Stocks in Focus on September 5, 2019: TOP and AOT

Kaohoon Online has selected two stocks with a potential of high growth for investors to consider on September 5, 2019.

KTBST – TOP

KTB Securities (KTBST) maintains a NEUTRAL rating on the refinery sector, recommending TOP (BUY, target price of ฿78.00/share) as top pick. Even though KTBST becomes increasingly positive about the refinery sector as 2H19E gross refining margin (USD5-6/bbl) is likely to outpace 1H19 (USD3.4/bbl) given a tighter supply during overhaul season, aggregate 3Q19E earnings among KTBST’s covered refinery stocks would come under pressure from stock loss in view of falling crude oil price.

KTBST, however, foresees a brighter prospect for refineries as the new IMO regulation on low sulfur oxide emission in shipping will spur demand for low-sulfur fuel oil and diesel (a mix of diesel and high-sulfur fuel oil to make low-sulfur fuel oil).

Additionally, spread for low-sulfur fuel oil is normally higher than high-sulfur fuel oil. BCP, IRPC and TOP stand to benefit from the IMO mandate. Refinery stocks have declined by 10% and 25% over the past three and six months, which KTBST believes already priced in weaker-than-expected 1H19 earnings due to a weaker GRM and uncertainty about US-China trade dispute. The current valuations thus look attractive, which KTBST views as an opportunity to build positions, as we see the stock advancing in November-December given stronger demand from IMO.

KTBST has a BUY call for TOP with a target price of ฿78.00/share, which implies EV/EBTIDA of 7.0x, or 10-yr average level, given a buffet of positive factors, i.e. 1) benefit from growing demand for diesel, which will be spurred by the new IMO regulation, 2) stock’s attractive valuation, 3) robust earnings growth outlook in 2020E, and 4) refinery business to be earnings growth engine.

 

KTBST – AOT

KTBST reiterates BUY rating on AOT with an unchanged DCF-based target price of ฿80.00/share, using WACC of 7% and terminal growth of 4%. KTBST is increasingly positive about AOT’s earnings outlook. AOT’s August passenger volume (+3.1% YoY) recovered from a fifth consecutive month of decline, with international passenger traffic rising sharply (+8.1% YoY).

Additionally, FY19E passenger volume is expected to outpace FY18 after 11M FY19 traffic rose +1.5% YoY to the same level as the full-year growth recorded in FY18. KTBST, thus, believes its FY19E passenger volume growth forecast of +1.5% YoY will be achievable.

KTBST maintains FY19E core profit forecast of Bt25.7bn, which represents a growth of +4% YoY, and expect FY20E/21E core profit to grow a further +7%/+39% YoY on rising passengers (FY20E) and massive new concession revenue from King Power and an opening of Satellite terminal at Suvarnabhumi airport (FY21E). The share price looks likely to gain further following a 2% rise in a month, as an improvement in AOT’s passenger volume has gained traction since July and KTBST expects earnings to trend up in the long run with a strong growth outlook for FY21E.

Additionally, any bids for duty-free shop at Don Muang airport would act as a catalyst to the share price, while the existing concession contract is due at YE2022.