New partner giant duty free King Power to make tender offer after acquiring 39% stake ata price of Bt4.20

　　Thailand’s giant duty free shop King Power recently bought 39% stake in AAV at a price ofBt4.20/share from Mr. Tassapon Bijleveld, previously the major shareholder of AAV at 44%stake. Combined with its earlier shares of 0.83%, Mr. Vichai Sriwattanaprapa, owner of theKing Power, currently holds 39.83% stake in AAV and Tassapon owns 5% shares. Accordingto our inquiries on the bargaining price compared to the market trading level, Tassapon saida negotiation begun when share price was roughly Bt5 and the far discount transaction wasdue to the fact that King Power intended to keep AAV under Thai juristic person (Thainationality holds more than 51% stake) in order to retain AAV aviation business in Thailandand to comply with the country’s aviation laws. However, the share acquisition of more than25% is legally obliged to make a tender offer for the remaining 60.17% shares at thetransaction price of Bt4.20. The tender offer is expected to take place from Jun 24 to Aug 2.

　　As AAV stock price is far above the acquisition price, it is less likely Vichai would succeed inthe tender offer. In terms of organization management, Tassapon looks likely to take therein for five year at least and Vichai will select three out of nine committees to sit in theboard of directors—Vichai is able to select six committees at most.

　　AAV likely reap benefits from business synergy in 2‐3 months

　　With strong financial health and supportive business of duty free shop, we believe AAV willbe able to reap benefits from business synergy with King Power and vice versa. Althoughthere was no dialogue on business collaboration yet, we expect to see some development in2‐3 months to come. For example, AAV would provide special services for its passengers topick up duty free goods on board, which would be able to drive AAV’s duty free on boardfrom 1% of ancillary revenue, and King Power should be able to enjoy rising sales in themeantime. However, there are some regulation talks that AAV and/or King Power need todiscuss with the officials and AOT. In addition to potential stronger sales, AAV could attractmore passengers by using AAV boarding pass as a voucher to get discounts at King Power’sduty free shops, and would collaborate with Chinese travel agencies through King Power’srelationship in exploring new routes in China and increasing a number of flights. If thisoccurs, AAV should penetrate Chinese market at a rapid pace and thereby driving Chinesepassenger volume up from currently 20% of total. King Power would also benefit fromwelcoming more Chinese customers at its duty free shops, implying higher sales. In the firstfive months of 2016, a number of Chinese arrivals was 29.6% of total foreign tourists, up24% y‐y to 4.18mn. Thailand foreign tourist arrivals surged 71.1% to 7.93mn in 2015.

　　‘BUY’ rating maintained with target price of Bt7

　　We keep our FY16 revenue from sales and services at Bt34,594mn and net profit atBt1,887mn, and estimate an annual dividend at Bt0.18. Although AAV would be able to reapbenefits from King Power’s business synergy in 2017, a significant upside gain to our targetprice of Bt7 convinces us of maintaining AAV rating at ‘BUY’ stance.