ksk_aot@tb_061915_7630

Tourism Sector

Panic selling would be a buying opportunity What's going on?

The Public Health minister reported yesterday evening that the first confirmed Middle East respiratory syndrome (MERS) case had been identified in Thailand. We expect the market to react negatively to this news. Panic selling in the Tourism sector, including Hotel, Airport and Airline stocks, may be seen today. However, we maintain our Overweight ratings on the Hotel and Airport sectors as we believe the risk is short term. As we have learned from recent history, stocks typically rebound to a normal level as concerns about the issue ease, and we will view any stock correction this time as a Buying opportunity. For the Airline sector, we maintain our Neutral rating due to the uncertain outlook from the ICAO issue. Our new top picks are MINT and AOT.

Impact

Spread of virus will have only a short-term impact. Historical data suggests the impact of virus outbreaks on the Thai tourism industry typically ranges from 3-6 months. The disease that caused the biggest impact was the SARS outbreak, which caused international tourist arrivals to fall by around 10-50% YoY during Mar to July 2013. After the outbreak was brought under control, international tourist numbers quickly rebounded to a normal level (see Fig 4-5).

Tourism stocks down 10-20% during SARS. During the SARS outbreak in 2003, tourism stock prices fell in a range of 10-20% during Mar to July 2013 (see Fig 6). But they recovered quickly to a normal level after the virus spread was contained (see Figs 8-11).

MERS causes less concern than SARS. MERS does not appear to pass easily from one person to another unless there is close contact such as poor clinical care. Thus, we hope this outbreak can be brought under control faster than SARS, which took about 4 months to contain.

Fundamental impact. We believe Thailand will able to control the spread of MERS. If the virus becomes widespread, we expect downside to earnings at roughly 10-20% in 15E, given that intl tourist would avoid traveling to Thailand.

Recommendation

Stock slump is a buying opportunity. Yesterday, tourism stocks fell sharply due to concerns about the MERS issue (CENTEL -4%, MINT -2% , ERW -1%, AOT -3%, AAV -3%, THAI -1% and BA -0.5%, vs. SET -0.5%). We expect to see panic selling in tourism stocks today, but we would see such a share price correction as a Buying opportunity.

Entry level & top picks. We view a decline of roughly 10-15% from the current level as a signal that stocks were near their bottom. We suggest selective BUYs on tourism stocks that have less earnings downside risk. Our new top picks are MINT and AOT.

MINT & AOT. We select MINT as our top pick as its share price correction in the past month implies an attractive valuation. Also MINT has less exposure to hotels in Thailand, which face a risk from MERS, than CENTEL or ERW. Thus, we expect MINT should face less earnings downside than CENTEL and ERW. An entry level at Bt28, implies 20x PER in 2015 in line with its historical average during 2011-14. For AOT, we suggest an entry level at Bt270, implying 25x PER in 2015, in line with 1.5x STD of historical avg.

News Flag Tourism Sector Recommendation

Hotel Overweight Airport Overweight Airline Neutral

Analyst Jitima Ratanatam [email protected]

19 June 2015 Kasikorn Securities PCL

19 June 2015 2 Tourism Sector

Fig 1 Tourism peers

Source: Bloomberg, KS

Fig 2 Impact of events on international tourists Fig 3 International tourist growth

Source: Department of Tourism, KS Source: Department of Tourism, KS

Fig 4 Intl tourist arrivals during SARS and H1N1 Fig 5 Intl tourist growth during SARS and H1N1

Source: Department of Tourism, KS Source: Department of Tourism, KS

Price (Bt) Fair price Upside18-Jun-15 (Bt.) (%) 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E

Hotel CENTEL OP 37.75 42.00 11.26 29.58 22.79 3.90 3.46 1.36 1.76 49.17 29.82 13.90 16.09MINT OP 30 37.00 23.33 20.93 18.62 3.40 2.97 1.67 2.00 30.61 25.33 19.72 18.72ERW OP 4.34 5.50 26.73 45.71 26.59 2.11 1.95 1.61 2.30 240.56 71.90 4.81 7.62

Airline AAV N 4.56 4.80 5.26 12.40 10.87 1.04 0.96 1.61 1.84 2958.39 14.37 8.73 9.18BA N 22.3 22.00 -1.35 22.65 19.96 1.72 1.63 2.21 2.51 488.93 13.48 7.85 8.37BA (core business) 0.74 0.69THAI UP 13.2 9.00 -31.82 -2.22 -19.90 1.02 1.07 0.00 0.00 86.92 154.20 -37.38 -5.24

Airport AOT OP 307 360.00 17.26 28.82 24.57 4.22 3.75 1.14 1.22 27.93 16.80 15.12 16.17

Div. yield (%) Core profit grth (%) ROE (%)P/E (x) P/BV (x)Stock Rec.

10,7

99

10,0

04

11,6

51

11,5

17

13,8

22

14,4

64

14,5

84

14,1

42

15,9

36

19,2

30

22,3

54

26,5

47

24,7

80

5,000

10,000

15,000

20,000

25,000

30,000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Number of international tourists

Political unrest + Global financial crisis

H1N1 +riot in Pataya crisis

Sars

Tsunami impact Coup

Political unrest

Flood

'000 persons

-7%

16%

-1%

20%

5%1%

-3%

13%

21%16%

19%

-7%

15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E

YoY

0

500

1,000

1,500

2,000

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep

Oct

Nov

Dec

2003 2008 2009

Sars in 2003

'000 persons

H1N1 in 2009

-60%

-40%

-20%

0%

20%

40%

60%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

% YoY

2003 2008 2009


Fig 6 Share price drops during SARS in 2013 Fig 7 Impact on Korean tourism stocks from MERS

Source: Bloomberg, KS Source: Bloomberg, KS

Fig 8 CENTEL: share price during SARS in 2003 Fig 9 MINT: share price during SARS in 2003


Fig 10 ERW: share price during SARS in 2003 Fig 11 THAI: share price during SARS in 2003


-22%-20%

-16%

-11%

-25%

-20%

-15%

-10%

-5%

0%THAI MINT ERW CENTEL

Share price decline during SARS in 2013

-21%

-18%

-11%

-5%

-25%

-20%

-15%

-10%

-5%

0%Asiana Airlines Korea Airlines

Korea AirportService Hotel Shilla

Share price during MERS (start May 20, 2015)

0.8

1

1.2

1.4

1.6

1.8

2

Jun-

02

Aug-

02

Oct

-02

Dec

-02

Feb-

03

Apr-

03

Jun-

03

Aug-

03

Oct

-03

Dec

-03

Feb-

04

Apr-

04

Jun-

04

CENTEL

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

Jun-

02

Aug-

02

Oct

-02

Dec

-02

Feb-

03

Apr-

03

Jun-

03

Aug-

03

Oct

-03

Dec

-03

Feb-

04

Apr-

04

Jun-

04

MINT

0.8

1

1.2

1.4

1.6

1.8

2

2.2

Jun-

02

Aug-

02

Oct

-02

Dec

-02

Feb-

03

Apr-

03

Jun-

03

Aug-

03

Oct

-03

Dec

-03

Feb-

04

Apr-

04

Jun-

04

ERW

10

15

20

25

30

35

40

45

50

55

Mar

-02

May

-02

Jul-0

2

Sep-

02

Nov

-02

Jan-

03

Mar

-03

May

-03

Jul-0

3

Sep-

03

Nov

-03

Jan-

04

Mar

-04

May

-04

Jul-0

4

THAI


Fig 12 CENTEL: Historical PER to consensus Fig 13 MINT: Historical PER to consensus


Fig 14 ERW: Historical PBV to consensus Fig 15 AOT: Historical PER to consensus


Fig 16 THAI: Historical PBV to consensus Fig 17 AAV: Historical PBV to consensus


-15

-5

5

15

25

35

45

55

65

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

PER

Mean=19.56x

-2SDV=-5x

-1SDV=7.28x

+1SDV=31.84x

+2SDV=44.12x

05

1015202530354045

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

PER

Mean=20.67x

-2SDV=3.57x

-1SDV=12.12x

+1SDV=29.22x

+2SDV=37.78x

-10112233445

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

PBV

Mean=1.51x

-2SDV=-0.14x

-1SDV=0.69x

+1SDV=2.33x

+2SDV=3.16x

-10

0

10

20

30

40

50

60

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

PER

Mean=20.59x

-2SDV=-1.47x

-1SDV=9.56x

+1SDV=31.63x

+2SDV=42.66x

-2

-1

0

1

2

3

4

5

6

7

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

PBV

Mean=1.31x

-2SDV=-0.76x

-1SDV=0.28x

+1SDV=2.35x

+2SDV=3.39x

0.0

0.5

1.0

1.5

2.0

2.5

2012 2013 2014 2015

PBV

Mean=1.26x

-2SDV=0.75x-1SDV=1x

+1SDV=1.52x+2SDV=1.77x


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Corporate Governance Report Disclaimer

The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of companies listed on the Stock Exchange of Thailand and the Market of Alternative Investment disclosed to the public and able to be accessed by a general public investor at http://www.thai-iod.com/en/publications-detail.asp?id=170 . The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

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Structured Notes and Derivative Warrants Disclaimer

KS may be the issuer of structured notes on these securities. KS acts as market maker and issuer of Derivative Warrants (DWs) on the underlying stocks listed below. Investors should carefully read the details of the DWs in the prospectus before making any investment decisions.

DWs Underlying Stocks: AAV, ADVANC, AMATA, AOT, AP, BANPU, BBL, BCP, BDMS, BH, BLAND, BMCL, BTS, CENTEL, CK, CPALL, CPF, CPN, DELTA, DTAC, EARTH, GFPT, GLOBAL, GUNKUL, HANA, HEMRAJ, HMPRO, INTUCH, IRPC, ITD, IVL, JAS, KCE, KTB, KTC, LH, LPN, MAJOR, MINT, PS, PTT, PTTEP, PTTGC, QH, RATCH, ROBINS, SAMART, SAWAD, SCB, SCC, SIRI, SPALI, SPCG, STEC, STPI, TCAP, THAI, THCOM, TICON, TMB, TOP, TPIPL, TRUE, TTA, TTCL TUF and VGI

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