Airports of Thailand A Good Investment?

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I was reading news online and saw this piece on the expansion of Bangkok Airport to have a second terminal. The airport’s operator, Airports of Thailand (AOT) piqued my curiosity. Here’s what I found out about the company.

Disclaimer: I do not hold AOT shares.

AOT runs 6 international airports in Thailand – Suvarnabhumi, Don mueang, Chiang Mai, Phuket, Hatyai and Chiang Rai. These are the gateway airports that serve major cities with regular international flights.

AOT airports. Source: AOT 9mth FY18 earnings presentation

Its revenue are split into aeronautical and non-aeronautical segment. The former includes landing and parking charges paid by airlines, departure passenger service charges and aircraft service charges for use of boarding bridges. The latter includes office and state property rents for using airports spaces, ground and passenger handling services, and concession paid for various commercial activities in the airports. In FY2017, 56% of the revenue came from aeronautical source while 44% came from non-aeronautical.

AOT is 70% owned by Ministry of Finance, which essentially make it a government-owned company. It is the second largest company on the benchmark index of Stock Exchange Thailand – the SET 50, with a market cap of 946 billion baht, roughly equivalent to S$39 billion.

A Relatively Resilient Business Model
Similar to airlines, AOT’s fortune hinges on the growing tourism pie as both are important player and infrastructure owner of the aviation and tourism market. However, they occupy different segment of the value chain. AOT, arguably, has a more defensive business model. Unlike airlines, AOT faces little competition in its industry, being the only player that operates and manages the major international airports in Thailand. It is also immuned from the rise of fuel costs.

On the other hand, the numerous airlines ranging from full-service to budget carriers, are competing against each other for passenger and freight dollars. And if they were to ride on the booming tourism in Asia, chances are most of the international passengers would land on one of these gateway airports. So long as they land, park, disembark passengers and take in new passengers, revenue will keep rolling in for AOT. It is similar to a toll road business.

Thailand Tourism Sector is Booming
We all know that Thailand is a major tourists magnet in this part of the world. It is like a backyard garden for Singaporeans who often hop onto budget airlines for a cheap flight to Bangkok 2.5 hours away. In fact, Thailand tourism is not just booming, it has been booming for quite a while.


According to this website, in 2017, 35.4 million tourists visited Thailand, a big increase from 10.8 million in 2002, which is a CAGR of 8.19%. In 2018, Q1 tourists figure is already showing a 16% increase y-o-y.

And this has directly translated to increased passenger and aircraft movement, as seen from chart below extracted from AOT’s 9M FY2018 earnings presentation.

Source: AOT 9mth FY18 earnings presentation

I believe this is a mega trend that is set to rise further with the proliferation of low cost carriers, rising middle class, and a general wealth growth of the society in this part of the world. And this gives AOT a growing market with long growth runway – tourism growth, more passenger and aircraft movement, more revenue.

Expanding Capacity to Cope with Demand
AOT is expanding its airports’ capacity to cope with the rising aviation demand. Phuket’s old terminal has just been upgraded and commenced operation in June. Suvarnabhumi Airport’s second terminal project, with Don Mueang, Chiang Mai and Chiang Rai Airports’ re-development plan have also been approved. According to this news, high speed rail will also be constructed to better connect the three major airports nearby Bangkok to spur further growth (third airport being U Tapao Pattaya managed by Thai military).

According to AOT’s management review of its 9m results, the government has plan to promote secondary cities tourism to reduce high tourist density in primary cities which AOT currently operate in. Following this strategy, there is plan for AOT to take over the management and operation of 4 regional airports currently run by Dept of Airports – Udon Thani, Sakon Nakhon, Chumphon and Tak, further expanding the revenue stream of AOT.

Good Financial Performance
AOT’s financial performance has been growing in tandem with the expanding tourism industry. A look back at its Profit and Loss over past 8 years would show that its revenue and earnings have been increasing steadily, from THB24.03 billion in 2010 to THB54.9 billion in 2017. This is a 12.5% CAGR.


Profit Attributable to Shareholder expanded from THB1.41 billion to THB23.7 billion, an even more impressive 49.6% CAGR. It is also commendable that Net Margin has been maintained at around 40% in the past few years.

If we look closer to 9m FY2018 results, revenue and earnings are still growing at a healthy rate: 11.4% and 17.9%.

AOT 9mth FY18 earnings presentation

Next is to check for cash flow, gearing over this period, and the ROE. All figures extracted from

-Net Operating Cash Flow FY13 to FY17: THB18.6B, 17.1B, 23.3B, 28.9B, 25.9B
-Debt to Assets Ratio FY13 to FY17: 0.27, 0.22, 0.20, 0.18, 0.13
-ROE FY13 to FY17: 17.8%, 12.5%, 17.2%, 16.1%, 15.7%

Seems that while AOT is growing its revenue and earnings, profit is backed by actual cash flow seen from the constantly rising ops cash flow figure. It has been able to maintain a high ROE of above 12% past 5 years. And high ROE is achieved with low debts. Rather commendable.

Risks and Weaknesses
All seems good so far. What are the risk factors then?

The biggest risk is clearly a slowdown in tourism sector, resulting in reduced passengers and aircraft movement. As we know, tourism growth can be cyclical and affected by many macro factors, such as economic slowdown, political instability (political demonstrations in 2013/2014), natural disasters (2004 tsunami), outbreak of disease (SARS in 2003). The chart on yearly tourists arrival above shows that tourist number indeed slowed down immediately after the events in brackets above.

Similarly, there was a decrease in passenger and aircraft movement in 2009 and 2014. But they managed to recover quite soon after and resume the long term up trend.


Another risk is its expansion plans such as the upgrading of airports, addition of new terminals and taking over of new airports get put off. Growth will then constrained by the limit in airport capacity. While AOT can probably increase fees per passenger or aircraft landing, this will not be well received in the short run, and its effect on top line growth will certainly be less than an increase in capacity.

One weakness that caught my eye is AOT’s rather low dividend yield. For a company as big as AOT with a toll-road-like business nature that is almost monopolistic and government-regulated, its dividend is surprisingly low. For 2016, dividend of THB6.83 equals to about 1% yield based on current price of THB66.5; For 2017, THB8.6, a measly 1.3% yield. Payout ratio in 2017 stood at around 0.59, which is fair in my opinion. Perhaps the low yield is due to the high share price?

Which brings me to my last point. Going by the low dividend yield, AOT seems to be valued richly by market. PE, based on current price and FY17 EPS of THB1.45, is 45.8. The trailing 12 mth PE, even with an increased earnings in 9mth 2018, is also very high at 40 times.

For AOT to justify such high valuation, its earnings has to grow at at least 30% next few years. Definitely a tall order based on 9m 2018 and past 8 years earnings growth rate.

If we compare AOT’s valuation to other listed airport operators such as Beijing Airport (Trailing PE 11.5) and Malaysia Airport Holdings (Trailing PE 26.8), AOT stand out for its high valuation. Should we ascribe a trailing PE of 26.8 to AOT, based on Malaysia Airport Holdings, AOT’s price would be THB44.75, 33% lower than now.

So after reading this brief analysis article on AOT, would you be interested to buy its shares? My opinion is that this is worth including into my watch list for sure. However I am hesitant due to the high valuation. Further research needs to be done.

This is the sort of initial assessment that I conduct for any interesting company. A more detailed analysis on financial statements, annual report and valuation would follows. Would you like to learn how I perform in-depth study of company fundamentals using this model? 

If yes, do sign up for my next seminar on ‘How to Analyse Financial Statement and Annual Report’ here!

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