AirAsia Bhd (Jan 31, RM3.55)
Maintain buy at RM3.56 with a revised fair value of RM4.40 (from RM5): We maintain our “buy” call on AirAsia, but with a lower fair value of RM4.40 per share (RM5 previously) following an earnings cut. Our sum-of-parts derived valuation continues to peg AirAsia at 12 times FY12F earnings.
The budget airline announced sterling 4QFY11 operating statistics on Jan 30. The group reported a 9% year-on-year growth in 4QFY11 passenger traffic. For the full year, passenger traffic grew by 12% (FY10: +20%). The numbers were in line with our expectations; though the load factor of 80% surprised on the upside given lower than expected capacity growth of 7%.
Traffic numbers aside, however, we are concerned about AirAsia’s ability to achieve our forecast yield of 16 sen per revenue passenger kilometres for FY11F. We believe surcharges are unlikely to go away considering stubbornly high fuel prices, but slowing underlying demand could translate into more aggressive strategies on underlying pricing.
We have conservatively trimmed our forecasts by 15% to 20% over FY11 to FY13F ahead of its results announcement next month on: (i) lower yield assumptions (from 16 sen to 15.4 sen in FY11F); (ii) higher jet fuel price assumptions (from US$120 (RM364.80) to US$126 per barrel); and (iii) lower available seat kilometres (ASK).
Nonetheless, any yield weakness should be cushioned by the elimination of irrational competition with the withdrawal of Firefly’s jet operations in December 2011. Additionally, AirAsia’s Asean-centric network and potential downtrading by passengers from full-service carriers (FSC) suggest that AirAsia passenger trends will not be as badly affected as its FSC peers as a result of the economic slowdown in Europe. During the 2009 economic slowdown, AirAsia managed to grow passenger traffic by up to 20%.
More importantly, our “buy” recommendation is also premised on the value unlocking from the listing of Thai AirAsia and Indonesia AirAsia (both currently 49%-owned, but which for our calculations we assume will be diluted to 45% post listing). The current market price of RM3.59 per share only captures 25% of the value of AirAsia’s holdings in these associates. One of the hurdles for the listing in 4QFY11 was the poor market valuations then — which have since improved quite significantly, suggesting greater certainty in the listing now.
Key 2012 valuation/earnings catalysts include: (i) listing of associates; (ii) recognition of associate earnings; (iii) commencement of AirAsia Japan; (iv) yield upside from AirAsia’s monopoly in Malaysia’s budget airline space. — AmResearch, Jan 31
This article appeared in The Edge Financial Daily, February 2, 2012.
Maintain buy at RM3.56 with a revised fair value of RM4.40 (from RM5): We maintain our “buy” call on AirAsia, but with a lower fair value of RM4.40 per share (RM5 previously) following an earnings cut. Our sum-of-parts derived valuation continues to peg AirAsia at 12 times FY12F earnings.
The budget airline announced sterling 4QFY11 operating statistics on Jan 30. The group reported a 9% year-on-year growth in 4QFY11 passenger traffic. For the full year, passenger traffic grew by 12% (FY10: +20%). The numbers were in line with our expectations; though the load factor of 80% surprised on the upside given lower than expected capacity growth of 7%.
Traffic numbers aside, however, we are concerned about AirAsia’s ability to achieve our forecast yield of 16 sen per revenue passenger kilometres for FY11F. We believe surcharges are unlikely to go away considering stubbornly high fuel prices, but slowing underlying demand could translate into more aggressive strategies on underlying pricing.
We have conservatively trimmed our forecasts by 15% to 20% over FY11 to FY13F ahead of its results announcement next month on: (i) lower yield assumptions (from 16 sen to 15.4 sen in FY11F); (ii) higher jet fuel price assumptions (from US$120 (RM364.80) to US$126 per barrel); and (iii) lower available seat kilometres (ASK).
Nonetheless, any yield weakness should be cushioned by the elimination of irrational competition with the withdrawal of Firefly’s jet operations in December 2011. Additionally, AirAsia’s Asean-centric network and potential downtrading by passengers from full-service carriers (FSC) suggest that AirAsia passenger trends will not be as badly affected as its FSC peers as a result of the economic slowdown in Europe. During the 2009 economic slowdown, AirAsia managed to grow passenger traffic by up to 20%.
More importantly, our “buy” recommendation is also premised on the value unlocking from the listing of Thai AirAsia and Indonesia AirAsia (both currently 49%-owned, but which for our calculations we assume will be diluted to 45% post listing). The current market price of RM3.59 per share only captures 25% of the value of AirAsia’s holdings in these associates. One of the hurdles for the listing in 4QFY11 was the poor market valuations then — which have since improved quite significantly, suggesting greater certainty in the listing now.
Key 2012 valuation/earnings catalysts include: (i) listing of associates; (ii) recognition of associate earnings; (iii) commencement of AirAsia Japan; (iv) yield upside from AirAsia’s monopoly in Malaysia’s budget airline space. — AmResearch, Jan 31
This article appeared in The Edge Financial Daily, February 2, 2012.
