Air Transportation

Industry Update
Tuesday, March 31, 2015
Industry Update
Air Transportation
BA: safest choice
Dubai crude oil price assumption is revised down from US$90/barrel to
US$75/barrel, possibly boosting air transportation sector's earnings by 9.5% on
average in 2015-2016. The sector is projected to make a turnaround next year.
We upgrade our recommendation to OVERWEIGHT. Top pick is AAV.

Prices drop after many countries ban new charter flights
Air transportation stocks' price fell by 6% on average from the Thursday closing
prices since the International Civil Aviation Organization (ICAO) flagged that the
operation of the Department of Civil Aviation (DCA), the aviation authority of
Thailand, does not meet the ICAO's safety standard. As a result, adding of new
charter flights and new destination of flights from Thailand was banned in many
countries e.g. Japan, South Korea, and China and was inspected more strictly in
Singapore. The ban would affected NOK most since all NOKScoot's (NOK's
subsidiary) flight to Japan and South Korea are cancelled, followed by THAI that
has two new charter flights to Japan. AAV would be affected least since only its
new flights to China are banned and need to find new destinations; AirAsia X (held
by AAV executive) that has flights to Japan and South Korea is only related to
AAV but not as shareholders. The government would deal with this problem by
itself; we expect Thai air operations to improve and meet the ICAO's standard in
two months and all problems would be completely solved within eight months.

Air Transportation
Rec : NEUTRAL
Sector Index : 223.1
SET Index : 1,496.51
International flight ban not likely
We predict the effects of the ban two ways, as follows:
1) For the best-case scenario that there is no further ban and restriction, this will
only have only a limited effect on the sector. Besides the airlines industry, this will
have a slight adverse effect on BA and AOT since BA has no flight to Japan, China,
and South Korea and charter flights makes up less than 5% of AOT's total flights.
2) For the worst-case scenario that the government cannot tackle the problem in
time and international flights from Thailand are banned, which is unlikely because
the government has been dealing with the problem, each airline can report its
own safety standard to countries banning flights from Thailand. In this case, BA
and THAI would be the safest choice since they are IATA Operational Safety Audit
(IOSA) certified operators, while it would be harder for AAV and NOK; we have no
clear information for their international safety certificate.

BA: safest choice
Despite positive sentiment from potential earnings turnaround this year, this issue
has negative sentiment, so the air transportation sector may underperform the
market as long as the conclusion is not made. We downgrade our
recommendation from OVERWEIGHT to NEUTRAL. Top pick is BA([email protected]), the
safest choice in this situation. For THAI([email protected]), we recommend HOLD.
Key Data (Bm)
FY: Dec 31
Sales
Net Profit
Norm Profit
PER (x)
PBV (x)
ROE %
ROA %
Source : ASP Research
FY12A
263,012.5
13,770.4
8,692.0
15.3
1.3
8.3
3.0
FY13A
268,502.2
4,482.2
4,369.4
61.1
1.6
2.7
0.9
FY14F
277,312.5
-1,595.4
-6,732.3
-307.5
2.7
-0.9
-0.3
FY15F
289,172.0
12,518.2
22,744.8
39.2
2.4
6.2
2.5
FY16F
286,823.
27,077.6
27,262.2
18.2
2.2
12.3
5.2
Kawee Manitsupavong
License No.: 003974
[email protected]
Suwat Wattanapornprom
License No. : 044015
[email protected]
This report is a rough translation of one of our Thai-language research products. It is produced primarily with time efficiency in mind, so that English-reading clients can see what the main recommendations are from our Thai-language research
team. Given that this is a rough-and-ready translation, Asia Plus Securities pcl cannot be held responsible for translation inaccuracies.) The reports and information contained herein are compiled from public data sources and our analysts'
interviews with executives of listed companies. They are presented for informational purposes only and not to be deemed as solicitations to buy or sell any securities. Best attempts have been made to verify information from these vast sources, but
we cannot guarantee their accuracy, adequacy, completeness and timeliness. The analyses and comments presented herein are opinions of our analysts and do not necessarily reflect the views of Asia Plus Securities.
Industry Update
Research Department
NOK Technical Chart
Source : Bloomberg
BA Technical Chart
Source : Bloomberg
THAI Technical Chart
Source : ASP Research
AAV Technical Chart
Source : ASP Research
AOT Technical Chart
Key Recommendation Table
Rec.
AOT
AAV
BA
THAI
Source : ASP Research
HOLD
ถือ
BUY
ซื้อ
BUY
ซื้อ
HOLD
ถือ
2558F
30-Mar-15
2015F
Close Fair value Upside EPS PER PBV
(B)
(B) (%) (B) (X) (X)
280.00 320.00 14% 11.61 24.1 3.7
5.15
6.00 16% 0.30 17.3 1.2
20.30 25.50 26% 0.88 23.0 1.6
11.00 15.30 39% (3.58) na. 0.7
Div
(%)
1.66
0.00
1.74
0.00
Source : ASP Research
2