Earnings Results

10 November 2017

Transportation & Logistics

Asia Aviation

AAV Current

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Close

2018 TP

Exp Return

THAI CAC

CG 2016

BUY

BUY

6.30

7.30

+ 15.9%

N/A

4

Consolidated earnings BT (mn)

2015

2016

2017E

2018E

Normalized earnings

1,283

1,949

1,404

1,760

Net profit

1,078

1,869

1,577

1,760

0.26

0.40

0.29

0.36

EPS (Bt) – Norm EPS (Bt)

0.22

0.39

0.33

0.36

% EPS growth

488.7

73.3

-15.6

11.6

Dividend (Bt)

0.10

0.15

0.13

0.15

BV/share (Bt)

5.8

6.2

5.8

6.4

EV/EBITDA (x)

12.2

10.1

11.6

10.0

PER (x) – Norm

23.8

15.7

21.8

17.4

PER (x)

28.3

16.3

19.4

17.4

PBV (x)

1.1

1.0

1.0

0.9

Dividend yield (%)

1.6

2.4

2.4

2.3

ROE (%)

3.8

6.2

4.9

5.1

4,850

4,850

4,850

4,850

0.1

0.1

0.1

0.1

YE No. of shares (million) Par (Bt)

Source: Company data, FSS estimates

Performance has passed bottom and begins to recover from 3Q17 onward 3Q17 normalized earnings slightly miss estimate AAV’s 3Q17 net profit comes in at Bt261mn (+53% Q-Q, -34% Y-Y). It’s slightly higher than expected thanks to larger-than-expected FX gain of Bt72mn. Excluding such item, normalized earnings are equal to Bt189mn (+35% Q-Q, -47% Y-Y). It’s slightly lower than expected due to belowestimate average airfare of Bt1,460 (-1% Q-Q, -7% Y-Y). The Q-Q jump is made possible by a rise in the number of passengers (+5% Q-Q) and a decrease in funding cost (-13% Q-Q) after the company has cancelled the financial lease of two aircraft before it ends. The Y-Y fall can be blamed on a decline in average airfare after there was pressure from fierce price competition. Moreover, operating cost jumped 11% Y-Y after crude surged, while the government increased excise tax on jet fuel oil used on all domestic flights. About to get into high season in 4Q17-1Q18 AAV’s 9M17 net profit amounts to Bt1bn (-45% Y-Y). It’s sufficient to secure 64% of our full-year estimate. Looking ahead, we expect operating performance outlook to remain upward from 4Q17 to 1Q18 thanks to the tourism industry’s high season. In 4Q17, we expect net profit to hit this year’s peak. Moreover, we believe it will grow both Q-Q and Y-Y. The Y-Y increase is likely to be attributed to the low base last year when there were negative impacts from the government’s crackdown on zero-dollar tours and the mourning in this country. Moreover, domestic tourism sentiment recovers and there is a short-term catalyst from government stimulus, which allows certain consumer spending made during November 11- December 3, 2917 as tax deductible. Given that, we stand by our 2017E net profit at Bt1.6bn (-16% Y-Y) before it turns to grow by 12% Y-Y next year. Maintain BUY rating at 2018 TP of Bt7.3 We have bullish view towards AAV’s operating performance which looks set to improve thanks to robust demand in the tourism industry. Moreover, the company increases its competitiveness through route expansion to cover the CLMV market and India and focuses on its popular domestic routes. This should help ease the fierce price competition. Meanwhile, we believe a rise in crude will have limited impact because AAV has hedged 80% of its one-year jet fuel oil consumption against such risk. AAV currently trade at forward PE of 17x and PBV of 0.9x, lower than its historical average of 21x and 1.3x, respectively. Hence, there is limited downside. In the past one month, the counter decreased by 5%, lagging the most when compared to its airline peers, i.e. BA, THAI, and NOK, all of which were down by just 4% on average. Such scenario is not in line with the company’s profitability, which is the strongest in the airline space. What’s more, operating performance has positive momentum from 4Q17 to next year. Hence, We retain our BUY rating on AAV at our 2018 TP of Bt7.3. AAV has announced interim DPS of Bt0.15, implying dividend yield of 2.4%. It will go XD on November 22. The dividend will be paid on December 7, 2017.

Analyst: Jitra Amornthum Register No.: 014530 Assistant Analyst: Thanyatorn Songwutti Tel.: +662 646 9966 email: [email protected] www.fnsyrus.com

Page 1 of 4

AAV 3Q17 Earnings Results

Comment

(Bt mn) Revenues

3Q17 8,734

2Q17 8,336

%Q-Q 4.8

3Q16 8,145

%Y-Y 7.2

Operating Cost

7,738

7,466

3.6

6,944

11.4

Gross profit

997

870

14.6

1,201

-17.0

SG&A

714

697

2.4

659

8.4

Interest expense

149

172

-13.4

160

-7.2

Normalized earnings

189

141

34.5

357

-47.1

Net profit

261

171

53.1

397

-34.1

11.4

10.4

1.0

14.8

-3.3

Norm earnings margin (%)

2.2

1.7

0.5

4.4

-2.2

Net profit margin (%)

3.0

2.0

0.9

4.9

-1.9

Gross margin (%)



In 3Q17, revenues increased 7% Y-Y thanks to a rise in the number of passengers (+14% Y-Y) and a gain in ancillary revenue (+16% Y-Y).



Operating cost jumped 11% Y-Y due to a rise in jet fuel cost, an increase in excise tax for jet fuel oil, and increased expense in line with fleet expansion



Net profit amounts to Bt261mn (+53% Q-Q, -34% Y-Y). Excluding extra item, i.e. FX gain of Bt72mn from Baht appreciation, normalized earnings are equal to Bt189mn (+35% Q-Q, -47% Y-Y).

Source: Company and FSS Research

Page 2 of 4

AAV Finansia Syrus Securities Public Company Limited Head Office

Thaisummit Tower

Alma Link

Amarin Tower

Central Pinklao 1

999/9 The offices at Central World 18th, 25th Fl., Rama 1 Rd., Patumwan, Bangkok

1768 Thaisammit Tower Building, 5th, 31th Fl., New Petchburi Road, Bangkapi, Huaykwang, Bangkok

9th, 14th, 15th Fl., Alma Link Building 25 Soi Chidlom, Ploenchit, Lumpini, Patumwan, Bangkok

496-502 Amarin Tower 20th Floor, Pleonchit, Lumpini, Pathumwan, Bangkok

7/129-221 Central Pinklao Office Building, Room 1404, 14th Fl., Baromratchonnanee Road, Arunamarin, Bangkoknoi, Bangkok

Bangkapi

Bangna

Sindhorn 1

Kian Gwan (Sindhorn 2)

Sindhorn 3

3105 N Mark Building, 3rd Floor, Room A3 R02, Ladprao Road, Klongjan, Bangkapi, Bangkok

1093 Tower 1 Office, 19th Floor, Room 1093/105 Moo 12, Bangna-Trad Road, Bangna, Bangkok

130-132 Sindhorn Building 1, 2rd Floor, Wireless Road, Lumpini, Pathumwan, Bangkok

140/1 Kian Gwan House II 18th Floor, Wireless Road, Lumpini, Pathumwan, Bangkok

130-132 Sindhorn Building 3, 19th Floor, Wireless Road, Lumpini, Pathumwan, Bangkok

Ladprao

Prachachuen

Rang sit

Thaisummit Tower

Rattanatibet

555 Rasa Tower 2, 11st Floor, Unit 1106, Phaholyothin Road, Chatuchak, Bangkok

105/1 B Building, 4th Floor, Thessabansongkhrao Road, Ladyao, Jutujak, Bangkok

1/832 Phaholyothin 60 Kukod, Lumlookka Pratumtanee

1768 Thaisammit Tower Building, 2nd Floor, New Petchburi Road Bangkapi, Huaykwang, Bangkok

68/127 Moo 8 Rattanatibet Road, Tumbon Banggrasor, Aumphoe Muang, Nonthaburi

Sriracha

Khonkaen 1

Khonkaen 2

Khonkaen 3

Udonthani

135/99 (G fl.) Sukumvit Road, Tumbon Sriracha Aumphoe Sriracha, Chonburi

311/16 2nd Floor, Klangmeung Road, Tumbon Nai Meung, Aumphoe Meung, Khonkaen

26/9 Moo 7, 2nd Floor Sri Chant Mai Road, Tumbon Nai Meung, Aumphoe Meung Khonkaen, Khonkaen

311/1 Khang Meung Road, Tumbon Nai Meung, Aumphoe Meung Khonkaen, Khonkaen

104/6, 2 fl., ICBC Bank Tower Udon Dusadee Road, Tumbon Mak Khaeng, Aumphoe Muang Udon Thani, Udon Thani

Chiangmai 1

Chiangmai 2

Chiangmai 3

Chiangrai

Measai

308 Chiang Mai Land,

310 Chiang Mai Land,

Maliplace Building 32/4 moo 2

Chang Klan R., Chang Klan

Chang Klan R., Chang Klan

1 fll., B1-1, B1-2 room

Muang Chiangmai

Muang Chiangmai

Tumbon Maehia Chiangmai

353/15 Moo 4, Tumbon Rimkok Aumphoe Muang, Cheangrai

119 Moo 10, Tumbon Maesai, Aumphoe Muang, Cheangrai

Nakornratchasima

Samutsakorn

Nakornpathom

Phuket

Hatyai 1

1242/2 A3 room, 7 fl., The Mall Ratchasima

1045/16-17 Vichienchodok, Tumbon Mhachai, Aumphoe Meungsamutsakorn, Samutsakorn

28/16-17 Yingpao Road, Tumbon Sanamjan, Aumphoe Muang, Nakornpathom

22/18 Vanish Plaza Shopping Mall, Luangporwatchalong Road, Tumbon Talad Yai,

200/222, 200/224, 200/226 Juldis Hadyai Plaza, 2rd Floor, Building, Niphat Uthit 3 Road, Aumphoe Hadyai, Songkhla

Hatyai 2

Hatyai 3

Krabi

Trang

Suratthani

106 Prachathipat Road, Aumphoe Hadyai, Songkhla

200/222, 200/224, 200/226 Juldis Hadyai Plaza, 2rd Floor, Building, Niphat Uthit 3 Road, Aumphoe Hadyai, Songkhla

223/20 Mharaj Road, Tumbon Paknam, Aumphoe Meung, Krabi

59/28 Huaiyod Road, Tumbon Thaptieng, Aumphoe Meungtrang, Trang

173/83-84 Moo 1 Watpho-Bangyai Road., Tumbon Makamtia, Aumphoe Mueang, Suratthani

Mittraphap rood Tumbon Nai Muang Aumphoe Muang Nakornratchasima

Nakornratchasima

Pattane 300/69-70 Moo 4, Tumbon Rusamirae, Aumphoe Meung, Pattane

Recommendation Definitions BUY HOLD SELL TRADING BUY OVERWEIGHT NEUTRAL UNDERWEIGHT

The The The The The The The

latest close is below our target price and the estimated upside is 10% or more. latest close is below our target price and the estimated upside is 0-10%. latest close is above our target price. latest close is above our target price but the price is expected to be driven by short-term positive factors estimated return is higher than the market average. estimated return is the same as the market average. estimated return is lower than the market average

Note: The expected return may change as market risks increase or decline. DISCLAIMER: This report has been prepared by Finansia Syrus Securities Public Company Limited (FSS). The information herein has been obtained from sources believed to be reliable and accurate; however FSS makes no representation as to the accuracy and completeness of such information. Information and opinions expressed herein are subject to change without notice. FSS has no intention to solicit investors to buy or sell any security in this report. In addition, FSS does not guarantee returns nor price of the securities described in the report nor accept any liability for any loss or damage of any kind arising out of the use of such information or opinions in this report. Investors should study this report carefully in making investment decisions. All rights are reserved. This report may not be reproduced, distributed or published by any person in any manner for any purpose without permission of FSS. Investment in securities has risks. Investors are advised to consider carefully before making investment decisions. Finansia Syrus Securities Public Company Limited may act as market maker and issuer of DWs. The company may prepare the research reports on those underlying securities. Investors should carefully read the details of the derivative warrants in the prospectus before making investment decisions.

Page 3 of 4

AAV Thai Institute of Directors Association (IOD) – Corporate Governance Report Rating 2016

Sc ore Range

Rating

Desc ription

100-90

Excellent

80-89

Very Good

70-79

Good

60-69

Satisfactory

50-59

Pass

<50

no logo given

n/a

IOD (IOD Disclaimer) The Corporate Governance Report (CGR) of Thai listed Companies is based on a survey and assessment of information which companies listed on the Stock Exchange of Thailand and the Market for Alternative Investment (“listed companies”) disclose to the public. The CGR is a presentation of information from the perspective of outsiders on the standards of corporate governance of listed companies. It is not any assessment of the actual practices of the listed companies, and the CGR does not use any non-public information. The CGR is not therefore an endorsement of the practices of the listed companies. It is not a recommendation for investment in any securities of any listed companies or any recommendation whatsoever. Investors should exercise their own judgment to analyze and consider any information relating to the listed companies presented in this CGR report. No representation or warranty is made by the Institute of Directors or any of its personnel as to the completeness or accuracy of the CGR report or the information used.

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) 1 CG Score 2016 from Thai Institute of Directors Association (IOD) 2 Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorised into: - companies that have declared their intention to join CAC, and - companies certified by CAC.

Page 4 of 4

AAV - Settrade

Nov 10, 2017 - Source: Company and FSS Research. Page 3. AAV. Page 3 of 4. Finansia Syrus Securities Public Company Limited. Head Office. Thaisummit ...

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