SPF Jumps 21% as BA Agrees on ฿18Bn Compensation for Terminating Samui Airport Lease

The share price of Samui Airport Property Fund (Leasehold) (SPF) jumped ฿2.90/share or 20.86% to ฿16.80/share with a trading value of 826 million baht.

Meanwhile the share price of Bangkok Airways Public Company Limited (BA) rose ฿0.15/share or 2.07% to ฿7.40/share with a trading value of 22 million baht.

 

Bangkok Airways Public Company Limited (BA) announced that the Board of Directors Meeting had the resolution to offer the termination of the Long Term Lease Agreement, which has remaining leasehold rights of approximately 15.5 years and related agreements between the company and Samui Airport Property Fund (Leasehold). In this regard, BA has leased the land, runway, parking apron, and construction on the leased land used for the operation of Samui Airport to the property fund.

As a result of impact from Covid-19 pandemic causing adverse effect to business operation of Samui Airport, BA wishes to terminate the Agreements relating to the property fund. Following the Agreements being terminated, BA will be able to operate the Samui Airport without being subject to any obligations to the property fund in accordance with the terms and conditions of the Agreements, in which case will create flexibility to the company for its business operation and will be able to use its assets to seek for the benefits without being subject to limitations pursuant to the Agreement.

In this connection, BA has determined the compensation for termination of the aforesaid agreement to the property fund in the amount of 18,050 million baht.     

 

Capital Nomura Securities (CNS) believes this issue will be negative for BA because the compensation for termination is larger than the initial value of the remaining agreement, which stands at 9,770 million baht as of the end of 1Q21. As a result, BA may suffer losses of 8,280 million baht (however, it could be offset by 2,188 million baht from the 30% stockholding in SPF).

On the other hand, it will benefit SPF because the termination compensation of 18,050 million baht exceeds the fair value of leasehold property, which was 10,756 million baht at the end of 1Q21, or 19 baht per unit.

CNS suggests that investors “Reduce” their investment in BA, setting a target price of 6.20 baht per share based on a PB multiple of 0.64x. BA’s losses are expected to continue between 2021 and 2023 at -3,626 million baht, -1,631 million baht, and -229 million baht, respectively, and the recovery pace will be slower than that of its peers due to BA’s reliance on foreign passengers. Additionally, BA faces the risk of extraordinary losses associated with the cancellation of the contract with SPF.