Governance Concerns Prompt Kiatnakin Phatra to Lower THAI’s Price Target
Kiatnakin Phatra Securities has chosen to retain a Neutral rating on Thai Airways International (THAI), but has revised its price objective (PO) down to THB 12.20 per share from its previous estimates.
This adjustment was made despite strong expectations for the airline, which had recently traded at THB 9.55 per share.
The analysts anticipate that the third quarter of 2025 will be a record-breaking period for the carrier, yet the positive operational outlook is being significantly undermined by mounting concerns over increased government interference in THAI’s corporate management.
This external pressure has clearly weighed heavily on market sentiment, leading to a sharp decline in the company’s share price, which has plunged by over 20% recently.
For the third quarter, analysts forecast a doubling of THAI’s core profit year-over-year, estimating a robust THB 4.8 billion.
If achieved, this would represent the best third-quarter performance in the airline’s history.
The expected profit surge is supported by a planned 3% year-over-year increase in Available Seat Kilometres (ASK), higher load factors across the network, and particularly robust demand on European routes.
Revenue Passenger Kilometres (RPK) on European flights are projected to jump by a significant 9-10% year-over-year, while regional and Australian routes are also expected to contribute growth, albeit at a more modest 1-2% rate, collectively driving the anticipated strong financial result for Kiatnakin to analyze.
Operational Strength Contrasts with Political Instability
The underlying operational performance of Thai Airways shows considerable strength, even though it faces a 9% decline in passenger yield, which is primarily attributed to stiffer competition within the aviation sector.
This yield pressure is set to be more than compensated by aggressive and effective cost reductions.
Key among these savings is a projected 12-13% drop in fuel expenses, along with lower maintenance and interest costs, which are expected to be the primary drivers of the significant earnings improvement.
While passenger volumes might see a slight dip of 1-2% year-over-year, forward bookings for the final quarter of 2025 are already projected to jump by 4-6%, a strong indicator that the robust performance is set to continue into the latter half of the year.
However, this strong operational optimism is being largely overshadowed by severe governance concerns, creating a disconnect between the fundamental business value and the market valuation.
The company is currently facing intense uncertainty regarding potential changes to its boardroom.
The Ministry of Finance has proposed expanding the board and replacing several sitting members, which could substantially increase state influence over the airline’s strategic direction.
This scenario has fueled intense speculation in the market over the possible replacement of key directors, including highly respected figures like Dr. Piyasvasti Amranand.
The potential for political meddling in a financially recovering entity worries analysts and investors, particularly those following the recommendations of Kiatnakin Phatra, who recognize the inherent risk of state intervention in corporate strategy.
Valuation Multiples Reduced Due to Heightened Risk
Despite maintaining its core financial forecasts for THAI unchanged, Kiatnakin Phatra Securities made a decisive move to revise down the company’s valuation multiples.
This revision stems directly from the perceived risks introduced by the potential for future selling pressure from creditors and the heightened risk associated with increased government intervention in the airline’s management and strategic affairs.
The brokerage’s new price objective of THB 12.20 now incorporates a notable 25% discount when compared to the valuation multiples of regional airline peers, a clear reflection of the risk premium now being applied to THAI’s shares due to these non-operational, governance-related issues.
The market’s response, with the stock price plunging over 20%, clearly indicates that investors share the brokerage’s concern that corporate governance issues and state influence pose a greater threat to long-term value than the strong operational recovery can offset.
The move by the Ministry of Finance to potentially expand and restructure the board is seen not as a measure to strengthen the airline, but as an increase in political leverage, which often leads to suboptimal business decisions in the long run.
Therefore, even with expectations of a record quarter, the heightened risk factored in by Kiatnakin Phatra, which is prudent given the history of state-owned enterprises, dictates a more cautious valuation for THAI stock.
