Airports of Thailand: Exploring two potential catalysts and one risk
- Plans underway to list AOT Ground Aviation Services (AOTGA), its 49% owned subsidiary, on the SET next year
- Potential collection of transit/transfer fees another catalyst
- Key risk – potential removal of duty free upon arrival
- Maintain BUY with a DCF-based TP of THB75
Related Stories
Planning to list AOTGA on the SET next year. AOT Ground Aviation Services Co. Ltd. (AOTGA), a 49% owned subsidiary of AOT, is planning to raise funds via IPO and list on the Stock Exchange of Thailand (SET) next year. The fund raising will mainly be to support AOTGA’s target to secure two large contracts, including (i) the third ground handling operator at Suvarnabhumi Airport, and (ii) the cargo operator at Suvarnabhumi Airport. If AOTGA manages to win the bidding of the two projects worth a combined THB67.3bn, it will require a large investment and thus the need for fundraising in 2025.
Further details on the size, as well as the exact timing, of the fund raising activity are however yet to be announced. AOTGA is now consolidated onto AOT. It remains to be seen if AOTGA would still be consolidated into AOT post AOTGA’s IPO. If not, it will still be recorded based on equity accounting as share of profit from affiliate.
AOT is looking to launch the terms of reference (TOR) of the bidding for two large projects in 3Q24. These include (i) a parking and ground support equipment project – the third ground handling operator at Suvarnabhumi airport worth THB29.4bn; and (ii) the cargo operator at Suvarnabhumi airport worth THB37.9bn.
AOTGA is AOT’s 49% owned affiliate. AOTGA is a 51:49 joint venture between SAL Group (Thailand) Co. Ltd. and AOT. The company was set up in Oct 2018 to provide ground handling services at all airports under AOT’s responsibility and is headquartered in Bangkok, Thailand. SAL Group (Thailand) is a joint venture between Sky ICT (SKY) and Triple I Logistics (III), where SKY holds 42% stakes, III holds 25% stakes, and the remainder held by smaller shareholders.
AOTGA provides a full range of ground handling services tailored to suit all airlines. The company has been authorised to provide ground handling services at Don Mueang International Airport (DMK) since 1 Feb 2019 and Phuket International Airport (HKT) since 1 Dec 2020. AOTGA has also been providing Total Service Solutions to all airports under AOT's responsibility, starting at Had Yai International Airport on 1 Jul 2022.
AOTGA is a highly profitable company with net cash position. In 2023, AOTGA had total revenue of THB2.4bn and a net profit of THB627mn. Securing the two projects at Suvarnabhumi airport, if any, should help ensure revenue over the next 25 years.
Potential collection of transit/transfer fees
AOT looking to collect transit/transfer fees. Feasibility study is under way for the potential collection of transit/transfer fees for transit and transfer passengers. Once completed, the company will submit the result of the study and its proposal to the Civil Aviation Authority of Thailand for approval.
In the past, Thailand has never collected transit/transfer fees from passengers, given insufficient infrastructure. Nonetheless, AOT has spent a lot of capex on upgrading its infrastructure. These include the construction of the Midfield Satellite (SAT-1) Terminal at the Suvarnabhumi airport (just opened in Sep 2023) to enhance passenger handling capacity of the airport from 45mn per year to 60mn per year and the construction of the third runway at the Suvarnabhumi Airport to boost aircraft capacity to 94 aircrafts/hour. Following the opening of the SAT-1 terminal and the plan to open the third runway at Suvarnabhumi airport on 15 Sep 2024, AOT targets to be an aviation hub and therefore expects to see more transit/transfer passengers in the future.
How much will the transit/transfer fees be? A conclusion is currently pending the result of its feasibility study. Nonetheless, management has cited that the transit/transfer fees charged at overseas airports ranged between THB200-THB600 per passenger. In 2023, total AOT’s transit passengers were only 369,004 people or 0.4% of the total passenger number of 100mn people. Nonetheless, with additional facilities to support transit/transfer passengers, the number of transit/transfer passengers should increase over time.
Impact to bottom line if this is approved. Assuming the number of transit/transfer passengers jump to 1mn per annum and assuming THB500 per transit/transfer passenger, AOT’s potential additional revenue will increase by THB500mn p.a, or c.2% of net profit. We see likelihood that approval could be given in 1-2 years, but have not factored this into our forecasts.
A higher impact to be seen if AOT increases PSC for domestic/international passengers. AOT has also planned to increase its passenger service charge (PSC), which is currently THB730 for departing international passengers and THB130 for departing domestic passengers. Nonetheless, this will likely take longer time to materialise.
Key risk: Potential removal of duty free upon arrival
The Ministry of Finance (MOF) has proposed to remove duty free upon arrival. The Finance Ministry has earlier proposed cancelling duty-free for arriving passengers as part of measures to encourage foreign tourists and returning Thai travellers to make purchases within the country. The Cabinet has instructed further study of the details and potential benefits before issuing any directives to AOT.
Based on Thansetthakit newspaper which quoted their source as saying that the MOF has completed their study. According to their study, the cancellation of duty-free upon arrival for one year would boost tourist spending in Thailand by about THB570/head and help boost GDP by 0.012% p.a. Originally slated to present findings on June 25, the MOF was asked by the Deputy Prime Minister and Finance Minister Pichai Choonhavachira to postpone the submission of this issue to the cabinet until another time.
Should this really come into effect, it is negative for AOT. AOT’s management has not quantified the impact to their revenue if the duty-free on arrival is removed. We estimate that the impact will be no more than 5% of AOT’s net profit. While the negative impact on bottom line is not that substantial, the impact on investors’ sentiment could be greater as it will undeniably raise concern on regulatory risks.
Recommendation
Reiterate BUY with a 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 30% upside to our TP.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere.
There is no planned schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
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. |
Australia | This report is being distributed in Australia by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”) or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946. DBS Bank Ltd, DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA. |
Hong Kong | This report has been prepared by a personnel of DBS Bank, who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited (''DBS HK''), a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). DBS Bank Ltd., Hong Kong Branch is a limited liability company incorporated in Singapore. For any query regarding the materials herein, please contact Dennis Lam (Reg No. AH8290) at [email protected] |
Indonesia | This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. |
Malaysia | This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. |
Singapore | This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6878 8888 for matters arising from, or in connection with the report. |
Thailand | This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. For any query regarding the materials herein, please contact Chanpen Sirithanarattanakul at [email protected] |
United Kingdom | This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Bank Ltd, London Branch (“DBS UK”). DBS Bank Ltd is regulated by the Monetary Authority of Singapore. DBS UK is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. In respect of the United Kingdom, this report is solely intended for the clients of DBS UK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS UK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. |
Dubai International Financial Centre | This communication is provided to you as a Professional Client or Market Counterparty as defined in the DFSA Rulebook Conduct of Business Module (the "COB Module"), and should not be relied upon or acted on by any person which does not meet the criteria to be classified as a Professional Client or Market Counterparty under the DFSA rules. This communication is from the branch of DBS Bank Ltd operating in the Dubai International Financial Centre (the "DIFC") under the trading name "DBS Bank Ltd. (DIFC Branch)" ("DBS DIFC"), registered with the DIFC Registrar of Companies under number 156 and having its registered office at units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS DIFC is regulated by the Dubai Financial Services Authority (the "DFSA") with a DFSA reference number F000164. For more information on DBS DIFC and its affiliates, please see http://www.dbs.com/ae/our--network/default.page. Where this communication contains a research report, this research report is prepared by the entity referred to therein, which may be DBS Bank Ltd or a third party, and is provided to you by DBS DIFC. The research report has not been reviewed or authorised by the DFSA. Such research report is distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS DIFC. Unless otherwise indicated, this communication does not constitute an "Offer of Securities to the Public" as defined under Article 12 of the Markets Law (DIFC Law No.1 of 2012) or an "Offer of a Unit of a Fund" as defined under Article 19(2) of the Collective Investment Law (DIFC Law No.2 of 2010). The DFSA has no responsibility for reviewing or verifying this communication or any associated documents in connection with this investment and it is not subject to any form of regulation or approval by the DFSA. Accordingly, the DFSA has not approved this communication or any other associated documents in connection with this investment nor taken any steps to verify the information set out in this communication or any associated documents, and has no responsibility for them. The DFSA has not assessed the suitability of any investments to which the communication relates and, in respect of any Islamic investments (or other investments identified to be Shari'a compliant), neither we nor the DFSA has determined whether they are Shari'a compliant in any way. Any investments which this communication relates to may be illiquid and/or subject to restrictions on their resale. Prospective purchasers should conduct their own due diligence on any investments. If you do not understand the contents of this document you should consult an authorised financial adviser. |
United States | This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. |
Other jurisdictions | In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. |
HONG KONG | SINGAPORE |
INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: William Simadiputra DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected] | THAILAND |