Maybank Raises AOT as Tourism Top Pick, Citing Reopening in 120 Days as Key Driver

Despite maintaining a Negative rating on Thailand tourism sector, Maybank Kim End (Maybank) believes the announcement of full re-opening in 120 days ahead of earlier 1 January 2022 by the Prime Minister last Wednesday (June 16) is good news for the industry as it is in time to capture the 4Q high season.

For this reason, Maybank raised hotel occupancy by 2-5% each year for 2021 and 2022 and still favors AOT as its Top Pick. Maybank raised the number of international passengers by 400,000 (50%) in 2021 and by 5.7 million (20%) in 2022, and increased the target price for all stocks under this sector by 3-15% to reflect the better profitability in the next one to two years.

ERW stands to benefit most from this re-opening as 92% of normalized revenues are from hotels in Thailand, compared to 60% for AWC, 35% for CENTEL and 11% for MINT and hence, thus raise ERW’s target price by 15% to 3.00 baht and upgraded a recommendation to HOLD. 

Meanwhile, Airports of Thailand Public Company Limited (AOT) is expected to be the main beneficiary of the re-opening. Maybank estimates AOT’s core profit to surpass the pre-Covid level in 2024 by 34% to 32.6 billion baht, due to the strong growth in duty-free income from King Power in 2023/24 onwards that increases as international passenger volume rises. 

Following the announcement by Thai Prime Minister Prayut Chan O-Cha on June 16, 2021. From October onwards, those receiving two shots of vaccine will be able to enter Thailand without quarantine. The Thai government has secured 105.5 million doses of vaccines and expects that by October, 70% of the Thai population will have received at least the first shot. The PM acknowledged that he was taking a risk; in Maybank’s view, this is necessary as international tourism accounts for 12.3% of GDP and hence, matters much to the sector’s livelihood. Additionally, the Thai government reaffirmed the reopening of Phuket in July and indicated that many other tourist destinations will be re-opened before the full re-opening in October 21. Maybank believes these are the five destinations (in addition to Phuket) that will re-open earlier: Koh Samui, Pattaya, Chiang Mai, Krabi and Phang-Nga.

While Maybank thinks re-opening is good news for the industry, on the demand side, it notes of the potential hurdles from Thailand’s low vaccination rate. These are: 1) the tourist’s origin countries may require quarantine after returning from Thailand (such as currently, UK where Thailand is on the amber list) and 2) tourists may be cautious in visiting low vaccination countries, especially if Thailand’s vaccination rollout faces a hiccup (e.g. vaccine shortage). 

An online survey by the Thai- Chinese Intelligence Centre shows that 93% of Chinese respondents thought vaccination rollout in Thailand is important for their decision to visit. Furthermore, the government’s strategy to focusing on allocating vaccines for the first shots (the 2nd shot is now 16 weeks apart), may also be risky as it may affect immunity.

Maybank used DCF. The key risk is the slower-than-expected vaccination rollout. AOT (WACC 8.9%, growth 2.7%) is the only BUY with a target price of 74.00 baht as it is the main beneficiary of Thailand’s re-opening and Maybank is particularly positive of its duty-free income from 2023 (23.4 billion baht in 2023).