Overview of Airports of Thailand (AOT)
Airports of Thailand Public Company Limited (AOT) operates six out of Thailand’s 38 airports, which collectively contribute 83% of the country’s total passenger throughput. Despite its significant market presence, recent developments have led to financial uncertainties and revised projections.
Downgrade to HOLD: A Shift in Sentiment
UOB Kay Hian has downgraded AOT to a “HOLD” rating with a revised target price of Bt52.00, reflecting a 10.6% upside. This contrasts sharply with the previous target price of Bt70.00, signaling a more cautious outlook due to various challenges.
Key Issues Impacting AOT’s Performance
1. Negative Analyst Meeting Sentiment
The tone of AOT’s 1QFY25 analyst meeting was notably negative. Earnings for the quarter fell slightly below expectations, primarily due to liquidity issues at King Power International (KP), a major duty-free operator. This development has raised concerns about AOT’s short-term financial stability.
2. Concession Revenue Miss
Concession revenue for 1QFY25 reached Bt5.6 billion, reflecting a 2.2% year-on-year increase and a 4.2% quarter-on-quarter growth. However, this figure was 13% below expectations. This shortfall was attributed to:
- AOT’s reclamation of duty-free shops and commercial spaces earlier in 2024.
- Some operators at Bangkok’s Suvarnabhumi Airport failing to meet minimum guarantee criteria.
- A significant increase in AOT’s non-current trade accounts receivable, primarily from KP, which negatively impacted concession revenue growth.
3. KP’s Liquidity Crisis
KP informed AOT that it would be unable to pay the concession fee from August 2024 to February 2025 due to liquidity issues. The delayed payment will accrue an 18% annual penalty interest, which will be recognized in FY26. While KP has provided a bank guarantee to cover the amount owed, the situation has raised concerns about its financial health. In the worst-case scenario, AOT may terminate its contract with KP, leading to a re-auction process that could result in a lower minimum guarantee concession fee.
Financial Projections and Key Metrics
1. Revenue and Profit Estimates
The following are AOT’s revised financial projections:
| Year |
Net Turnover (Btm) |
Net Profit (Btm) |
EBITDA Margin |
Net Margin |
| 2023 |
48,141 |
8,791 |
54.3% |
18.3% |
| 2024 |
67,121 |
19,182 |
62.2% |
28.6% |
| 2025F |
73,964 |
26,426 |
68.5% |
35.7% |
| 2026F |
82,731 |
31,347 |
68.5% |
37.9% |
| 2027F |
86,712 |
33,236 |
68.5% |
38.3% |
2. Earnings Revisions
FY25 earnings have been revised down by 24%, while FY26 projections have been adjusted upward by 22%. This reflects the impact of KP’s delayed payments, which are expected to significantly boost FY26 earnings due to the 18% penalty interest.
Potential Upside and Risks
1. Passenger Service Charge (PSC) and Transit Fees
AOT and the Civil Aviation Authority of Thailand (CAAT) are studying the possibility of increasing the Passenger Service Charge (PSC) and introducing transit fees. Preliminary results are expected by February 2025, with final approvals anticipated by year-end. If implemented, these changes could provide a significant revenue boost.
2. Recovery of Tourist Traffic
The recovery in international tourist arrivals is expected to positively impact KP’s financial position, potentially mitigating the current liquidity concerns. Tourist arrivals are forecasted to reach 40 million in 2025, with an annual growth rate of 3.5%.
3. Risks to Monitor
- The financial stability of KP remains a critical concern.
- A possible re-auction of concession contracts could delay revenue recognition further.
- The minimum guarantee from a new operator may fall short of KP’s current contribution of Bt15 billion annually.
Environmental, Social, and Governance (ESG) Initiatives
AOT has a strong commitment to ESG principles:
1. Environmental
- Increased efficiency in energy consumption and resource utilization.
2. Social
- Established an aerodrome safety policy to enhance operational standards.
- Provided safety training for personnel to ensure compliance with safety protocols.
3. Governance
- The Board adheres to corporate governance principles and regulatory guidelines issued by the Stock Exchange of Thailand and the Securities and Exchange Commission.
Conclusion
While Airports of Thailand faces challenges, particularly with KP’s liquidity issues, the long-term outlook remains cautiously optimistic. The recovery in tourist traffic, potential revenue from delayed KP payments, and PSC adjustments offer opportunities for growth. However, investors are advised to monitor risks closely, especially concerning KP’s financial health and potential contract re-auctions. UOB Kay Hian’s recommendation to “HOLD” reflects a balanced view of these factors.
