After Bangkok Aviation Fuel
Services' (BAFS) analyst meeting yesterday, we have turned a
little more positive on the company's earnings prospects for
this year and long-term potential with progress being made
on Bangkok’s second international airport – Suvarnabhumi
(SBIA). SBIA is scheduled to commence commercial operation
on 29 September 2005.
BAFS holds a 45% stake in
TARCO, which has won a 30-year concession to operate a
hydrant business at SBIA. Recently, BAFS received cabinet
approval to be the sole depot operator outside of SBIA area.
Meanwhile, BAFS is also bidding for the intoplane service
concession, which should be announced by next year. The
management expects to achieve a market share in terms of
volume of at least 70% in the new airport.
The company plans to start
aviation fuel services at Chiang Mai airport in May.
Currently, PTT is the sole operator in this airport with a
volume uplift around 6.6 million litres/year. Of that, 90%
was the Thai Airways' volume. Thai Airways should support
BAFS since it holds a 23% equity stake in the company.
We don't think this project
will add much earnings to BAFS, however, since the volume
uplift is very small compared to Don Muang's volume uplift
of 3,550 million litres/year. BAFS still plans to invest in
aviation fuel services at Phuket, Haad Yai and Chiang Rai
airports within the next year.
The company's outlook is
still promising as the volume uplift rose 5.3% in the first
two months of this year versus last year's 1.7% growth. We
conservatively expect the company's volume uplift will grow
2.2% from 3,551 million litres to 3,630 million litres. We
haven't factored in the volume uplift from the seven new
airplanes, which THAI plans to acquire from United Airlines
for long-haul flights. We will keep our projections on the
conservative side, at this point, given the potential impact
of a Middle East war on the Thai tourism industry.
The company recent announced
2H02 dividend payment of Bt0.25 after paying Bt0.25 for
1H02. Together, these two dividend payments represent an
annualised dividend yield of 6.5% at the current share
price.
Although sentiment could run
against BAFS in the near-term since its earnings are
directly tied to the tourism industry, we still feel very
comfortable recommending the stock with its attractive
rating on a 2003 PER of 7.0x and EV/EBITDA of 4.6x. We are,
therefore, maintaining our ACCUMULATE recommendation
with a target price of Bt10.50.
