On Monday at 11:18 AM (Bangkok time), the share price of Airports of Thailand Public Company Limited (SET: AOT) fell by 4.20% or THB 1.25 to THB 28.50, with a trading value of THB 1.78 billion.
Maybank Securities noted in its report that King Power Duty-Free Co., Ltd (KPD) is seeking to renegotiate its three duty-free concession contracts with Airports of Thailand PCL (AOT), covering Suvarnabhumi (BKK), Don Mueang (DMK), and several regional airports.
Facing headwinds from a slump in Chinese tourist arrivals, King Power is pressing for more favorable revenue-sharing terms to sustain profitability.
Under Maybank’s base case scenario, the analyst anticipated that a 20% revenue-sharing arrangement would likely allow KPD to remain profitable under current conditions. AOT is now expected to look for alternative revenue streams to offset potential losses from revised duty-free earnings. These could include increases in passenger service charges (PSC), higher concession fees for ground cargo operations, and fees for transit and transfer passengers.
Reflecting improved prospects of a pragmatic deal, Maybank Securities has upgraded the rating for AOT to ‘Buy’ from ‘Hold,’ following a sharp price correction of 50% year-to-date. However, the target price is trimmed to THB 33.5 from THB 36.50, assuming a 20% revenue share for KPD’s operations and a downward revision in passenger forecasts.
The ongoing talks between AOT and King Power are set to take up to 45 days, but KPD is still required to pay royalties under the current revenue-sharing model, effective from July 2025. With the analyst’s forecasts based on a 20% revenue-sharing model from 2026 onwards, each 5-percentage-point reduction below this level represents an anticipated 10% downside risk to the target price.
Under the proposed terms, AOT could see duty-free revenue fall by as much as THB 5.3 billion per year compared to the minimum annual guarantee (MAG) scheme for fiscal 2024 and THB 9.9 billion from what King Power offered in fiscal 2019.
The brokerage firm expected AOT management to shed more light on steps to counteract lost duty-free revenue during its upcoming analyst meeting on June 16. The airport operator is likely to emphasize expansion in aeronautical revenue, with the possibility of a passenger service charge increase by the end of 2025.
Looking forward, the analyst projects a potential earnings upside for AOT of at least 4% in fiscal 2026 from higher PSC charges on transit and transfer passengers, and a further 2% boost in 2027 should a second ground and cargo operator concession fee be introduced.
The most immediate catalyst could come from fees associated with a third ground-cargo operator, with bidding expected to conclude in June 2025, as well as a possible hike in outbound passenger charges.
