20150807-Maybank_KERPL-2Q15_Expect_THB10b_loss_11页_689kb

Thai Airways International (THAI TB) Summary

Core Content

Thai Airways International (THAI) is facing significant financial challenges in 2Q15, with a forecasted net loss of THB9.9 billion, which is higher than the THB7.7 billion loss in 2Q14. The company's share price is THB12.40, with a target price of THB12.00, indicating a -3% adjustment. The market capitalization is USD769 million, and the average daily trading volume is USD1 million.

Main Points

• Financial Performance:

  • Thai Airways is expected to report a net loss of THB9.9 billion in 2Q15, driven by a foreign exchange loss of THB4.8 billion and a weak revenue growth.
  • The company's EBITDAR margin is projected to rise to 7% in 2Q15, thanks to a 6% reduction in unit costs, despite yield pressure.

• Yield Pressure:

  • Passenger yield is expected to fall 9% QoQ and 13% YoY to THB2.35.
  • Cargo yield is projected to drop 12% QoQ and 27% YoY to THB6.84, the lowest in 22 quarters.

• Traffic and Capacity:

  • Passenger traffic (RPK) increased 10% YoY, with a 29% rise in passenger numbers, but the growth is offset by a 13% drop in passenger yield.
  • Cargo traffic (MRFTK) fell 23% YoY, with a 18% decline in freight carried.
  • The company is shifting focus to regional markets, which have higher competition than Europe and the North Pacific.

• Cost and Expenses:

  • Unit costs (CATK) are expected to decrease 6% YoY, partially offset by currency effects.
  • The early retirement program is expected to cost THB4.5 billion and will likely be booked in 3Q15.
  • The net debt/equity ratio is projected to rise to 6.4x, raising concerns about cash flow.

• Market Outlook:

  • The market is expected to react negatively to the results due to depressed yields and weak cargo growth.
  • The outlook for 2H15 and earnings turnaround remains uncertain.
  • Despite its cheap valuation, there is a downside risk, and the recommendation remains SELL with a switch to AAV (BUY TP THB6.5).

Key Information

• Share Price Performance:

  • 1 Month: -8.1%
  • 3 Months: 0.0%
  • 12 Months: -18.4%

• Valuation Metrics:

  • P/BV: 0.6 (vs 0.7 in FY14)
  • EV/EBITDAR: 6.2 (vs 7.9 in FY14)
  • Core FD P/E: 66.5 (vs 12.3 in FY16)

• Financial Projections:

  • Revenue for FY15E is expected to be THB213,302.1 million.
  • EBITDAR for FY15E is projected at THB34,023.4 million.
  • Core net profit for FY15E is expected to be THB503.6 million.

• Major Shareholders:

  • Ministry of Finance: 51.0%
  • Vayupak Fund: 15.1%
  • Government Saving Bank: 2.1%

Summary Table

Financial Statements Highlights

Income Statement (THB m)

Balance Sheet (THB m)

Cash Flow (THB m)

Conclusion

Thai Airways International is struggling with declining yields and weak cargo business, leading to a significant net loss in 2Q15. Despite some improvements in unit costs, the overall financial outlook remains bleak. The company is facing increased competition, particularly in regional markets, and its restructuring program has not yet delivered substantial cost savings. The recommendation remains SELL, with a suggestion to switch to AAV (BUY TP THB6.5) due to better growth prospects and yield growth.