(Nov 20, RM2.42)
Maintain “buy” with a target price (TP) of RM2.94: Adjusting for the unrealised forex loss of RM103 million, AirAsia posted third quarter of financial year 2014 (3QFY14) core net gain of RM119 million, a -24% year-on-year (y-o-y) decline. Sequentially, earnings improved strongly from RM26 million in 2QFY14.
The nine months of FY14 (9MFY14) core net profit of RM271 million accounted for 51% and 53% of our and consensus full-year forecasts respectively (historically, 9MFY14 constitutes 55% to 60% of full-year estimates). However, we view earnings as being only slightly below our expectations as we expect 4QFY14 earnings to surge, benefiting from a lower fuel price and recovery in yield.
The 3QFY14 revenue per available seat kilometre (Rask) inched up +0.7% quarter-on- quarter (q-o-q) to 15.5 sen and grew +2.0% y-o-y, signifying stabilising yield trend amidst rational competition. The load factor was flattish at 76% with slight +1% y-o-y growth in available seat kilometre. Cost per available seat kilometre (Cask) grew +3% y-o-y to 12.8 sen despite lower average jet fuel price of US$117 (RM394) per barrel (-13% y-o-y) realised. The ancillary income grew +15% y-o-y to RM47 per pax.
Thai AirAsia’s (TAA) losses widened in 3QFY14 to RM17 million compared with RM13.8 million in 2QFY14 due to wider gap between Rask and Cask amidst capacity expansion. The dampened travel demand from political instability led to the decline in average fare. The Indonesian associate was the best performing associate. PT Indonesia AirAsia achieved marginal break-even of RM0.2 million in 3QFY14 compared to a net loss of RM46 million in 2Q14. This was due to cost inflation from the rupiah’s weakening being passed through to consumers, resulting in +27% y-o-y surge in Rask. AirAsia will be taking delivery of 13 Airbus aircraft in FY15. It has proposed to switch four of its orders to A320neo while another four will be put up for sale. AirAsia and TAA will be taking delivery of one and four aircraft respectively. In FY16 and FY17, 18 aircraft for each year will be delivered to AirAsia.
Given the uneven recovery pace of the yield base and lower average jet fuel price, we reduced our FY14 earnings estimate by -13% but kept our FY15 forecast unchanged. We take the view that the domestic aviation sector has seen its worst and is now on a recovery phase with competition intensity lessening and lower fuel price going forward. Hence, we retain our “buy” recommendation on AirAsia. Our valuation is premised on 10 times FY15 price-earnings ratio. — MIDF Research, Nov 20
This article first appeared in The Edge Financial Daily, on November 21, 2014.