AOT completes IPO

Reasonable valuation and strong liquidity propel Airport Authority of Thailand (AOT).

A Bt17.3 billion ($440 million) IPO for AOT was completed at the top end of its indicative range yesterday (Tuesday) after order books closed multiple times oversubscribed. In a familiar pattern for the Asian equity markets, investors relished an opportunity to put money to work and diversify into an IPO to re-captur further upside from markets that have already had a good run.

The 412.57 million share deal (including greenshoe) was led by Phatra Securities with Credit Suisse First Boston and Merrill Lynch as international lead managers. Having marketed the deal at a range of Bt37 to Bt42 per share, the offering was priced at Bt42 and represents 30% of the company's outstanding share capital.

The international book is said to have closed 22 times covered, the domestic institutional book nine times covered and the domestic retail book 8.5 times covered. The IPO had a final allocation split of 60% domestic and 40% international, with participation from roughly 200 overseas institutions. By geography, the deal split 55% Asia, 31% Europe and 14% US.

Specialists say that the deal held relative value against comparables such as Beijing Capital International Airport (BCIA), which had passenger volume of 24 million in 2003 versus 36 million for AOT, which runs Don Muang International Airport and four domestic airports in Chiang Mai, Chiang Rai, Phuket and Hat Yai.

At Bt42 per share, the deal was priced on an EV/EBITDA multiple of four times 2006 earnings and P/E multiple of 13 times 2006 earnings. This forward multiple was used because the country's new $5 billion Suvarnabhumi Airport is not scheduled to open until the end of 2005.

As one specialist says, "As AOT has a very discernible and clear cut asset base, many investors looked at the deal on a book value basis. Most were not prepared to pay above book value because in many ways this is a project finance deal with construction risk and a strong possibility there will be some hiccups when the new airport opens."

At the time of pricing BCIA was trading on a 2006 forecast EV/EBITDA multiple of about 7.5 times and a 2006 PE multiple of about 19.81 times. It is also trading on a 2006 forecast price to book valuation of about 1.4 times.

AOT has therefore priced at a 30% to 40% discount to BCIA, but will pay a lower dividend as the company is concerned to pay down debt as the new airport comes on stream. Management have said AOT will pay out about 25% of net income, equating to a yield of about 1% to 2%. BCIA currently yields 3%.

When AOT began pre-marketing at the end of January, Asian markets were gripped with concerns about bird flu and domestic comparables such as Thai Airways had started trading down. The stock dropped from about Bt60 in early to mid January to a low of around Bt49 two weeks later. Since then it has recovered to Bt61 again and AOT has caught the re-bound perfectly.

Specialists say the company represents the best proxy for investors seeking exposure to Thailand's tourism industry. As one says, "About 89% of AOT passengers are O&D passengers, which means they are traveling to Thailand rather than to transit elsewhere.

"Investors liked the story because it's very simple. Everyone uses airports, so the business is easy to understand. And when the new airport opens, AOT will clearly benefit from increased landing fees and greater non-aeronautical revenues from enhanced retail space."