Thailand Tourism Sector

Transcription

1 Thailand Industry Focus Thailand Tourism Sector Refer to important disclosures at the end of this report DBS Group Research. Equity 19 Sep 2017 Entering tourism high seasons Expect accelerating growth of foreign visitor numbers to Thailand for the remaining months of the year Entering three quarters of higher earnings Thailand will shift focus more towards quality rather than quantity Overweighting the sector with AOT and ERW as our top picks Growth of foreign visitor numbers to continue. In 7M17, total international tourist arrivals to Thailand grew 4.5% y-o-y to 20.4m. We expect accelerating growth of international tourist arrivals to Thailand for the remaining months of the year due to low base. The Tourism Authority of Thailand targets the number of international tourists to Thailand to reach 34.4m in 2017 (+5.8% y-o-y). Seeing higher earnings in the next three quarters. As 2Q is usually the weakest quarter of the year for tourism earnings, we expect core earnings of tourism-related operators under our coverage for the next three quarters (3Q17, 4Q17, and 1Q18) to be decent, rising both y-o-y and q-o-q. The expected impressive earnings growth should be driven by guest volume, pricing, and cost-control efforts, as well as low base during the mourning period last year. We project core profit growth of tourism stocks under our coverage in 2H17 to be at 16.3% vs 12.5% in 1H17 and strong earnings growth should also continue in 1Q18. Overall, we see decent earnings growth forecast for FY17-18F. Core earnings growth of tourism stocks under our coverage are estimated at 14% and 16% in FY17F and FY18F, respectively. Shifting focus more to quality rather than quantity. Thailand s emphasis will be shifted away from raw numbers as the measure of tourism success and more to quality. Ultimately, Thailand is aiming to be the quality leisure destination. It will be focusing more on providing a wider range of experiences (culture and nature), diversifying to wider varieties of tourist markets, and increasing tourists average length of stay. Accordingly, the growth target of international tourist arrivals to Thailand in the future may be moderate but their average spending should rise more robustly. Overweighting the sector. We have an Overweight rating on our tourism sector based on i) upcoming accelerating growth in foreign visitors to Thailand for the remainder of the year and also in 1Q18, ii) positive sentiment from potential domestic tourism stimulus measures from the government towards the end of the year, iii) hotels competency in raising average room rates, and iv) entering three quarters of higher earnings. SET : 1, Analyst Namida ARTISPONG namidaa@th.dbsvickers.com Marvin KHOR marvinkhor@alliancedbs.com STOCKS Asia Aviation: AAV is a holding company which makes an investment in the low-cost carrier business under Thai AirAsia. Airports of Thailand : The national airport operator managing 6 international airports throughout Thailand, including Suvarnabhumi, Don Muang, Chiangmai, Phuket, Had Yai, Chiangrai. Central Plaza Hotel : CENTEL owns and operates hotels in Thailand and overseas, and also restaurant chains in Thailand. Minor International : MINT engaged in the hotel, residential development, point-based vacation club, food services, plaza and entertainment, and casual dining restaurants. The Erawan Group : ERW develops and operates portfolio of hotels in Thailand and the Philippines. Tables or Charts 550% 500% 450% 400% 350% 300% 250% 200% 150% 100% 50% Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/15 Jan/16 Jul/16 Jan/17 Jul/17 Source: DBSVTH 12-mth Price Mkt Cap Target Price Performance (%) Bt US$m Bt 3 mth 12 mth Rating Airports of Thailand , BUY Asia Aviation (8.6) BUY Central Plaza Hotel , BUY Minor International , (1.3) 2.0 BUY The Erawan Group BUY Source: DBSVTH, Bloomberg Finance L.P. Closing price as of 18 Sep 2017 SET Index AOT TB CENTEL TB ERW TB MINT TB ed: TH / sa:cs, PY

2 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17F FY27F Industry Focus Thailand Tourism Sector Thailand s tourism sector Thailand: % contribution of tourism to GDP (2016) Thailand s powerful engine. Tourism is surely one of Thailand s key economic growth drivers and will remain an important part of the economy. It has become an increasingly large contributor to GDP. According to World Travel & Tourism Council (WTTC), tourism directly accounted for 6.1% of Thai GDP in 2010 and this had increased to 9.2% in 2016 or Bt1,292.5bn. Note that direct contribution of tourism reflects the economic activities generated by hotels, airlines, travel agents, and passenger transportation services which directly link to visitors. WTTC estimates the direct contribution from tourism to grow from Bt1,292.5bn in 2016 to Bt1,412.2bn (+9.3%) in 2017 and Bt2,708bn (10-yr CAGR of 6.7%) in This indicates the increasing trend of tourism's contribution to GDP from 9.2% of GDP in 2016 to 14.3% in Of the total, leisure travel spending from inbound and domestic travellers generated 87.8% of direct tourism GDP in 2016 vs 12.2% from business spending. Meanwhile, foreign visitor spending contributed 79.2% of direct tourism GDP vs 20.8% for domestic spending. Leisure spending, 87.8% Foreign spending, 79.2% Business spending, 12.2% Domestic spending, 20.8% Note that if wider impacts are included such as indirect and induced impacts including travel investment spending (such as construction of new hotels), government s collective spending, etc., tourism would have made a remarkable 20.6% (Bt2,906.8bn) total contribution to Thai GDP in Thailand: Direct contribution of tourism to GDP 3,000 2,500 2,000 1,500 1, Source: WTTC, DBSVTH THB (bn)- LHS % of GDP- RHS 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: WTTC, DBSVTH World: Direct contribution of tourism to GDP (2016) Ranking Country % of GDP 20 Cambodia Thailand Philippines New Zealand Malaysia 4.7 Southeast Asia Vietnam Singapore 4.3 World Australia China Indonesia 1.8 Source: WTTC, DBSVTH Thailand maintains its competitive edge. According to World Economic Forum s Travel & Tourism Competitiveness Index 2017 which measures four broad factors of competitiveness: i) enabling environment (safety and security, health and hygiene), ii) travel policy (international openness, Page 2

3 Austria Spain US Portugal Croatia Switzerland UK Australia Germany Canada Italy Luxembourg Iceland Bulgaria Ireland Thailand France Greece New Zealand Cyprus Brazail Mexico Costa Rica Peru China Australia Thailand Tanzania Spain US Equador Italy France Indonesia Kenya UK Panama Venezuela Canada Croatia Canada US UAE Australia Hong Kong Singapore Norway UK Spain Netherlands Switzerland Germany France Turkey New Zealand Panama Iceland Japan Sweden Thailand Iran Egypt Malaysia Algeria Indonesia Bhutan Yemen Kazakhstan Tunisia India Russia Qatar Botswana Lao PDR Mongolia Guatemala Saudi Arabia Thailand Nepal Sri Lanka Industry Focus Thailand Tourism Sector price competitiveness), iii) infrastructure (transportation), and iv) natural and cultural resources, Thailand was ranked 34 th out of 136 countries (up one ranking from 2015). Compared with Asian countries, Thailand is behind Japan, Hong Kong, Singapore, China, Korea, Malaysia, and Taiwan but is ahead of India, Indonesia, Vietnam, and the Philippines. Thailand has high rankings in natural resources (7 th ), tourist service infrastructure (16 th ), price competitiveness (18 th ), and air transportation (20 th ). Despite its low rankings in safety and security and environmental sustainability, the fundamental attractiveness of Thailand as a tourist destination remains strong. This has drawn a number of tourists from both western and Asian markets to the country. World: Price competitiveness Index 2017 Score World: Natural resources Index 2017 Score Source: World Economic Forum, DBSVTH World: Air transport infrastructure Index 2017 Score Source: World Economic Forum, DBSVTH World: Tourist service infrastructure Index 2017 Score Source: World Economic Forum, DBSVTH Source: World Economic Forum, DBSVTH MICE market is growing. Thailand has become a regional hub in the MICE (Meetings, Incentives, Convention, Exhibition) market and is likely to be more so over time due to charm of the country which offers richness in culture and history, worldfamous hospitality, solid basic infrastructure, strategic location with international connectivity, and competitive costs. According to American Express Global Meetings and Events destination analysis, Bangkok is ranked 4 th in 2017 (from 8 th in 2016) in top ten Asia Pacific cities based on meetings and events activities. It is behind Singapore, Sydney (Australia), Kuala Lumpur (Malaysia) but ahead of Hong Kong, Shanghai (China), Melbourne (Australia), Tokyo (Japan), Beijing (China), and Seoul (South Korea). Thailand s Convention & Exhibition Bureau (TCEB) initiated the Thailand MICE Venue Standard (TMVS) in 2013 to develop Thailand s meetings and exhibitions venues in order to help Thailand to meet international standards. The TMVS has been rolled out in five cities in Thailand including Bangkok, Pattaya, Phuket, Chiangmai, and Khon Kaen, and these cities have now become the MICE cities. Page 3

4 China India Singapore Malaysia Japan US Hong Kong Korea Indonesia Vietnam Industry Focus Thailand Tourism Sector According to TCEB, the MICE industry contributed Bt102.9bn to Thailand s GDP in Although the contribution is less than 1%, the size of MICE market is growing. MICE visitors to Thailand have risen from 680,000 people in 2010 to 1.3bn in 2016 (+11% 6-year CAGR) while revenue generated from MICE market also grew at 11.5% over Thailand: Number of MICE visitors to Thailand Thailand: Top 10 MICE visitors to Thailand (2016) Visitors (people) 140, , ,000 80,000 60,000 40,000 2,000,000 24% 1,800,000 16% 1,600,000 13% 12% 1,400,000 7% 1,200,000-1% -3% 1,000, , , , , MICE visitors (people)- LHS % y-o-y growth- RHS Source: TCEB, DBSVTH Thailand: Revenue generated from MICE market 180,000 32% 160, ,000 19% 13% 11% 7% 120,000 0% 100,000-9% 80,000 60,000 40,000 20, Revenue from MICE (Btm)- LHS % y-o-y growth- RHS Source: TCEB, DBSVTH 30% 20% 10% 0% -10% -20% -30% -40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 20,000 - Source: TCEB, DBSVTH Thailand: MICE exposure to hotel revenue 8% 7% 6% 5% 4% 3% 2% 1% 0% MINT ERW CENTEL Source: Companies, DBSVTH Tourist arrivals hitting record numbers. Thailand remains an attractive destination, drawing guests from a diverse range of countries. Tourism sector is strong with high-record tourist arrivals to the country, where 32.6m tourists (+8.9%) visited country in 2016, a huge increase from 15.9m in 2010 and 9.5m in In 7M17, total international tourist arrivals to Thailand grew 4.5% y-o-y to 20.4m. Growth from certain countries has been particularly strong, indicating diverse market with exceptional performance. Overall, key feeder market arrivals have shown good growth patterns. Tourist numbers from Korea, India, and Japan were up by 13.8%, 16.5%, and 6.5% y-o-y in 7M17 respectively. We also saw an increase of 10.3% y-o-y in the number of Middle East tourists. The European visitors grew 6.3%, with Russia strong rebounding at 29.3% growth while US visitors remained resilient, up by 9.1%. Nevertheless, Chinese posted a slight decrease of - 2% in 7M17. Page 4

5 Russia India The Americas Middle East Africa East Asia (ex-asean and China) ASEAN Overall Europe (ex-russia) China M17 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Industry Focus Thailand Tourism Sector Thailand: Monthly tourist arrivals to the country '000 People 3,400 3,000 2,600 2,200 1,800 1,400 1, Source: Ministry of Tourism and Sports, DBSVTH Thailand: 7M17 tourist arrivals by feeder markets US, 3% Russia, 4% India, 4% Middle East, 2% Others, 2% Singapore, 3% Oceania, 3% Vietnam, 3% Japan, 4% Laos, 4% Korea, 5% Malaysia, 10% Other Asia, 11% China, 28% Source: Ministry of Tourism and Sports, DBSVTH Other Europe, 15% Thailand: 7M17 tourist arrivals growth by nationality (% y-o-y) China is an important source of tourists. Chinese tourists are vital to Thailand s tourism sector as China has now become the world s largest source of tourists. The number of Chinese outbound tourists reached 135m in 2016, according to UNWTO (United Nations World Tourism Organization) and China has become the top source of tourist for many countries including Thailand, Japan, South Korea, Vietnam, Russia, Maldives, and the UK. Thanks to China s sheer size, the rising income of its people, proximity to Thailand, and Thailand s attractiveness, Chinese flows to Thailand have been strong, rising from 7.9% of total international tourist arrivals to Thailand in 2000 to 26.9% in Thailand used to be China's top destination for outbound trips, after Hong Kong and Macau in However, Thailand has moved to be number one top outbound tourism destination for Chinese YTD, followed by Japan and Singapore. World: World s leading outbound tourism market Ranking Country International tourism expenditure (2016) 1 China USD261bn 2 US USD122bn 3 Germany USD81bn 4 UK USD64bn 5 France USD41bn Source: UNWTO, DBSVTH Thailand: % Chinese contribution to total tourist arrivals to Thailand 30% 25% 28% 27% 27% 35% 30% 29% 20% 18% 19% 25% 20% 15% 10% 5% 0% 17% 13% 10% 9% 8% 6% 5% 2% -2% 15% 10% 5% 9% 9% 8% 8% 8% 7% 6% 6% 6% 7% 7% 7% 6% 6% 6% 13% -5% 0% Source: Ministry of Tourism and Sports, DBSVTH Source: Ministry of Tourism and Sports, DBSVTH The Chinese are back. In August 2016, the government cracked down on zero-dollar tours whereby Chinese firms offer extremely low-priced tour packages but use other unscrupulous methods to get money from tourists during their stay which can ultimately harm Thailand s reputation. The crackdown is definitely beneficial to Thailand s tourism in the Page 5

6 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Industry Focus Thailand Tourism Sector long-term as the money would not flow out of the system and instead to the locals. Also, the crackdown of zero-dollar tour should eliminate the unpleasant experience for the Chinese tourists themselves. Despite an initial drop in the number of Chinese visitors to Thailand following the crackdown, the figure has already picked up. We expect Chinese arrivals to fully recover from the short-term hiccup during October 2016 to April The number of tourists from China started to rise 3.2% in May and continued to deliver positive growth at 6.6% in June and 8.4% in July. The Ministry of Tourism and Sports estimates Chinese visitors to reach 9m people in 2017, up from 8.8m in 2016 (+2.3% y-o-y vs 7M17 of -2.2%). However, the target number of 9m people is to attract more free independent travellers rather than depending on a tour group. In terms of spending, Chinese expenditures during their outbound trips account for 27.7% of Thailand s total tourism receipts from international tourist arrivals. Following the crackdown of Chinese illegal tours, government s effort to increase average spending by Chinese tourists is somewhat successful as growth in their spending has outpaced the growth in number of Chinese visitors. Thailand: Chinese tourist arrivals to Thailand 1,000, , ,000 26% 700, , , , , , , % 29% 20% 45% 29% 23% 24% 16% 11% 13% 12%11% -16% -30% 6% -16% -8%-8% -18% 3% 7%8% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Thailand: Growth of tourism receipts from Chinese visitors has outpaced growth of Chinese visitor numbers 15% 10% 5% 0% -5% -10% -15% 3% Apr-17 May-17 Jun-17 Jul-17-9% -8% Source: Ministry of Tourism and Sports, DBSVTH 5% Strong recovery from the Russians. There used to be a great number of Russian tourists visiting Thailand back in 2013, a record-high of 1.7m people which accounted for 6.6% of total tourist arrivals to Thailand. Nevertheless, a deep depreciation in Russian Ruble has cut the number of tourist arrivals from 2014 onwards. Russian visitors have plunged by half from its peak in 2013 to only 884,000 people (accounting for 3% of total tourist arrivals to Thailand) in On a positive note, Russian tourist arrivals to Thailand have started to come back in February 2016 and has delivered continuous growth ever since. In 7M17, visitors from Russia showed a strong growth of 29.3% y-o-y to 775,000 people. This was still 23% below the previous peak in 7M14, indicating that there is still more room to grow. The recovery from the Russian tourists should be positive for hotel operators as the Russian tend to stay longer than Asian tourists. Note that Russian s length of stay as of 2016 was at 17 days vs 7 days for East Asian and 10 days for overall. 11% 7% % y-o-y growth of Chinese visitors- LHS % y-o-y growth of tourism receipt from Chinese- RHS 13% 8% 15% 10% 5% 0% -5% -10% -15% Number of arrivals (people)- LHS % y-o-y growth- RHS Thailand: Russian tourist arrivals to Thailand Source: Ministry of Tourism and Sports, DBSVTH Thailand: Tourism receipts from Chinese visitors 50,000 13% 11% 45,000 40,000 5% 35,000 30,000 25,000 20,000 15,000-9% 10,000 5,000 0 Apr-17 May-17 Jun-17 Jul-17 Tourism receipts (Btm)-LHS % y-o-y growth- RHS Source: Ministry of Tourism and Sports, DBSVTH 15% 10% 5% 0% -5% -10% -15% 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , , % -24% 27% 17% 30% 26%29% -11% 83% 48% Number of arrivals (people)- LHS 17% 4% 91% Source: Ministry of Tourism and Sports, DBSVTH 64% 25% 33% -8% -45% % growth y-o-y- RHS 100% 80% 60% 23% 40% 20% 0% -20% -40% -60% Page 6

7 East Asia Asean Singapore China Hong Kong Japan Korea Europe France Germany Russia UK The Americas USA South Asia India Oceania Middle East Africa Total 1/2/12 12/10/12 11/18/13 10/28/14 10/6/15 9/21/16 8/30/17 Industry Focus Thailand Tourism Sector Russia: Ruble currency against USD Ruble/USD Source: BOT, DBSVTH Thailand: Length of stay by nationality (of foreign visitors to Thailand Days Thailand as a point of connectivity for regional travel The prospects for Thailand s aviation sector are bright, anchored by its profile as a tourist destination and as a point of connectivity for regional travel. A key strength is the country s geographical position in the heart of Asia placing it between Europe and Oceania. Given its multitude of natural wonders and cultural infrastructure, Thailand has been a viable destination for tourists from both regions, as well as a transit point for intra-regional travel. Additionally, Thailand is well placed within a 5-hour flight radius of major cities in China and India, and even closer to ASEAN and CLMV countries. All those are expected to be strong growth markets going forward due to population expansion and growing middle-income bases. As such, Thailand s strengths as a tourist destination should continue driving air traffic and passenger throughput Flight range of narrowbody aircraft out of Bangkok Suvarnabhumi airport shaded Source: Ministry of Tourism and Sports, DBSVTH Source: Great Circle Mapper Flight range of widebody aircraft out of Bangkok Suvarnabhumi airport shaded Source: Great Circle Mapper Tourist arrivals into Thailand have been growing at a steady pace with an 11% CAGR over the past decade. This has been a key driver for both air passenger growth as well as domestic economic activity. A notable aspect of Thailand s tourism is its Page 7

8 Industry Focus Thailand Tourism Sector resilience notching firm rebounds despite years of being impacted negatively by externalities. Tourist arrivals into Thailand % 0.8% -3.0% Tourist arrivals (m) Source: Thailand s Department of Tourism Thailand s air travel infrastructure is also well equipped to serve its sizeable and growing demand. Currently there are 38 airports offering commercial scheduled services, of which 11 have international connectivity; plus others which are military airports, airstrips or those with no scheduled services. The airports are well spread out among both primary and secondary destinations within the country, providing good connectivity for travellers. Capacity growth at the airports is an ongoing theme as the largest Suvarnabhumi Airport in Bangkok is undertaking major expansion; with plans in place for another five major airports. Airports in Thailand y-o-y change 20.7% 20.7% 8.8% 18.8% 16.2% -6.5% 12.6% 4.5% M16 7M17 25% 20% 15% 10% 5% 0% -5% -10% Outlook Growth of foreign visitor numbers to continue. We expect accelerating growth of international tourist arrivals to Thailand for the remaining months of the year due to low base as visitor confidence in August 2016 was impacted by the bomb attack in Hua Hin and international tourist numbers during October to December last year were dragged by the crackdown of the illegal tours from China and the mourning period from the passing of our late King Rama IX. The Tourism Authority of Thailand targets the number of international tourists to Thailand to reach 34.4m in 2017 (+5.8% y-o-y). Meanwhile, strong foreign visitor demand should also be sustained at least through high tourism season in 1Q18. Thailand s government has been running extensive marketing campaigns to keep foreign visitors coming. Recently, Tourism Authority of Thailand collaborated with Michelin Travel Partner to produce a Michelin Food Guide for Bangkok, aiming to attract high-quality tourists, raise profile of the Thai culinary scene, and increase food spending by tourists. The first volume of the Michelin Food Guide is planned to be published by the end of this year. Thailand: Yearly tourist arrivals in Thailand % 20% 15% 10% 5% F 0% -5% -10% Foreign visitors (m people)-lhs y-o-y growth- RHS Source: Ministry of Tourism and Sports, DBSVTH Source: Centre for Asia Pacific Aviation Thailand-based airlines have been both beneficiaries and facilitators of rising volumes in air passengers. They have been responsible for increased frequencies between domestic destinations and development of new international routes. Upside potential from government stimulus schemes. Thailand s government has been highly supportive of the tourism sector by making visits to Thailand easier for visitors, introducing policies to encourage international tourist inflows, investing in infrastructure, etc. The government has launched several policies in the past to boost the number of international tourists to the country during the hiccups such as waiving tourist visa fees for visitors from 19 countries (including China) and cutting the fee of visas on arrival by half (during December 2016 to August 2017). For this year (October to December 2017), the government is considering a Page 8

9 Industry Focus Thailand Tourism Sector stimulus scheme to target local demand and promote new destinations in Thailand, especially in the upcountry. The expenses from related tourism activities in the country such as hotel accommodation and tour packages can be used to reduce taxable income for the Thais. ERW would be the key beneficiary from the potential of government s stimulus measure as it has the highest hotel exposure in Thailand as 98% of its hotel revenue is derived from Thailand (Bangkok 59%, ex-bangkok 39%), followed by 80% for CENTEL (Bangkok 30%, ex-bangkok 50%), and 37% for MINT. Shifting focus more to quality rather than quantity. Thailand tourism will continue to grow and develop but the emphasis will be shifted away from raw numbers as the measure of tourism success and more to quality. Nevertheless, the government would like to sustain growth in both volume and value over the long term by balancing growth in both number of foreign visitors and their spending. Ultimately, Thailand aims to be the quality leisure destination. It will be focusing more on providing a wider range of experiences (culture and nature), diversifying to wider varieties of tourist markets (as Thailand initially focused on attracting tourists from neighbouring countries), promoting new provinces to shift visitors away from being laboriously concentrated in Bangkok, and increasing tourists average length of stay. This should be beneficial to hotel operators under our coverage. Accordingly, the growth target of international tourist arrivals to Thailand in the future may be moderate but their average spending should rise more robustly. Note that Thailand s Department of Tourism targets the number of international visitors to reach 45m in 2020 (4- year CAGR of 8.4%). Thailand: Average expenditure of international tourist arrival 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000-4,011 4,079 4,187-3% 2% 4,393 4,616 4,809 Source: Ministry of Tourism and Sports, DBSVTH 3% 5% 5% 4% 7% 5,142 5,238 2% Per capita spending (Bt/person/day)- LHS % y-o-y growth- RHS 9% 7% 5% 3% 1% -1% -3% -5% Building infrastructure to support long-term tourism. With the booming tourism which led to the influx of international visitors, Thailand is facing transportation and infrastructure bottlenecks especially the increasing strain at airports. Accordingly, there are investment projects in the pipelines in both public transportation and airports to overall improve the country s infrastructure and create sustainability to support continuous rising number of foreign tourists. At Suvarnabhumi airport in Bangkok, passenger capacity is at 45m p.a. vs actual utilisation of 55.5m in FY16. Therefore, Airports of Thailand (AOT) is now developing Suvarnabhumi airport Phase II which will add another 15m of passenger capacity. This is expected to be completed by AOT: Airport development plan A irport Suvarnabhumi Don Muang (Phase 2) Don Muang (Phase 3) Phuket (Phase 2) Phuket (Phase 3) Source: AOT, DBSVTH Present A dditional T otal 1. Phase MAP 15 MAP 60 MAP Construction 2. 3rd runway AC/hr 26 AC/hr 94 AC/hr EHIA 3. Terminal MAP 90 MAP AOT Board 1. Renovation of passenger T2 2. Renovation of SC and pier 5 3. Renovation of parking area 1. Junction building 2. Renovation of T1 3. Access road 4. Renovation pier 6 and T3 5. Apron expansion (12 AC parking stand) 6. Car park and office 1. New international terminal 2. Renovation of the existing terminal 3. Apron 1. International terminal expansion 2. Apron expansion (3 AC parking stand) 3. Domestic car park Description Investment cost (Btm) Expected timeline MAP Capacity MAP 11.5 MAP 30 MAP MAP 10 MAP MAP 5.5 MAP 18 MAP 40 MAP AOT Board Completed in Sept 2016 (Inter terminal) AOT Board Airbnb is not a major threat to Thailand for now. Airbnb rooms have increased strongly since its launch in Nevertheless, its market share in terms of percentage of total hotel rooms in major cities in Thailand remains relatively small. According to Colliers, the leading commercial real estate and property company, Airbnb rooms account for 6.4% of total hotels rooms in Bangkok, 7.2% in Pattaya, 7% in Chiangmai, and 9.9% in Phuket (vs 10.4% in London, 10.5% in San Francisco, 11.9% in Paris, and 17.2% in New York). Airbnb s exponential growth worldwide may have depleted revenues of the hospitality sector in many countries. However, we believe the impact is limited for the hospitality sector in Thailand. The key rationale that Thai hospitality sector is not greatly affected by Airbnb is that price gaps between hotel and Airbnb rooms are very small. Additionally, Airbnb may be less appealing than hotels in terms of security concerns, unpredictable experience, and customer service while hotels offer safety, cleanliness, amenities, and availability of reception staff. 6 MAP 4 contact gates 12.5 MAP Status Completed in Dec 2015 Page 9

10 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Industry Focus Thailand Tourism Sector Being proactive is the key for hotel operators. We believe hotel operators in Thailand should be proactive to prepare for rising competition from Airbnb in the future, if any. Competing in price should not be the answer but they should instead upgrade their services, add more convenience, develop unique selling points, and take advantage of using technology and online media to access new markets and strengthen brand reputation. Thailand: Price of hotels and Airbnb in Bangkok (Siam area) Thailand: Average occupancy rate of hotels in Thailand % ,000 2,500 2,000 1,500 1, Bt/ night 0 2,500 Holiday Inn Express Bangkok Siam Source: Bookings, Airbnb, DBSVTH 2,100 2,100 1,950 Ibis Bangkok Siam Lub D Bangkok Siam Airbnb Competency in raising hotel room rates. Given the rapid pace in tourism demand growth, average occupancy rates of all hotels in Thailand have risen consecutively from 62.8% in 2014 to 62.8%, 67.8%, and 69.5% in 2015, 2016, and 7M17 respectively, according to Bank of Thailand (BOT). Consequently, hotel operators in Thailand were also able to increase their average room rates. In 7M17, average room rate of hotels in Thailand stood at Bt1,549/night, up by 9.6% y-oy. In the same token for hotel operators under our coverage, we expect average occupancy rate to remain high and this should give them price power for room rate hike y-o-y for the remainder of the year. Source: BOT, DBSVTH Thailand: Average room rate of hotels in Thailand Bt/room 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 Source: BOT, DBSVTH Seeing higher earnings in the next three quarters. As 2Q is usually the weakest quarter of the year for tourism earnings, we expect core earnings of tourism-related operators under our coverage for the next three quarters (3Q17, 4Q17, and 1Q18) to be decent, rising both y-o-y and q-o-q. The expected impressive earnings growth should be driven by guest volume, pricing, and cost-control efforts, as well as low base during the mourning period last year. We project core profit growth of tourism stocks under our coverage in 2H17 to be at 16.3% vs 12.5% in 1H17 and strong earnings growth should also continue in 1Q18. Overall, we see decent earnings growth forecasts for FY17-18F. Core earnings growth of tourism stocks under our coverage are estimated at 14% and 16% in FY17F and FY18F respectively. Page 10

11 Industry Focus Thailand Tourism Sector Thailand: Forecasts of 2H17 core earnings growth 30% 25% 20% 15% 10% 5% 0% 16% Source: DBSVTH Thailand: Forecasts of FY17F and FY18F core earnings growth 25% 20% 15% 10% 5% 0% Source: DBSVTH 26% Overweighting the sector. We have an Overweight rating on Thailand's tourism sector based on i) upcoming accelerating growth in international tourist arrivals to Thailand for the remainder of the year and also in 1Q18 due to low base set last year from the mourning period, ii) positive sentiment from potential domestic tourism stimulus measures from the government towards the end of the year, iii) hotels competency in raising average room rates, and iv) entering three quarters of higher earnings. AOT and ERW are our top picks. We have AOT and ERW as our top picks as they are the key beneficiaries of rising Thailand tourism. We expect AOT s share price to rally further and this should be supported by i) its position as a direct play on Thailand s tourism industry, ii) an accelerated growth of passenger traffic growth which is one of AOT s key revenue drivers, after seven months of lacklustre growth from the crackdown of illegal tours from China, iii) upside potential 13% 8% 15% Sector MINT ERW CENTEL AOT 23% 16% 16% 14% 15% 14% 7% 13% 13% Sector MINT ERW CENTEL AOT FY17F FY18F 16% from higher-than-expected revenue sharing rate for the new duty-free concession at Suvarnabhumi airport which may lead to free cash flow improvement and higher dividend payout, and iv) the emergence of airport city project. Meanwhile, we like ERW for its visible hotel expansion plan that will lead to lower earnings volatility and higher profit quality as ERW is diversifying more towards higher-growth hotel segments. AOT: We believe the market has not fully priced in the potential jump in revenue sharing from Suvarnabhumi airport duty-free and commercial concessions and also the huge potential of the airport city project. AOT deserves to trade at a premium and has limited downside risk due to its monopoly attribution amid Thailand s resilient tourism industry with net cash position, independence from Thailand s lingering weak domestic consumption and private investment, and clear longterm catalysts. Any correction in share price would grant an opportunity to re-enter. ERW: ERW is the key beneficiary of the rising Thailand tourism among hotel operators under our coverage as most of its revenues are derived from Thailand. Also, there would be an upside potential if the government decides to launch a stimulus scheme at the end of the year to target local demand and promote new destinations in Thailand, especially in the upcountry. Decent operating data has been seen from ERW so far in 2H17. Growing hotel RevPar, aggressive hotel expansion with a right market segment, and fatter margins will support earnings growth for ERW (FY17F: +27% and FY18F: +14%) despite the renovation at its JW Marriott asset. MINT: Earnings prospects in 2H17 are expected to be stronger than in 1H17 as 3Q17 will be supported by high tourism season for its Tivoli assets in Portugal and at least one unit of residential unit to be sold. Its organic RevPar should also grow healthily y-o-y, thanks to solid occupancy rate with room rate hike following renovation at its hotels in Portugal and Brazil. For its food business, SSSG may not be exciting but margin expansion is expected from higher cost management. MINT s share price has pulled back from the misperception of 2Q17 earnings results and now offers an opportunity to enter. MINT is entering a harvest phase, ready to reap the fruits of its previous investments. CENTEL: CENTEL is another play on Thai tourism and potential government stimulus measure (80% of its hotel revenues are from Thailand). We are looking ahead for better hotel RevPar growth in 2H17 based on improving operating data of hotels in the upcountry from the rising Thai tourism, as well as improvement in Bangkok and Maldives hotels. We doubt that CENTEL s SSSG will recover this year but TSSG should turn around to positive territory in 2H17 due to accelerating outlet expansion towards the end of the year. Additionally, there will Page 11

12 Industry Focus Thailand Tourism Sector be upside potential to our earnings if food M&A takes place as CENTEL is currently looking to add one more food brand to its portfolio via acquisition. For the airlines sector, our outlook is neutral, as margin pressures emerge from cost items, while fare yields are compressed though the gradual volume growth recovery towards end-2017 will provide a boost. Our top pick among listed players is Asia Aviation (AAV), the market share leader in the domestic market as well as the most profitable airline among its peers. Its 55% ownership of Thai AirAsia provides benefits from the low-cost model and network connectivity from the AirAsia group, inclusive of units in Malaysia, Indonesia, Philippines, and India. Other airlines under coverage include Bangkok Airways (BA) and Thai Airways (THAI), which are contending with issues of compressed margins from falling yields. Page 12

13 Industry Focus Thailand Tourism Sector DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends Completed Date: 19 Sep :18:00 (THA) Dissemination Date: 19 Sep :24:03 (THA) Sources for all charts and tables are DBSVTH unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank 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 Vickers Securities (Thailand) Co Ltd (''DBSVTH''). 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, 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. 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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. Page 13

14 Industry Focus Thailand Tourism Sector 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. ANALYST CERTIFICATION The research analyst(s) 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(s) 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 the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests 2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates have a proprietary position in Airports of Thailand, Minor International recommended in this report as of 31 Aug Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. Compensation for investment banking services: 3. DBSVUSA does not have its own investment banking or research department, nor has it 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. 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. Disclosure of previous investment recommendation produced: 4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months. 1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant. Page 14

15 Industry Focus Thailand Tourism Sector 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. Australia This report is being distributed in Australia by DBS Bank Ltd. ( DBS ) or DBS Vickers Securities (Singapore) Pte Ltd ( DBSVS ). DBS holds Australian Financial Services Licence no DBSVS is 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. DBSVS is regulated by the Monetary Authority of Singapore under the laws of Singapore, 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 an entity(ies) which is not licensed by 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). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by 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). For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at equityresearch@dbs.com. Indonesia Malaysia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. 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 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. Wong Ming Tek, Executive Director, ADBSR Singapore Thailand This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No E) or DBSVS (Company Regn No G), 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 for matters arising from, or in connection with the report. This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it. Page 15

16 Industry Focus Thailand Tourism Sector United Kingdom This report is produced by DBS Vickers Securities (Thailand) Co Ltd which is regulated by the Securities and Exchange Commission, Thailand. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, 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 DBSVUK. 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 United Arab Emirates United States Other jurisdictions This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box , 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it. This report is provided by DBS Bank Ltd (Company Regn. No E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. This report was prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). 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. 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. Page 16

17 Industry Focus Thailand Tourism Sector DBS Regional Research Offices HONG KONG DBS Vickers (Hong Kong) Ltd Contact: Paul Yong 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: Fax: Participant of the Stock Exchange of Hong Kong MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek ( U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah Kuala Lumpur, Malaysia. Tel.: Fax: general@alliancedbs.com SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore Tel: Fax: equityresearch@dbs.com Company Regn. No E INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: Fax: research@id.dbsvickers.com THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand Tel Fax: research@th.dbsvickers.com Company Regn. No Securities and Exchange Commission, Thailand Page 17

18 Thailand Company Guide Airports of Thailand Version 9 Bloomberg: AOT TB Reuters: AOT.BK Refer to important disclosures at the end of this report DBS Group Research. Equity 14 Sep 2017 BUY Last Traded Price ( 13 Sep 2017): Bt57.00 (SET : 1,642.94) Price Target 12-mth: Bt65.00 (14% upside) (Prev Bt55.00) Analyst Namida ARTISPONG namidaa@th.dbsvickers.com What s New Upcoming duty-free concession s revenue sharing rate should rise to reach global peers' International visitors to Thailand have now gained momentum Potential upside from airport city project Revised up our earnings for forecast periods and TP is lifted to Bt65.0 Price Relative Forecasts and Valuation FY Sep (Bt m) 2016A 2017F 2018F 2019F Revenue 50,962 54,982 62,772 68,993 EBITDA 31,024 33,330 37,563 41,503 Pre-tax Profit 24,424 27,417 31,766 34,594 Net Profit 19,571 21,980 25,472 27,741 Net Pft (Pre Ex.) 19,482 21,980 25,472 27,741 Net Pft Gth (Pre-ex) (%) EPS (Bt) EPS Pre Ex. (Bt) EPS Gth Pre Ex (%) Diluted EPS (Bt) Net DPS (Bt) BV Per Share (Bt) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) Earnings Rev (%): Consensus EPS (Bt): Other Broker Recs: B: 15 S: 5 H: 9 Source of all data on this page: Company, DBSVTH, Bloomberg Finance L.P Upcoming concession bids to support share price rally Reiterate BUY. AOT deserves to trade at a premium and has limited downside risk due to its monopoly attribution amid Thailand s resilient tourism industry with net cash position, independence from Thailand s lingering weak domestic consumption and private investment, and clear long-term catalysts. Any correction in share price would grant an opportunity to re-enter. All eyes on concession revenue sharing increase. We expect an aggressive bidding for AOT s upcoming duty-free concession at Suvarnabhumi airport and consequently the new revenue sharing rate is likely to highly exceed the current one which will boost AOT s earnings post FY20F. A number of interested parties are expected, both local and overseas. Where we differ? Good news is not fully priced in. We believe the market has not fully priced in the potential jump in revenue sharing from Suvarnabhumi airport duty-free and commercial concessions and also huge potential from the airport city project. Potential catalysts. Four key stock catalysts. The key catalysts are i) direct play on Thailand s tourism industry, ii) an accelerated growth of passenger traffic growth which is one of AOT s key revenue drivers, after seven months of lacklustre growth from the crackdown of illegal tours from China, iii) upside potential from higher-than-expected revenue sharing rate for the new duty-free concession at Suvarnabhumi airport which may lead to free cash flow improvement and higher dividend payout, and iv) the emergence of airport city project. Valuation: We have revised up our FY18-20F by 4-5% to incorporate higher passenger traffic and by an average of 12% post FY20F for higher revenue sharing rate from upcoming duty-free concession bidding. Accordingly, our TP is nudged up to Bt65.0, based on DCF (8.7% WACC, 3% terminal growth). Key Risks to Our View: The key risk is a slowdown in Thailand s tourism industry which can dampen passenger traffic, the delay of concession bidding, and higher-than-expected investment in Suvarnabhumi airport phase 2. At A Glance Issued Capital (m shrs) 14,286 Mkt. Cap (Btm/US$m) 814,285 / 24,586 Major Shareholders (%) Ministry Of Finance 70.0 Thai NVDR 5.0 State Street Bank Europe Limited 1.9 Free Float (%) m Avg. Daily Val (US$m) 53.7 ICB Industry : Industrials / Industrial Transportation ed: TH / sa:tp, PY

19 Airports of Thailand WHAT S NEW Eyes on concession revenue sharing increase Competition on airport concessions will heat up AOT s types of airport concessions. Duty-free and commercial concessions operate at AOT s airports in the following manner: - Duty-free stores at airport. Duty-free concessions at all of AOT s six airports including at Suvarnabhumi, Don Muang, Phuket, Chiang Mai, Had Yai, Chiang Rai are operated by King Power. The duty-free concessions allow the concessionaire to sell luxury goods, cosmetics, tobacco, liquor, etc. Revenue sharing rate is fixed across concession life for all airports except for Suvarnabhumi airport in which the revenue sharing is at a step-up rate. - Duty-free stores in downtown and airport pickup counters. Concessions for pickup counters at Suvarnabhumi, Don Muang, and Phuket airports are granted to King Power. Those pickup counters at airports allow customers to pick up the items that are purchased at King Power s own duty-free malls downtown. - Commercial (retail/f&b) stores at airports. These areas are operated by King Power and The Mall Group, depending on which airport. The concessionaires can sublet the space to various tenants, for example restaurant chains and clothing brands. Note that there are also an in-flight duty-free concession. However, this is not operated by AOT but by airlines. Hence, in-flight duty-free revenues are not included in AOT s airport concessions. Figure 2: AOT: % of concession revenue The Mall Group Retails and F&B (Don Muang), 2% Others (Don Muang), 6% King Power Duty Free shops (Don Muang), 12% Other 4 regional airports, 14% Others (Suvarnabhumi), 19% King Power Duty Free shops (Suvarnabhumi), 31% King Power Retails and F&B (Suvarnabhumi), 15% Concessions at Suvarnabhumi airport are expiring. The existing concession contracts at Suvarnabhumi airport held by King Power Group for duty-free and retail businesses will expire in September Coupled with the upcoming Suvarnabhumi phase 2 which is scheduled to be completed by 2020, AOT is looking for only a single operator for the commercial space at both Suvarnabhumi phases 1 and 2. AOT plans to open the bid for new concession contracts by the beginning of next year and the bidding results should be announced within 2018 or early Duty-free concession is the most important contract for AOT. Of AOT s total revenues, concession revenues accounted for 27% in FY16, the second highest share after passenger service charge revenue (41%). Duty-free and commercial concessions at Suvarnabhumi and Don Muang airports are the largest contributor, making up of 85% of AOT s total concession revenue. In terms of concession type, duty-free concession is the most important contract for AOT as it yields higher revenue sharing rate for AOT and contributes to almost half of the total concession revenue, followed by commercial concession. Expect fierce competition in the upcoming duty-free concession bidding at Suvarnabhumi airport. We expect an aggressive bidding for AOT s upcoming duty-free concession at Suvarnabhumi airport (the 20 th busiest in the world in 2016) and consequently the new revenue sharing rate is likely to highly exceed the current one. A number of interested parties are expected, both local and overseas operators such as King Power, The Central Group, Lotte Duty Free, and The Shilla Duty Free. The fierce competition should be supported by: i) Attractive attributes of Suvarnabhumi airport. Suvarnabhumi airport is one of the world s busiest airports (55.5m passengers p.a.) with strong passenger traffic growth. Additionally, the new concessions at Suvarnabhumi airport will be operated as a singleoperator model with long concession agreement (c.14 years vs 6-10 years for other airports). Meanwhile, there are airport expansion projects in the pipeline which will add incremental concession area in the future. Source of all data: Company, DBSVTH ii) Duty-free is a good sector to be in. The duty-free sector is expected to enjoy a bright future while other sectors in the international retail markets are struggling. According to Technavio, a leading advisory company, the global duty-free retailing market is forecasted to post an impressive growth (CAGR of more than 8%) over the Page 2

20 Airports of Thailand period of Healthy growth of global duty-free retailing market should be driven by i) rising number of international travelers especially Chinese outbound tourists who contribute almost 30% of the global dutyfree retailing market revenue in 2016, ii) increase in middle-class population, iii) expansion of low cost airlines, and iv) introduction of new air routes across the world. In terms of geography, the Asia Pacific region (led by South Korea, China, Hong Kong, Singapore, and Thailand) has dominated the global duty-free retailing market and is expected to continue to be the leader. While the duty-free markets in several developed countries have started to mature, there is ample opportunity in potential markets in Asia Pacific. Other than South Korea, which has the largest share in dutyfree markets in Asia Pacific, smaller markets like India Japan, Thailand, and Indonesia have rapidly become lucrative revenue drivers. Thailand is forecasted to be in the top ten fastestgrowing duty-free markets in Asia Pacific by 2021, thanks to increasing tourism. As such, we expect several dutyfree operators to be aggressive in bidding for the new Suvarnabhumi airport s concessions in order to enjoy decent duty-free revenue growth over time. Figure 3: Asia Pacific: Fastest-growing duty-free markets (CAGR % over ) 24% 18% According to Moodie International report, revenue sharing rate ranged from 41% to 47.5% for the duty-free concession bidding at Beijing Capital International airport in China (94.4m passengers in 2016) at the beginning of this year. China Duty Free Group won the bid for Terminal 2 with commission rate at 47.5% while Sunrise Duty Free secured the concession for Terminal 3 at 43.5% sharing rate. The same trend is seen at Guangzhou Baiyun International airport (China s third busiest and world s 16 th busiest airport with 59.8m passengers), where a revenue sharing rate of 39-41% is required to operate duty-free concessions. Meanwhile, Flemingo Duty Free won five-year duty-free bid at 40% revenue sharing rate for Colombo Bandaranaike airport in Sri Lanka. However, we note that the product mix of duty-free shops at each airport is different and thus the revenue sharing rate cannot be compared like-for-like. Figure 4: China: Duty-free bids at Beijing Capital International airport Terminal 2 Bidders First year guaranteed rental (RMBm) Revenue sharing rate China Duty Free Group % China National Service Corporation % Shenzhen Duty Free % Zhuhai Duty Free % Source of all data: Moodie International report, DBSVTH Figure 5: China: Duty-free bids at Beijing Capital International airport Terminal 3 Bidders First year guaranteed rental (RMBm) Revenue sharing rate Sunrise Duty Free 2, % Shenzhen Duty Free % Zhuhai Duty Free % Source of all data: Moodie International report, DBSVTH 12% 6% 0% India Japan China S. Korea Thailand Indonesia Source of all data: Technavio, DBSVTH Duty-free concessions revenue sharing rate should rise to reach global peers'. The revenue sharing rate for duty-free concession at Suvarnabhumi airport is at 19% in FY17F and will rise to 20% in FY18F. As aggressive bidding for AOT s upcoming concession at Suvarnabhumi airport is expected, we believe revenue sharing rate of higher than 20% is guaranteed. Compared to global peers, AOT s duty-free concession sharing rate is far below the average, thus implying huge room for revenue sharing rate to rise upon the new contract. Figure 6: Asia: Recent duty-free bids at Asian international airport Airport Winner Rev enue sharing rate Beijing International airport (China) China Duty Free Group 47.5% Sunrise Duty Free Group 43.5% Guangzhou Baiyun International airport (China) China Duty Free Group 41.0% Colombo Bandaranaike airport (Sri Lanka) Flemingo Duty Free 40.0% Source of all data: Moodie International report, DBSVTH Revenue sharing rate for pickup counters should also increase. King Power holds the concession contract for dutyfree pickup counters at Suvarnabhumi, Don Muang, and Phuket airports. This allows King Power to operate duty-free shopping malls in downtown. Currently, AOT is getting only 3% revenue sharing rate for the pickup counters at Suvarnabhumi and Phuket airports and 15% at Don Muang airport. We expect the rate to rise in tandem with the higher sharing revenue rate for duty-free concessions at the airport which will give earnings upside to our forecasts. Page 3

21 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Company Guide Airports of Thailand International tourist arrivals to Thailand have gained momentum Negative events have already passed. There were several negative events in 2H16 such as the passing of our beloved King Rama IX and the zero-dollar tour crackdown. These have slowed down foreign visitors to Thailand. The number of foreign tourists dipped slightly by 0.9% y-o-y in 4Q16 and rose at only a low single-digit pace (+1.7%) in 1Q17. Nevertheless, Thailand's tourism is very resilient and has now witnessed a turnaround in the international tourist arrivals to the country. Flows from foreign visitors are back. We saw an accelerating growth of international tourist arrivals to Thailand starting in April, up by 7% y-o-y (an acceleration from 1.7% in 1Q17). The recovery of foreign arrivals should be supported by i) a series of terrorist events in Western Europe (France, the UK) which draw tourists away to a safer destination like Thailand, ii) Chinese tourist arrivals are now out of the doldrums, and iii) a recovery of Russian visitors, thanks to the improving local economy. Figure 7: Monthly foreign visitors to Thailand '000 People 3,400 3,000 2,600 2,200 1,800 1,400 1, Source of all data: Ministry of Tourism and Sports, DBSVTH Not concerned about the upcoming investment cycle Strong cash on hand and EBITDA generation. AOT has a huge pile of cash on hand, standing at Bt63bn as at end-3qfy17. Coupled with strong EBITDA generation (from steady passenger arrivals and concession revenue growth) of at least Bt31bn p.a., these should be a buffer for AOT s free cash flow for the upcoming airport expansion investments (Bt62.5bn investment for Suvarnabhumi airport phase 2). 4%. AOT has plenty of room for leverage, thanks to its healthy balance sheet with net cash position. AOT has a dividend policy to pay at least 25% of its net earnings. Nevertheless, it has been paying at an average of 40-50% in the past five years. AOT's management guided that it will be paying at least 40% of the earnings during the upcoming investment cycle and also following the opening of Suvarnabhumi airport phase 2. Note that there is actually a room for higher dividend payout after FY20F from expected higher concession revenue sharing rate and the hike in passenger fees. Potential upside from airport city Upcoming bids for airport city project. After AOT has a final conclusion on property rental rate with the Treasury Department which is expected to be summarised within this year, AOT is looking to open bids to develop acres of land around Suvarnabhumi airport. Agreement on airport city business model is now being discussed among several parties including AOT, Treasury Department, Civil Aviation Authority of Thailand, and the Royal Thai Air Force. As AOT has plenty of airport expansion prospects which will increase passenger capacity, we believe this will draw interests from developers to participate in the bidding. The business model should fall under PPP. From the initial discussion with several parties, a public-private partnership (PPP) business model is likely to be adopted to implement the airport city project. This model would limit AOT s risk as private developers will be the ones who invest in the project while AOT will enjoy revenue sharing from the project. Several projects for the airport city. Several projects are planned to be developed within and around the Suvarnabhumi airport. The projects include hotels, business/logistic/recreation parks, shopping malls, exhibition halls, sport facilities, medical facilities, amusement park, etc. Airport city will be a productive project for AOT. This should stem from utilising the undeveloped land which will strengthen AOT s ROA while there is earnings upside from the airport city project as it should be profitable given rising passenger traffic. As AOT will receive revenue sharing from the project, this revenue should go through to the company's bottom line without extra costs like the airport concession revenue. Dividend payout is unlikely to be impacted. The large sum of cash and EBITDA generation will be used to finance the airport expansion plan. If AOT were to need extra financing, the company would go for a local bank loan or issue bonds as it can raise debt financing with an attractive cost of below Page 4

22 Airports of Thailand We retain our positive view on the stock Good news is not fully priced in. AOT's share price has been rallying as it may have to pay lower incremental land rental expense than what the market expected earlier, international visitors growth have accelerated, and due to the news flow of upcoming new concession bidding for Suvarnabhumi airport. However, we believe the market has not fully priced in the potential jump in revenue sharing from Suvarnabhumi airport duty-free and commercial concessions and also the huge potential from the airport city project. Four key stock catalysts. We expect share price to rally further and this should be supported by i) its position as a direct play on Thailand s tourism industry, ii) an accelerated growth of passenger traffic growth which is one of AOT s key revenue drivers, after seven months of lacklustre growth from the crackdown of illegal tours from China, iii) upside potential from higher-than-expected revenue sharing rate for the new duty-free concession at Suvarnabhumi airport which may lead to free cash flow improvement and higher dividend payout, and iv) the emergence of airport city project. We note that any delay in concession bidding is a risk. However, higher bidding should be seen as the sharing rate trend is rising globally. AOT deserves to trade at a premium and has limited downside risk due to its monopoly attribution amid Thailand s resilient tourism industry with net cash position, independence from Thailand s lingering weak domestic consumption and private investment, and clear long-term catalysts. Any correction in share price would grant an opportunity to re-enter. Revise up earnings forecasts. We have revised up FY18 international passenger traffic given accelerated growth trend supported by a recovery in Chinese and Russian tourists. We also revised up our revenue sharing rate assumption for the upcoming duty-free concession at Suvarnabhumi airport from 20% to 30% post FY20F due to expected aggressive bidding from a rising trend of sharing rate among Asian airports. Accordingly, our TP is nudged up to Bt65.0. Figure 1: AOT: Airport concessions Suv arnabhumi A irport/ty pe Rev enue sharing rate Concessionaire T erm Space Duty-free 15-20% from King Power Minium guarantee of Bt4.4bn p.a. 10,800 sqm Retails 15% from King Power Minium guarantee of Bt2bn p.a. 20,700 sqm Pick-up counters at airport 3% from King Power n.a. n.a. Don Muang T erminal 1 Duty-free 15% from King Power Minium guarantee of Bt1.1bn p.a. 1,100 sqm Retails 15% from King Power Minium guarantee of Bt212m p.a. 2,500 sqm Pick-up counters at airport 15% from King Power n.a. n.a. Don Muang T erminal 2 Retails 15% from The Mall Group Minium guarantee of Bt293m p.a. 2,700 sqm Retails n.a. AOT n.a. 27,000 sqm Phuk et Duty-free 15-20% from King Power n.a. n.a. Retails 15% from King Power n.a. n.a. Pick-up counters at airport 3% from King Power n.a. n.a. Chiang Mai, Had Yai, Chiang Rai Duty-free and retails Same as Suvarnabhumi King Power n.a. n.a. Source of all data: Company, DBSVTH Page 5

23 Airports of Thailand CRITICAL DATA POINTS TO WATCH Critical Factors Rising traffic volume. The proposal to the DCA (Department of Civil Aviation) to approve a hike in PSC (Passenger Service Charge) is expected to be in FY20F when Suvarnabhumi Airport expansion phase II is completed. Therefore, earnings growth over the next two to three years would be driven by higher passenger throughput and aircraft traffic at its six airports. Rising air travel demand and expanding airline capacities will support traffic growth. AOT s passenger and aircraft traffic have been growing at an average of 12.6% and 12% p.a. respectively, in the past five years. We expect them to average 8% and 8% respectively over the next few years. Growth of low-cost carriers. The number of domestic passengers had grown at 8.7% p.a. over FY03-FY10. But in the last five years, growth has accelerated to an average of 16.1% because the rising number of low-cost carriers has stimulated domestic demand by offering affordable fares and convenient booking platforms. Additionally, domestic passengers are supporting passenger throughput at AOT s airports, like in FY14 when Thailand experienced political unrest. Total passenger throughput still grew 1.7% y-o-y despite the 5.7% drop in international passenger traffic. International aircrafts movement (flts) Domestic aircrafts movement (flts) No. of international passengers Higher concession revenue-sharing rate. In FY17, the duty-free concessionaires are paying AOT 19% of their gross revenues or the minimum guaranteed payment (MGP), whichever is higher. This rate is subject to a 1-ppt increase p.a. to a maximum rate of 20%. Additional commercial space. Terminal 2 at Don Muang Airport was opened in December 2015, adding another 27,109 sqm (from 6,144 sqm) of commercial space to AOT s rental portfolio. Meanwhile, the construction of Phuket Airport which was completed in September 2016, also doubled the existing commercial area to 10,289 sqm. Additionally, commercial space at Suvarnabhumi airport will increase by 33% to 40,000 sqm upon completion. This should lift overall concession and retail rental revenues. No. of domestic passengers Airport expansion to support sustainable growth. The Suvarnabhumi (BKK) airport development project (phase 2), with an investment budget of Bt62.5bn, finally kicked off in September Upon completion in 2019, BKK Airport s capacity will increase from 45m to 60m. Additionally, AOT also plans to build terminal 2 at BKK Airport (whose capacity will rise to 90m in 2021) and construct the third runway (flight capacity will rise from 68 flights per hour to 94 in 2020). 100% 80% 60% 40% 20% 0% Revenue breakdown 23% 25% 26% 27% 27% 11% 10% 11% 10% 5% 12% 5% 5% 4% 2% 1% 4% 2% 2% 2% 43% 45% 43% 45% 43% 16% 13% 14% 13% 13% FY12 FY13 FY14 FY15 FY16 Landing and parking charges Aircraft service charges Service revenues Source: Company, DBSVTH Passenger service charges Office and state property rents Concession revenues Page 6

24 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Company Guide Airports of Thailand Appendix 1: AOT s price correlation with critical factors AOT s share price vs international tourist arrivals to Thailand 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 - International tourist arrivals to Thailand (People)- LHS Last Price (Bt)- RHS Source of all data: Company, Bloomberg Finance L.P., DBSVTH Remarks Correlation: 0.87 AOT s share price tends to move in tandem with numbers of international tourist arrivals to Thailand. Passenger service charge accounts for 43% of total revenue while the number of international passengers would have a greater impact on AOT as international passengers yield a higher charge at Bt700/passenger vs Bt100/passenger for domestic passengers. The magnitude of AOT's share price changes to international tourist arrivals to Thailand was not as strong in the past years (during FY07-10) as higher depreciation from the new Suvarnabhumi airport eroded AOT s core earnings. AOT s share price vs core earnings 25,000 20,000 15,000 10,000 5, Remarks Correlation: 0.92 AOT s share price tends to move in line with its core earnings. Sustained rise in core earnings going forward should act as a positive catalyst to its share price Core earnings (Btm)- LHS Last Price (Bt)- RHS Source of all data: Company, Bloomberg Finance L.P, DBSVTH Page 7

25 Airports of Thailand Balance Sheet: Low leverage. AOT has healthy operating and free cash flows with a low gearing of 0.2x as at end-3qfy17. The bulk of its long-term loans are in Japanese yen borrowed from financial institutions overseas. Nonetheless, AOT has hedged 93.4% of the total loan with cross currency swap contracts. The Suvarnabhumi Airport Expansion II project should be sufficiently funded by internal cash flow and debt. Share Price Drivers: Recovery of international tourist arrivals. International passenger traffic, especially the Chinese through AOT s six airports, has shown a recovery as Chinese tourists should have already adapted following the crackdown on zero-dollar tours. Meanwhile, AOT would be the key beneficiary of China s travel ban to Korea as travel agencies in China have been asked by the government to cancel selling tours to Korea since mid-march this year. We are still confident on Thailand s tourism as the country still offers cost-competitive travelling and a variety of destinations. Upside potential from higher-than-expected revenue sharing rate. Higher revenue sharing from duty-free concession at Suvarnabhumi airport will boost AOT s bottom line and may lead to free cash flow improvement and higher dividend payout post FY20F. The emergence of airport city project. AOT is looking to open bids to develop acres of land around Suvarnabhumi airport next year. This project should be lucrative for AOT from utilising the undeveloped land which will strengthen AOT s ROA while there is earnings upside from the airport city project. Key Risks: Slowdown in the tourism industry. AOT's earnings are driven by flight and passenger traffic volumes in Thailand. An economic slowdown, natural disasters, and political uncertainty are the main threats to its operations, and their frequent recurrence would dampen air traffic. Company Background Airports of Thailand Public Company Ltd. (AOT) is a stateowned enterprise which operates six major airports in Thailand Suvarnabhumi, Don Muang, Phuket, Chiang Rai, Chiang Mai, and Had Yai. AOT s airports account for over 90% of Thailand s air traffic. Most of the other airports in Thailand are much smaller in scale and located in second-tier cities, and are owned by the Department of Civil Aviation (DCA), Royal Thai Navy, and Bangkok Airways Company. Leverage & Asset Turnover (x) Capital Expenditure ROE (%) Forward PE Band (x) PB Band (x) Source: Company, DBSVTH Page 8

26 Airports of Thailand Key Assumptions FY Sep 2015A 2016A 2017F 2018F 2019F International aircrafts 365, , , , ,347 Domestic aircrafts 342, , , , ,893 No. of international 60,296 67,129 71,276 79,839 86,479 No. of domestic 45,436 51,832 56,689 63,155 70,190 Income Statement (Btm) FY Sep 2015A 2016A 2017F 2018F 2019F Revenue 43,969 50,962 54,982 62,772 68,993 Cost of Goods Sold (15,805) (17,020) (17,401) (19,785) (22,382) Gross Profit 28,164 33,942 37,582 42,987 46,611 Other Opng (Exp)/Inc (7,734) (9,587) (10,282) (11,676) (12,764) Operating Profit 20,430 24,355 27,300 31,311 33,847 Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (330) (285) (174) Exceptional Gain/(Loss) 2, Pre-tax Profit 23,335 24,424 27,417 31,766 34,594 Tax (4,585) (4,821) (5,387) (6,242) (6,797) Minority Interest (21.4) (32.1) (49.8) (52.3) (54.9) Preference Dividend Net Profit 18,729 19,571 21,980 25,472 27,741 Net Profit before Except. 15,755 19,482 21,980 25,472 27,741 EBITDA 26,880 31,024 33,330 37,563 41,503 Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) NM NM Source: Company, DBSVTH Page 9

27 Airports of Thailand Quarterly / Interim Income Statement (Btm) FY Sep 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 Revenue 13,800 12,572 12,775 12,613 14,665 Cost of Goods Sold (4,266) (4,212) (4,679) (3,867) (4,099) Gross Profit 9,534 8,360 8,096 8,746 10,566 Other Oper. (Exp)/Inc (1,900) (1,888) (1,957) (1,913) (1,961) Operating Profit 7,634 6,472 6,140 6,833 8,605 Other Non Opg (Exp)/Inc (603) (479) (476) (530) (497) Associates & JV Inc Net Interest (Exp)/Inc (94.7) (70.5) (58.6) (52.8) (48.8) Exceptional Gain/(Loss) (75.8) 268 (96.1) Pre-tax Profit 6,860 6,191 5,509 6,417 8,098 Tax (1,353) (1,186) (1,053) (1,319) (1,609) Minority Interest (14.2) (0.1) (8.0) (14.2) (18.4) Net Profit 5,493 5,005 4,448 5,084 6,470 Net profit bef Except. 5,569 4,737 4,544 4,917 6,432 EBITDA 8,642 7,594 7,275 7,732 9,492 Growth Revenue Gth (%) 16.8 (8.9) 1.6 (1.3) 16.3 EBITDA Gth (%) 15.0 (12.1) (4.2) Opg Profit Gth (%) 17.1 (15.2) (5.1) Net Profit Gth (Pre-ex) (%) 20.2 (15.0) (4.1) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) Balance Sheet (Btm) FY Sep 2015A 2016A 2017F 2018F 2019F Net Fixed Assets 95,253 91, , , ,039 Invts in Associates & JVs Other LT Assets 12,446 16,366 15,298 14,932 14,552 Cash & ST Invts 48,490 60,490 54,753 51,494 54,716 Inventory Debtors 2,356 2,871 3,013 3,440 3,780 Other Current Assets Total Assets 159, , , , ,957 ST Debt 4,228 4,797 3,280 2,927 2,595 Creditor 1,151 1,370 1,118 1,271 1,420 Other Current Liab 10,476 12,262 11,648 11,066 10,513 LT Debt 28,202 27,261 27,187 24,642 22,410 Other LT Liabilities 6,755 4,949 4,949 4,949 4,949 Shareholder s Equity 108, , , , ,658 Minority Interests Total Cap. & Liab. 159, , , , ,957 Non-Cash Wkg. Capital (8,192) (9,964) (8,934) (8,052) (7,282) Net Cash/(Debt) 16,060 28,433 24,287 23,925 29,711 Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) Z-Score (X) Source: Company, DBSVTH Page 10

28 Airports of Thailand Cash Flow Statement (Btm) FY Sep 2015A 2016A 2017F 2018F 2019F Pre-Tax Profit 23,335 24,424 27,417 31,766 34,594 Dep. & Amort. 6,189 6,405 5,739 5,932 7,304 Tax Paid 3,007 4,585 4,821 5,387 6,242 Assoc. & JV Inc/(loss) Chg in Wkg.Cap. 9,571 (3,254) (662) (515) (391) Other Operating CF (17,195) (1,834) (11,817) (12,868) (14,471) Net Operating CF 24,907 30,327 25,498 29,702 33,277 Capital Exp.(net) (6,919) (4,850) (23,277) (23,000) (19,000) Other Invts.(net) (9,250) (9,900) 7, Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF (16,079) (14,722) (16,146) (22,973) (18,973) Div Paid (7,057) (7,142) (7,143) (7,143) (8,571) Chg in Gross Debt (1,952) (557) (1,591) (2,897) (2,565) Capital Issues Other Financing CF (3,781) (5,104) Net Financing CF (12,790) (12,803) (8,684) (9,988) (11,081) Currency Adjustments Chg in Cash (3,962) 2, (3,258) 3,223 Opg CFPS (Bt) Free CFPS (Bt) Source: Company, DBSVTH Target Price & Ratings History Source: DBSVTH Analyst: Namida ARTISPONG THAI-CAC Corporate Governance CG Rating 2016 Declared THAI-CAC is Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of June 27, 2017) are categorised into: Score Declared Certified Description Companies that have declared their intention to join CAC Companies certified by CAC. Corporate Governance CG Rating is based on Thai Institute of Directors (IOD) s annual assessment of corporate governance practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), disclosure and transparency (20%), role of stakeholders (20%), equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to each company based on their scoring as follows: Score Range Number of Logo Description Excellent Very Good Good Satisfactory Pass <50 No logo given N/A Page 11

29 Airports of Thailand DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends Completed Date: 14 Sep :22:17 (THA) Dissemination Date: 14 Sep :01:47 (THA) Sources for all charts and tables are DBSVTH unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank 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 Vickers Securities (Thailand) Co Ltd (''DBSVTH''). 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, 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. Page 12

30 Airports of Thailand 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. ANALYST CERTIFICATION The research analyst(s) 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(s) 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 the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests 2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates have a proprietary position in Airports of Thailand recommended in this report as of 31 Aug Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. Compensation for investment banking services: 3. DBSVUSA does not have its own investment banking or research department, nor has it 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. 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. Disclosure of previous investment recommendation produced: 4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months. 1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant. Page 13

31 Airports of Thailand 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. Australia This report is being distributed in Australia by DBS Bank Ltd. ( DBS ) or DBS Vickers Securities (Singapore) Pte Ltd ( DBSVS ). DBS holds Australian Financial Services Licence no DBSVS is 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. DBSVS is regulated by the Monetary Authority of Singapore under the laws of Singapore, 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 an entity(ies) which is not licensed by 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). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by 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). For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at equityresearch@dbs.com. Indonesia Malaysia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. 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 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. Wong Ming Tek, Executive Director, ADBSR Singapore Thailand This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No E) or DBSVS (Company Regn No G), 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 for matters arising from, or in connection with the report. This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it. Page 14

32 Airports of Thailand United Kingdom This report is produced by DBS Vickers Securities (Thailand) Co Ltd which is regulated by the Securities and Exchange Commission, Thailand. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, 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 DBSVUK. 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 United Arab Emirates United States Other jurisdictions This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box , 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it. This report is provided by DBS Bank Ltd (Company Regn. No E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. This report was prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). 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. 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. Page 15

33 Airports of Thailand DBS Regional Research Offices HONG KONG DBS Vickers (Hong Kong) Ltd Contact: Paul Yong 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: Fax: Participant of the Stock Exchange of Hong Kong MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek ( U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah Kuala Lumpur, Malaysia. Tel.: Fax: general@alliancedbs.com SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore Tel: Fax: equityresearch@dbs.com Company Regn. No E INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: Fax: research@id.dbsvickers.com THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand Tel Fax: research@th.dbsvickers.com Company Regn. No Securities and Exchange Commission, Thailand Page 16

34 Thailand Company Guide Asia Aviation Version 11 Bloomberg: AAV TB Reuters: AAV.BK Refer to important disclosures at the end of this report DBS Group Research. Equity 23 Aug 2017 BUY Last Traded Price ( 22 Aug 2017): Bt6.10 (SET : 1,573.19) Price Target 12-mth: Bt7.05 (16% upside) (Prev Bt7.25) Analyst Marvin KHOR marvinkhor@alliancedbs.com Paul YONG CFA paulyong@dbs.com Nantika WIANGPHOEM nantikaw@th.dbsvickers.com What s New 2Q17 earnings softer than expected Yield growth still dampened by reduced charter impact, as unit costs are rising to new base Expect yield recovery especially from 4Q16 s low base; improving tourist arrivals are a potential catalyst Cut FY17/18/19F earnings 26%/21%/22% for lower yield forecasts, TP reduced to Bt7.05 maintain BUY Price Relative Bt Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Asia Aviation (LHS) Relative SET (RHS) Relative Index Forecasts and Valuation FY Dec (Bt m) 2016A 2017F 2018F 2019F Revenue 32,401 35,603 40,866 45,219 EBITDA 4,989 4,550 5,139 5,269 Pre-tax Profit 3,206 2,514 2,830 2,792 Net Profit 1,869 1,314 1,479 1,459 Net Pft (Pre Ex.) 1,801 1,369 1,534 1,514 Net Pft Gth (Pre-ex) (%) 41.4 (24.0) 12.1 (1.3) EPS (Bt) EPS Pre Ex. (Bt) EPS Gth Pre Ex (%) 41 (24) 12 (1) Diluted EPS (Bt) Net DPS (Bt) BV Per Share (Bt) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): (26) (21) (22) Consensus EPS (Bt): Other Broker Recs: B: 7 S: 3 H: 11 Source of all data on this page: Company, AllianceDBS, DBS Bank, DBSVTH, Bloomberg Finance L.P Moving past some clouds Expect 2H17 improvement as yields recover. Asia Aviation (AAV) saw 1H17 earnings narrow on a sector-wide yield crunch, though it managed to outperform peers by avoiding losses in the low 2Q season. We think yield growth will re-emerge to help boost prospects, as the decline for AAV has already narrowed in 2Q. The very low base of 4Q16 could be a potential driver for earnings; especially if the tourist arrival recovery keeps its momentum. We continue to favour AAV in the Thai airlines sector, maintain BUY with an adjusted TP of Bt7.05. Where we differ. Emphasis on volume control and strategic positioning. We highlight AAV s leading domestic market positioning as the basis for our 1.5x P/BV valuation, which is above consensus, despite our more conservative financial forecasts. Plus, we think it will hold a control premium for its 55% stake in Thai AirAsia given the long-term ambitions of the AirAsia group to consolidate its regional airlines. Potential catalyst. Faster yield upswing in coming quarters. Yields (fares/rpk) are expected to see improvement towards the end of the year as higher costing is passed on, though such gains are expected to be still mild in 3Q as competitive pressures remain. Better-than-expected yield performance before then (either due to an uptick in tourist arrivals or slower competitor growth) could surprise on the upside. Valuation: Reiterate BUY. Our TP of Bt7.05 is based on 1.5x FY18F P/BV (+1SD of mean). Key Risks to Our View: Higher jet fuel prices. Even with hedges in place, AAV (and other domestic-serving Thai airlines) is now more sensitive to higher fuel prices given the higher %-based excise taxes on fuel for local flights. At A Glance Issued Capital (m shrs) 4,850 Mkt. Cap (Btm/US$m) 29,585 / 890 Major Shareholders (%) Srivaddhanaprabha Family 39.3 Bijleveld Family 5.0 Bualuang-long-term-equity-long-term-fund 4.8 Free Float (%) m Avg. Daily Val (US$m) 2.4 ICB Industry : Consumer Services / Travel & Leisure ed: CK / sa:cs, PY

35 Asia Aviation WHAT S NEW Improvements to come Soft low-season. Recapping recent results, Asia Aviation (AAV) announced a 2Q17 headline profit of Bt171m, translating to core earnings of Bt124m (-66% y-o-y) after stripping out forex gains. Thus, 1H17 earnings were lower at Bt634m (-54% y-o-y), missing expectations. The key reason behind the disappointment was 2Q17 yield (fares/rpk) coming in 1.2% lower y-o-y. While this is an improvement from the 7.5% decline in 1Q17, expectations were for positive yield growth given that fares were hiked to pass on the raised fuel excise tax, effective from Feb On the other hand, total cost/ask was 9% higher y-o-y, causing EBIT margins to shrink (4.8% in 2Q17 vs 9.9% in 2Q16). Volumewise, 2Q17 statistics were decent as AAV reported 8.5% RPK growth against 4.6% ASK addition, as load factors rose 3.1ppts to 86.2%. 1H17 RPK growth was thus 9% higher y- o-y, ASK growth at +5.9% with 87.7% load factor (+2.5ppts). Yield recovery kicking into gear more gradually than earlier expected. AAV cited reductions in charter flight revenues (mostly from the China segment) as the cause of the still-soft yields, as they typically produce yields that are above the group average. This segment contributed 5.5% to 2Q17 passenger revenue, from 8.5% in 2Q16. The group expects soft yields to persist in 3Q, before rising in 4Q17 given the low base. Full-year yield development will thus depend on the rebound quantum; and we now think on balance the group would see flattish or a mild decline for FY17F. Growth plan in place, still in comfortable market share lead. The group is maintaining its target of 19.5m passengers in 2017 (+11%) on the back of 84% load factor and six new aircraft (three delivered in 1H17). Six more will enter in In terms of strategy, it is shifting heavier focus to India with two new routes starting in 3Q17. Market share remains a key strong point as AAV retains its pole position with a 29.5% share (domestic) in 1H17, which fuelled its earnings outperformance (all other airline peers had losses in 2Q17). More conservative forecasts. We lower our FY17/18/19F forecasts by 26%/21%/22% primarily as 1) we reduce our yield change assumption to -0.5%/+1.2%+1.1% from +5.5%/+1.7%/+1.5%, 2) we also raise load factors to 86% from 83%, but this is offset by lowering ASK growth to +7%/+13%/+9% from +11%/+10%/+8%; in aggregate implying +10%/+13%/+9% RPK growth. Our cost/ask assumptions are also bumped up by 1%, as higher cash opex was offset by a stronger average baht, with a USDTHB rate of 34.0 vs 35.5 previously. All in, our TP drops to Bt7.05, based on 1.5x P/BV. Maintain BUY, as AAV remains our top pick for the Thai airline sector. Quarterly / Interim Income Statement (Btm) FY Dec 2Q2016 1Q2017 2Q2017 % chg yoy % chg qoq Revenue 7,756 9,150 8, (8.9) Cost of Goods Sold (6,556) (7,569) (7,466) 13.9 (1.4) Gross Profit 1,200 1, (27.5) (45.0) Other Oper. (Exp)/Inc (429) (495) (474) 10.4 (4.3) Operating Profit 771 1, (48.6) (63.5) Other Non Opg (Exp)/Inc nm nm Associates & JV Inc nm nm Net Interest (Exp)/Inc (109) (158) (172) (57.3) (8.4) Exceptional Gain/(Loss) (79.0) Pre-tax Profit 690 1, (63.1) (76.2) Tax 76.2 (36.0) 55.3 (27.5) (253.6) Minority Interest (344) (464) (139) 59.6 (70.1) Net Profit (59.6) (70.1) Net profit bef Except (66.1) (75.8) EBITDA 1,059 1, (28.6) (46.6) Margins (%) Gross Margins Opg Profit Margins Net Profit Margins Source of all data: Company, AllianceDBS, DBS Bank, DBSVTH Page 2

36 Asia Aviation CRITICAL DATA POINTS TO WATCH Critical Factors Adding five to six aircraft annually. Airline capacity is measured via ASK (available seat kilometres), which is a function of the active fleet and the flight distances of routes served. Thai AirAsia (TAA) grew its fleet by six aircraft in 2016 to reach 51 planes including two A320neos which have better fuel efficiency. Six more are to be added in 2017 and five to six p.a. going forward. Premised on this, we expect TAA to grow ASK by 7%/13%/9% in FY17/18/19F, with current focus on destinations in India and CLMV. Improving load factors. Load factors determine the ASK that is converted into RPKs (revenue passenger kilometres). TAA saw its load factor expand 1.7ppts in 2016 to 83.8%, supported by tourist growth and service quality issues in key LCC competitors. Given strategic and judicious capacity deployment, load factors have improved in early-2017 and we forecast 86% for FY17/18/19F. This implies RPK growth of +10%/+13%/+9%. Yields partially support by passing on costs. Passenger yields (fare/rpk) fell by 4.1% in FY16 largely due to competition and desire to spur volume. While competition remains rife in 2017, the steep jet fuel excise hike led to carriers hiking domestic flight fares by Bt150 c.9% of previous average fare/passenger, potentially a higher % of some domestic routes. This helps offset some negative pressure but we expect overall FY17F yields to still decline 0.5% on average, before gradual upticks of +1.2%/+1.1% in FY18/19F. Mild ancillary income/pax outlook. Like other members of the AirAsia group, TAA focuses on growing ancillary income with offerings like value pack bundling, dynamic baggage pricing and Fly Thru connectivity. However, we conservatively assume mild near-term growth of 1% in FY17/18/19F to account for a slower pick-up in the newer offerings, and prevalence of valuesensitive passengers. Surge in unit costs due to fuel-related factors. We expect fuel cost/ask to rise 19% in FY17F, making a U-turn from the 26% fall in FY16. This is partly contributed by spot jet fuel edging above US$60/bbl, after averaging US$53/bbl in 2016; though driven largely by the hike in jet fuel excise tax on domestic flights. We forecast this to push overall cost/ask up 6% in FY17F, taking into account AAV s hedging of up to 77% of its 2017 requirements at c.us$60/bbl. Our spot jet fuel assumptions are US$60/65/70/bbl in FY17/18/19F ASK growth (%) A 2016A 2017F 2018F 2019F Load Factor (%) A 2016A 2017F 2018F 2019F Fare / RPK (sen) A 2016A 2017F 2018F 2019F Ancillary income / pax (THB) A 2016A 2017F 2018F 2019F Cost / ASK (THB) A 2016A 2017F 2018F 2019F Source: Company, AllianceDBS, DBS Bank, DBSVTH Page 3

37 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Company Guide Asia Aviation Appendix 1: AAV price correlation with critical factors Graph 1: Share price vs key macroeconomic factors Indexed: Jun12 = Optimism on fleet growth plans - +7/8 or up to 30% expansion AAV TB Jet fuel Thailand tourist arrivals Record profitability from cheaper fuel, competitor weakness 50 0 Source: Company, Bloomberg L.P., AllianceDBS, DBS Bank, DBSVTH AAV share price vs RPK development Bt AAV TB AAV RPK (RHS) m p-km , , , , , , Remarks Beyond impacts from macroeconomic factors and profitability metrics, the group s value is tied to its control over revenue-generating volume (correlation coefficient 0.6). This is denoted by RPKs or revenue passenger kilometres a function of available seat kilometres (ASK) which is within the airline s control; while load factor is the function of demand determining the conversion/utilisation rate. Source: Company, Bloomberg L.P., AllianceDBS, DBS Bank, DBSVTH AAV share price vs cost/ask Bt AAV TB Cost/ASK growth y-o-y % % % % % % % % Remarks Earnings outperformance, especially relative to peers, is influenced by the airline s capacity to keep unit costs, or cost/ask low. Periods of negative cost/ask movement are typically positive for the share price. Source: Company, Bloomberg L.P., AllianceDBS, DBS Bank, DBSVTH Page 4

38 Asia Aviation Balance Sheet: Finding the right balance in financing aircraft. TAA ended 2016 with 14 aircraft under finance lease (i.e. on balance sheet), and 37 on operating leases. Going forward, it plans receive a majority of its six planes in 2017 under finance leases given its low gearing position. Thus, we expect a mild rise in AAV s net gearing position from 0.4x in FY16 to 0.6x in FY17F, potentially easing thereafter, depending on the number of finance leases. Share Price Drivers: Travel and tourism growth. As the largest domestic LCC carrier with a wide international connectivity thanks to the AirAsia group connection, TAA s earnings will be impacted by growth in both Thailand s internal air traffic and its inbound tourist arrivals. Positivity from those indicators, and TAA s own route expansion and development, can help drive earnings growth and share price re-rating. Key Risks: Price competition. The emergence of strong price competition by airline competitors is a threat to both yields and earnings, as TAA would have to compete to maintain market share. Fuel price upswing. Our forecasts and call are based on moderate low oil/fuel prices. A sudden rise will impact earnings and may exacerbate associate-related risks. Leverage & Asset Turnover (x) A 2016A 2017F 2018F 2019F Gross Debt to Equity (LHS) Asset Turnover (RHS) Capital Expenditure Btm 8, , , , , , , , A 2016A 2017F 2018F 2019F Capital Expenditure (-) 8.0% 7.0% 6.0% 5.0% ROE (%) Stronger USD. The stronger USD against the THB and other regional currencies (i.e. MYR, SGD, IDR, RMB, JPY) will hurt AAV. The bulk of TAA s revenues are in regional currencies, while 66%/50% of opex/finance costs are in USD. 4.0% 3.0% 2.0% 1.0% 0.0% 2015A 2016A 2017F 2018F 2019F Company Background AAV owns a 55% stake in TAA, the Thai-based sister company of AirAsia which owns the remaining 45%. TAA operates a low-cost, short-haul model out of five hubs in Thailand Don Mueng Airport (Bangkok), Phuket International Airport (Phuket), Chiang Mai International Airport (Chiang Mai), Krabi International Airport (Krabi) and U-Tapao Rayong-Pattaya International Airport (Rayong). Forward PE Band (x) (x) sd: 80.1x sd: 54.9x 41.6 Avg: 29.8x sd: 4.6x Aug-13 Aug-14 Aug-15 Aug-16 Aug (x) PB Band (x) sd: 1.64x +1sd: 1.45x Avg: 1.26x -1sd: 1.07x -2sd: 0.87x 0.7 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Source: Company, AllianceDBS, DBS Bank, DBSVTH Page 5

39 Asia Aviation Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F ASK growth (%) Load Factor (%) Fare / RPK (sen) Ancillary income / pax Cost / ASK (THB) Income Statement (Btm) FY Dec 2015A 2016A 2017F 2018F 2019F Revenue 29,507 32,401 35,603 40,866 45,219 Cost of Goods Sold (25,315) (26,688) (30,569) (35,157) (39,267) Gross Profit 4,192 5,713 5,034 5,708 5,952 Other Opng (Exp)/Inc (1,421) (1,906) (1,979) (2,337) (2,619) Operating Profit 2,771 3,806 3,055 3,371 3,333 Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (457) (521) (541) (541) (541) Exceptional Gain/(Loss) (205) (79.5) Pre-tax Profit 2,109 3,206 2,514 2,830 2,792 Tax (151) 192 (126) (142) (140) Minority Interest (880) (1,528) (1,075) (1,210) (1,194) Preference Dividend Net Profit 1,078 1,869 1,314 1,479 1,459 Net Profit before Except. 1,274 1,801 1,369 1,534 1,514 EBITDA 3,898 4,989 4,550 5,139 5,269 Growth Revenue Gth (%) EBITDA Gth (%) (8.8) Opg Profit Gth (%) (19.7) 10.4 (1.1) Net Profit Gth (Pre-ex) (%) (24.0) 12.1 (1.3) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Source: Company, AllianceDBS, DBS Bank, DBSVTH Page 6

40 Asia Aviation Quarterly / Interim Income Statement (Btm) FY Dec 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 Revenue 7,756 8,145 7,547 9,150 8,336 Cost of Goods Sold (6,556) (6,944) (6,721) (7,569) (7,466) Gross Profit 1,200 1, , Other Oper. (Exp)/Inc (429) (496) (548) (495) (474) Operating Profit , Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (109) (160) (125) (158) (172) Exceptional Gain/(Loss) (145) Pre-tax Profit , Tax (36.0) 55.3 Minority Interest (344) (326) (34.1) (464) (139) Net Profit Net profit bef Except EBITDA 1,059 1, , Growth Revenue Gth (%) (13.4) 5.0 (7.4) 21.2 (8.9) EBITDA Gth (%) (54.7) (5.5) (40.9) (46.6) Opg Profit Gth (%) (62.4) (8.5) (60.6) (63.5) Net Profit Gth (Pre-ex) (%) (63.9) (18.1) (71.9) (75.8) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) Balance Sheet (Btm) FY Dec 2015A 2016A 2017F 2018F 2019F Net Fixed Assets 18,216 20,425 26,035 27,293 28,382 Invts in Associates & JVs Other LT Assets 25,781 27,414 27,409 27,404 27,399 Cash & ST Invts 7,591 6,733 3,512 5,426 7,336 Inventory Debtors 765 1,251 1,366 1,567 1,734 Other Current Assets Total Assets 52,827 56,599 59,099 62,467 65,628 ST Debt 1,261 1,792 1,792 1,792 1,792 Creditor 2,965 3,151 3,350 3,853 4,303 Other Current Liab 4,070 4,328 4,967 5,688 6,284 LT Debt 12,775 13,664 13,664 13,664 13,664 Other LT Liabilities 3,671 3,545 3,545 3,545 3,545 Shareholder s Equity 20,142 21,271 21,857 22,791 23,712 Minority Interests 7,941 8,850 9,924 11,134 12,328 Total Cap. & Liab. 52,827 56,599 59,099 62,467 65,628 Non-Cash Wkg. Capital (5,797) (5,452) (6,175) (7,197) (8,077) Net Cash/(Debt) (6,446) (8,722) (11,943) (10,029) (8,119) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) Source: Company, AllianceDBS, DBS Bank, DBSVTH Page 7

41 Asia Aviation Cash Flow Statement (Btm) FY Dec 2015A 2016A 2017F 2018F 2019F Pre-Tax Profit 2,109 3,206 2,514 2,830 2,792 Dep. & Amort. 1,127 1,182 1,495 1,768 1,935 Tax Paid (6.6) (18.4) (126) (142) (140) Assoc. & JV Inc/(loss) Chg in Wkg.Cap. (1,738) (530) 724 1, Other Operating CF 1, Net Operating CF 3,007 4,382 4,607 5,479 5,468 Capital Exp.(net) (818) (621) (7,100) (3,020) (3,020) Other Invts.(net) 1,719 (942) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF (17.7) (1,222) Net Investing CF 883 (2,786) (7,100) (3,020) (3,020) Div Paid (483) (722) (728) (545) (537) Chg in Gross Debt (1,059) (1,242) Capital Issues Other Financing CF (987) (604) Net Financing CF (2,529) (2,568) (728) (545) (537) Currency Adjustments (27.3) Chg in Cash 1,334 (931) (3,221) 1,914 1,910 Opg CFPS (Bt) Free CFPS (Bt) (0.5) Source: Company, AllianceDBS, DBS Bank, DBSVTH Target Price & Ratings History Bt Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 S.No. Date of Report Closing Price 12-mth T arget Price Rating 1: 06 Sep BUY 2: 20 Oct BUY 3: 10 Nov BUY 4: 15 Nov BUY 5: 07 Feb BUY 6: 10 Feb BUY 7: 24 Feb BUY 8: 03 Mar BUY 9: 09 May BUY 10: 15 May BUY 11: 26 Jul BUY 12: 03 Aug BUY 13: 11 Aug BUY Source: AllianceDBS, DBS Bank, DBSVTH Analyst: Marvin KHOR Paul YONG CFA Nantika WIANGPHOEM THAI-CAC Corporate Governance CG Rating 2016 Note : Share price and Target price are adjusted for corporate actions. n/a THAI-CAC is Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of June 27, 2017) are categorised into: Score Declared Certified Description Companies that have declared their intention to join CAC Companies certified by CAC. Corporate Governance CG Rating is based on Thai Institute of Directors (IOD) s annual assessment of corporate governance practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), disclosure and transparency (20%), role of stakeholders (20%), equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to each company based on their scoring as follows: Score Range Number of Logo Description Excellent Very Good Good Satisfactory Pass <50 No logo given N/A Page 8

42 Asia Aviation AllianceDBS, DBS Bank, DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends Completed Date: 23 Aug :33:11 (THA) Dissemination Date: 23 Aug :17:57 (THA) Sources for all charts and tables are AllianceDBS, DBS Bank, DBSVTH unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS''), DBS Bank Ltd, DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank 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 AllianceDBS Research Sdn Bhd (''AllianceDBS''), DBS Bank Ltd, DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). 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, 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. 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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. 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43 Asia Aviation 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. ANALYST CERTIFICATION The research analyst(s) 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(s) 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 the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests 2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 July Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. Compensation for investment banking services: 3. DBSVUSA does not have its own investment banking or research department, nor has it 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. 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. Disclosure of previous investment recommendation produced: 4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months. 1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant. Page 10

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47 Thailand Company Guide Central Plaza Hotel Version 9 Bloomberg: CENTEL TB Reuters: CENT.BK Refer to important disclosures at the end of this report DBS Group Research. Equity 19 Sep 2017 BUY Last Traded Price ( 15 Sep 2017): Bt42.50 (SET : 1,660.53) Price Target 12-mth: Bt47.00 (11% upside) Analyst Namida ARTISPONG namidaa@th.dbsvickers.com Price Relative Bt Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Central Plaza Hotel (LHS) Relative SET (RHS) Relative Index Forecasts and Valuation FY Dec (Bt m) 2015A 2016A 2017F 2018F Revenue 18,823 19,448 20,086 21,318 EBITDA 4,424 4,090 4,514 4,858 Pre-tax Profit 2,183 2,371 2,581 2,900 Net Profit 1,664 1,850 1,981 2,238 Net Pft (Pre Ex.) 1,766 1,851 1,981 2,238 Net Pft Gth (Pre-ex) (%) EPS (Bt) EPS Pre Ex. (Bt) EPS Gth Pre Ex (%) Diluted EPS (Bt) Net DPS (Bt) BV Per Share (Bt) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): 0 0 Consensus EPS (Bt): Other Broker Recs: B: 14 S: 1 H: 8 Source of all data on this page: Company, DBSVTH, Bloomberg Finance L.P Another proxy for Thailand tourism Looking ahead for better hotel RevPar growth in 2H17. We expect CENTEL s hotel RevPar growth to be stronger in 2H17, especially in 4Q17 from a low base in 4Q16 due to the mourning period and flooding at its Centara Grand Phuket. Improving RevPar growth should stem from better operating data of hotels in the upcountry from the rising Thai tourism, as well as improvement in Bangkok and Maldives hotels. Food SSSG remains fragile but margin growth should help to mitigate the downside risk. Amid lingering weak domestic consumption, we doubt that SSSG would recover this year. However, TSSG should turn around to positive territory from - 0.3% in 1H17 due to accelerating outlet expansion towards the end of the year. Cost control will remain the key bottom line growth driver for the food unit despite unexciting revenue. Upside potential from food M&A. CENTEL had achieved an 11-year low gearing of 0.6x as at end-2q17. The company is currently looking to add one more food brand to its portfolio via acquisition. If food M&A takes place (expected to be within this year), there will be upside potential to our earnings. Where we differ? CENTEL is another good proxy for Thailand tourism and has been a laggard tourism stock. Potential catalyst. The accelerated growth in international tourist arrivals to Thailand is a key catalyst for the stock given that 80% of CENTEL s hotel revenues come from Thailand. Valuation: We keep our earnings forecasts and TP at Bt47.0, based on DCF valuation (WACC 9%, terminal growth rate 3%). Key Risks to Our View: Key risks are (i) a slowdown in Thailand s tourism industry, and (ii) weaker-than-expected consumer confidence. At A Glance Issued Capital (m shrs) 1,350 Mkt. Cap (Btm/US$m) 57,375 / 1,733 Major Shareholders (%) Chirathivat's Family (%) Tiang Chirathivat Co Ltd (%) 5.00 The Bank Of New York Mellon (%) 3.67 Free Float (%) m Avg. Daily Val (US$m) 4.2 ICB Industry : Consumer Services / Travel & Leisure ed: TH / sa:cs, PY

48 Company Guide Central Plaza Hotel CRITICAL DATA POINTS TO WATCH 120% Total revenue and profit by segment (2016) 82 Critical Factors New hotels in the pipeline. As at end-2016, CENTEL operated 37 hotels with a total of 7,027 hotel rooms across Thailand and overseas. Of the total, 15 hotels (3,812 rooms) are either fully owned or under JVs, while the remaining are operated under hotel management contracts. CENTEL plans to expand its hotel portfolio via both asset-heavy and asset-light models which will enhance both its earnings size and profitability. For owned hotels, CENTEL plans to open two new budget hotels called COSI in Samui and Pattaya, Thailand s key tourist destinations in late 2017 and 2018 respectively. The hotels will have 431 rooms in total. CENTEL will add another four owned COSI hotels (200 rooms each) in the future. On top of this, CENTEL targets to secure hotel management contracts p.a. to boost the group s margin. Expanding RevPar. CENTEL enjoyed a high average occupancy rate of 82% in FY16F. At this occupancy rate and with limited hotel supply, we believe CENTEL will be able to increase its room rate by 3% in FY17F. Overall, we expect the group s RevPar to grow by 2-3% in FY17F. 100% 80% 60% 40% 20% 0% 53% 47% 32% 31% 68% 69% Total revenue EBITDA NPAT Hotel Food Total revenue by geography (2016) Overseas, 9% Thailand, 91% Feeder market by room nights (2016) Ongoing expansion of food business. The company is looking to add 36 food outlets this year. This implies a growth of 4.3% y- o-y. Others, 45% Chinese, 16% Thai, 14% Margin expansion. CENTEL will continue to focus on profitability expansion by improving yield management on hotels and controlling costs for the food business. A hike in hotel average room rate and better operational efficiency in food unit should support its margin improvement. British, 11% Russian, 6% Australian, 8% Hotel revenue contribution by location Others, 3% 914 Hua Hin, 7% Samui, 7% Krabi, 6% Bangkok, 30% 731 Pattaya, 12% 548 Phuket, 15% Maldives, 20% Food revenue contribution by brand Other light food, 2% 1 Auntie Anne's, 7% Other heavy food, 10% 1 Ootoya, 8% Mister Donut, 17% KFC, 56% 0 0 Source: Company, DBSVTH Page 2