Asia Plus says Thai aviation and hotel stocks can weather the expensive oil storm, picks CENTEL, AOT, ERW

IndustryCommodityAnalyst
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Summary · why it matters

Asia Plus Securities said Brent crude rose sharply above 100 USD per barrel due to conflict centred on oil shipping routes, unlike the broad-based disruption in the second quarter of 2019. The MSCI World Hotels, Restaurants & Leisure Index fell 0.1% day-on-day, compared with a 0.7% day-on-day decline in the MSCI ACWI, amid a risk-off correction. The research team views the driver for the tourism sector ahead of the November to February travel season as coming from Golden Week on 1 October, with Chinese tourist numbers showing improvement, reflected in Chinese arrivals to Thailand exceeding those to Vietnam for two consecutive months. In July 2019 they stood at 460,000, versus 390,000 for Vietnam, and in August at 480,000, versus 460,000 for Vietnam. Meanwhile, China-Thailand flight capacity for the fourth quarter of 2019, based on Bloomberg Intelligence data dated 8 September, showed seats on China-Thailand routes expanding 11.8% year-on-year, compared with an 11.5% year-on-year increase for China-Vietnam, and an overall increase of 8.5% year-on-year. The research team assesses that the impact of this round of Brent gains on the sector is likely to be less severe than in the second quarter of 2019, which was the low season, and favours stocks with a high proportion of Chinese customers, namely AOT, where Chinese travellers account for about 24% of international passengers, followed by ERW, where Chinese customers make up about 14% of room revenue, then CENTEL, MINT and THAI. It maintains its view that normalised profit for the Thai hotel sector in the fourth quarter of 2019 is still expanding year-on-year, supported by on-the-books figures running higher than a year earlier, with CENTEL standing out above the sector. AOT has drivers from passenger service charges and its cost control plan. The research team also picks CENTEL, AOT and ERW as event trades, seeing share price corrections as an opportunity to accumulate Thai tourism stocks, and says that if jet fuel rises above its previous peak of 209 USD per barrel in April and starts to affect flight capacity, that would be a tactical trigger to reduce weighting in the tourism sector.

Impact on stocks 5

Consumer Discretionary▲ · 3 stocks
Industrials▲ · 1 stocks
Airports Of Thailand PCL
AOT
▲ PositiveDemandrelevance

Favoured for high Chinese-customer mix (~24% of international passengers) with China-Thailand Q4 seat capacity up 11.8% YoY and rising Chinese arrivals.

Aerospace & Aviation▲ · 1 stocks
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