Thailand relies on state-owned enterprises (SOEs) to significantly contribute to its economy. These entities are crucial for driving the overall economic and social framework of the country, serving as important agents for public investment and generating essential government revenue. Additionally, SOEs play a significant role in providing employment opportunities within the Thai economy.
The Ministry of Finance predominantly owns and manages these SOEs, with oversight from the State Enterprise Policy Office (SEPO). As of August 2021, there were 52 SOEs directly supervised by the Ministry of Finance, operating across vital sectors such as transportation, energy, and others. These SOEs represent some of the finest and largest companies in Thailand, making them attractive investment options for those seeking to benefit from the country’s economic framework.
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In this article, we will examine two noteworthy SOEs, providing investors with confidence in their investments due to the support of the Thai government.
The first security is Airports of Thailand (AOT), the largest publicly traded company in Thailand. The second security is PTT Exploration and Production (PTTEP), ranked as the fifth largest stock in Thailand based on market capitalization. Both of these companies can also be traded on the SGX through the new Singapore Depository Receipts (SDRs) mechanism.
The Largest Listed Airport Stock traded on the SGX
Surprisingly, AOT not only reigns as the largest stock in Thailand but also claims the prestigious title of the world’s largest airport stock in terms of market capitalization. Although I was well aware of Thailand’s status as a sought-after tourist destination, I never imagined that its market capitalization would surpass that of renowned international airports.
The reason behind AOT’s significant market capitalization is likely attributed to its ownership of an extensive network of airports in Thailand, a distinction that sets it apart from other airport stocks. While Shanghai Airport and Paris have a limited number of airports within a city, with two and three respectively, AOT stands out as the owner of a total of 39 airports. This impressive portfolio includes high-traffic international airports such as Suvarnabhumi Airport and Don Mueang Airport.
AOT’s Business Model
AOT has multiple sources of revenue at its disposal. If you have traveled to Bangkok, it is highly likely that you arrived at and departed from either Suvarnabhumi Airport or Don Mueang Airport.
The first significant revenue stream comes from the departure passenger service fee, which tourists are required to pay. For instance, Suvarnabhumi Airport charges approximately ฿700 (around S$28) per passenger. In 2022, this service fee alone contributed approximately ฿5,267 million (S$208 million), accounting for 32% of the total revenue. With the anticipated recovery of tourism in Thailand, this segment is expected to continue growing, representing the largest revenue segment.
AOT also generates revenue through charges for aircraft parking at the airport, amounting to ฿1,619 million, which constitutes 10% of the total revenue. Additionally, charges for aircraft services, including the use of boarding gates and bridges, contribute ฿403 million, accounting for 2% of the revenue.
Beyond aviation-related sources, AOT generates revenue from non-aviation activities, such as property rental, which contributes ฿1,438 million, representing 9% of the total revenue. Furthermore, revenue is generated from various services provided at the airport, such as check-in, announcements, and related services, amounting to ฿3,801 million, or 23% of the revenue.
A significant portion of AOT’s revenue comes from concessions, encompassing activities like duty-free shopping, souvenirs, carparks, and advertising. Concession revenue amounted to ฿4,031 million, making up 24% of the total revenue. In essence, the entire airport operates as a highly profitable entity, generating substantial income from various streams.
Post Covid Recovery
AOT has demonstrated impressive profitability, boasting a net profit margin exceeding 30% and a return on equity (ROE) and return on assets (ROA) both surpassing 10%. However, the lingering impact of the Covid pandemic on tourism has prevented AOT from fully restoring its pre-Covid profitability. The economies of scale have not yet returned to their previous levels.
Before the pandemic, AOT consistently experienced revenue growth, averaging a 14% increase per year from 2014 to 2019. Additionally, AOT had a track record of increasing dividends, with an annual compounding growth rate of 21% during the same period.
There are encouraging signs of recovery, evident in the substantial improvement in passenger traffic during the first half of 2023, with a remarkable 211% increase compared to the same period in the previous year. This indicates a positive trajectory towards recovery.
The Thai government expects the return of Chinese travelers to further stimulate the tourism boom, with monthly arrivals from China projected to reach 1 million from October, a level not seen since the start of the pandemic. Thailand also aims to attract high-spending visitors from the Middle East in the second half of this year, potentially becoming a new growth engine for tourism.
To meet the future growth in demand, AOT plans to invest 36.8 billion baht (S$1.43 billion) to expand its low-cost terminal at Bangkok’s Don Mueang Airport. The construction is scheduled to commence this year and is expected to be completed by 2029. AOT intends to fund the investment using its operating cash flow.
For investors who believe in Thailand’s potential to regain its tourism prowess, AOT presents an opportunity as a recovery play.
AOT Valuation
19 Analysts have called for a buy with a consensus target price of 79.69, which translates to a potential 10% return based on the price of 72.50 at the time of writing.
A solid oil exploration security traded on the SGX
PTT Exploration & Production (PTTEP) operations are relatively straightforward, as it involves the exploration, extraction, and the sale of oil and gas.
Investing in PTTEP can serve as an effective means for investors to gain exposure to oil prices and potentially benefit from high oil prices. Notably, PTTEP’s cost per barrel in 2022 was approximately $28.36.
Consequently, the company stands to generate profits when oil prices exceed this threshold. It is worth noting that PTTEP’s cost per barrel is even lower than that of Exxon Mobil, which stands at $35 per barrel, and Shell, which stands at $30 per barrel, as reported by Titan Research and Morningstar respectively.
Despite the prevailing lower oil prices, which currently stand at approximately $70 per barrel, PTTEP remains resilient and continues to generate significant profits. This underscores the company’s capacity to sustain a strong financial position even in an environment of stabilized but lower oil prices.
Investors did not have the opportunity to conveniently invest in an oil and gas exploration company on the SGX previously. However, with the introduction of Singapore Depository Receipts (SDRs), investors can now conveniently access and invest in PTTEP SDR, opening up new opportunities in the oil and gas sector.
Diversified Oil Fields and rising reserves
PTTEP boasts diversified oil fields and a growing reserve base. While the majority (63% of total sales volume) of its exploration activities are centered in Thailand, PTTEP also holds reserves in other regions of Southeast Asia (21%), the Middle East (15%), and Africa (<1%).
Of particular interest is PTTEP’s presence in Africa, which represents a promising opportunity. With approximately 16% of the book value of its assets allocated to African projects, the company is actively developing these reserves. This strategic focus is expected to yield significant revenue growth in the future, further enhancing PTTEP’s overall performance.
Over the years, PTTEP has experienced a steady increase in reserves through the acquisition of additional oilfields. This strategic approach aims to secure higher production levels in the future. The significance of this lies in the fact that oil reserves are not easily replenished, making the growth of reserves crucial for PTTEP’s sustained ability to meet future demand and maintain a steady supply of oil for sale.
As of 2022, PTTEP have announced their sustainability plans. They company plans to achieve Net Zero Greenhouse Gas (GHG) Emissions by 2050. As part of their efforts, PTTEP will be exploring ways to lower carbon output, reduce GHG emissions, explore using renewable energy in their operations as well as offset their emissions.
PETTEP: A dividend grower
PTTEP has established a commendable history of consistent dividend growth, as evidenced by its substantial payout of ฿9.25 per share in 2022, which was driven by the favorable oil price environment at that time.
While it is uncertain whether the favorable conditions will persist, especially in light of the recent decline in oil prices, the expectation is that dividends will continue to be distributed. PTTEP has proven its resilience in the face of adversity, as it continued to provide dividends even during the period when oil prices turned negative in 2020. With a historical payout ratio of approximately 50% during normal periods, it is anticipated that PTTEP’s dividends are likely to sustain at similar levels.
PTTEP Valuation
Out of the 27 analysts covering the stock, 12 have recommended a “buy” rating, while 13 have suggested a “hold” rating. The consensus target price for the stock stands at ฿169.13, indicating a potential return of approximately 14% based on the current price of ฿148 at the time of writing.
State’s backing
AOT, being a state-owned enterprise, is primarily owned by the Ministry of Finance in Thailand, holding a significant 70% ownership stake. This government-backed status allows AOT to play a crucial economic role in Thailand, ensuring an alignment between investor interests and government support.
In the case of PTTEP, the majority ownership lies with PTT, holding a 64% stake. PTT, in turn, is owned 51% by the Ministry of Finance. This ownership structure provides investors with assurance that PTTEP will continue to be granted exploration rights for the major oilfields in Thailand, further solidifying its position in the industry.
Investing in SDRs
Airports of Thailand (AOT), PTTEP and CP All, are part of the first batch of three Singapore Depository Receipts (SDRs) that can be traded on the SGX. Opting to invest in Thai SDRs through the SGX offers the benefit of trading within a familiar and convenient environment. Investors can conduct transactions in SGD, follow the trading hours and regulations set by the SGX, and take advantage of the custodization services provided by the Central Depository (CDP).
For more comprehensive information about SDRs, please refer to our Guide to investing in Singapore Depository Receipts (SDRs).
SOEs are the economic powerhouses of Thailand
As we can see, the government of Thailand owns many businesses spanning across vital sectors in the country so as to ensure it achieves its economic and social objectives. These SOEs are among the largest and most reputable companies in Thailand, offering investors a sense of confidence and stability.
In addition to their government backing, both AOT and PTTEP have demonstrated strong financial performance, with consistent growth and a reliable track record of distributing dividends.
With the introduction of Singapore Depository Receipts (SDRs) on the SGX, investors now have the opportunity to explore and consider investing in these sectors that were previously unavailable on the exchange.
This article is written in collaboration with SGX. The opinions expressed in this article belonged to the author.
