airport organized by AOT. In 2023, the airport served 25.7mn passengers. As of 8MFY24, the airport had already handled 20mn passengers, indicating a projected annual total of 30mn, nearing its full capacity. This underscores the urgent need for the Phase 3 development project. Currently, the top five airlines at Don Mueang Airport are Thai Air Asia, Nok Air, Thai Lion Air, and Air Asia Berhad.
The Don Mueang International Airport Development Project Phase 3. Next year, AOT will commence Phase 3 development at the airport, requiring a total investment of THB36bn. The project, approved by the Cabinet and having received EIA approval, anticipates contractor selection in 3Q24. Construction is slated to begin in July 2025 and expected to conclude by December 2030.
The project timeline outlines initial construction in 2025, beginning with the construction of a third international passenger terminal spanning 160,000 sq. m. Subsequently, Terminals 1 and 2 will undergo renovation to cater to domestic passengers, expanding usable space to 240,000 sq. m. This development aims to increase the airport's annual passenger capacity from 30mn to 40mn.
Additionally, enhancements will be made to the Don Mueang Tollway's traffic system, connecting it directly to the airport's departure curb side. A flyover will be constructed within the airport premises, along with a connecting walkway from the passenger terminals to the SRT Red Line.
Don Mueang to mainly serve point-to-point short haul flights. AOT management plans to attract more airlines to be at Don Mueang Airport once phase 3 development is completed. It targets Don Mueang to serve mainly point-to-point short-haul flights, while Suvarnabhumi Airport will serve those with connecting flights.
Estimated capex of c.THB10-24bn during the next few years. AOT has plans to expand capacity at its existing airports, as follows: (i) Suvarnabhumi – third runway and East expansion; (ii) Don Mueang – phase 3 expansion; (iii) Phuket – phase 2 expansion; and (iv) Chiang Mai – phase 1 expansion. These will result in an annual capex of c.THB10bn-24bn during the next few years. As for FY2024, management budgeted THB10bn-11bn in capex. These will be funded by cash flow from operations.
Management of three regional airports. AOT plans to extend the management of its airports to three other airports currently under the supervision of the Department of Airports (DOA). These include the Udon Thani, Buriram, and Krabi Airports. The DOA needs to submit to the Civil Aviation Authority of Thailand the Public Aerodrome Operating Certificates of these three airports.
Forecasts cut by 8-11% during FY2024-2025. We cut our forecasts by 8-11% for FY2024-2025, reflecting more conservative assumptions on passenger and flight volume, as well as the lower concession revenue. Based on our revised forecasts, TP is also cut to THB75 from THB80 earlier.
Recommendation
Reiterate BUY with a lower DCF-based TP of THB75. We believe AOT is a prime beneficiary of recovering tourism in Thailand. We like the stock for its (i) deemed monopolistic status, (ii) robust earnings growth outlook, (iii) strong cash flow-generating capacity post-COVID-19, and (iv) solid balance sheet in a net cash position. The stock now offers a 28% upside to our TP.
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