Air-Asia
AirAsia Bhd
(Aug 3, RM1.36)
Maintain outperform with a lower target price (TP) of RM1.88 from RM2.53: At the current share price, AirAsia is trading at an attractive valuation of six times the financial year 2016 forecast (FY16F) earnings, at its lowest historical price-earnings ratio.
We anticipate AirAsia to benefit from lower fuel prices, a more rational market upon Malaysia Airlines’ restructuring, solid long-term potential growth prospects and its low-cost competitive advantage.
AirAsia announced its preliminary operating statistics for the second quarter of FY15 (2QFY15), with the group reporting an increase in traffic volume by 11.3% year-on-year (y-o-y), or 5.2% quarter-on-quarter (q-o-q), to 14.2 billion revenue-passenger-kilometres (RPK), although its y-o-y load factor was flat at 79% (1QFY15: 76.9%).
Last Friday, AirAsia also announced that it had served a letter of demand amounting to RM409 million on Malaysia Airports Holdings Bhd and Malaysia Airports (Sepang) Sdn Bhd for the losses and damages incurred by operating at the Kuala Lumpur International Airport 2 (klia2) and the Low-Cost Carrier Terminal.
We are keeping our “outperform” call on AirAsia, but at a lower TP of RM1.88 (previously RM2.53) as we have cut our FY16F/17F earnings per share (EPS) by 6% to 7% due to weaker ringgit forecasts, and given a 20% discount to our FY16F EPS of 10 times, to account for the risk of further losses and an unsuccessful fundraising exercise for its Indonesia associate, Indonesia AirAsia (IAA), and unrecoverable debts from its associates.
2QFY15 saw healthier statistics. In 2QFY15, Malaysia’s AirAsia carried a total of 5.95 million passengers (up 6.8% y-o-y) with seat capacity of 7.43 million (up 6.7% y-o-y).
Available-seat-kilometres increased to 9.1 billion (up 6.6% y-o-y) and RPK increased to 7.26 billion (up 6.8% y-o-y) due to recovering demand from China from May.
AirAsia managed to keep its passenger load at the 80% level, in line with the same quarters of the previous years, up 6.2 percentage points (ppts) from 1QFY15 (load factor at 75.4%).
Thai AirAsia’s load factor was maintained at the 80% level, on the back of higher passenger volume and capacity growth, which increased 26.1% and 23.1% y-o-y, respectively, showing an improvement in its political situation and tourism industry.
IAA remains challenging after the QZ8501 incident. However, IAA reported a q-o-q improvement with a load factor of 72.7% for 2QFY15 (up 3.8ppts q-o-q).
Meanwhile, Philippines AirAsia reported 976,381 passengers carried in 2QFY15 (up 5.7% y-o-y), and achieved a load factor at the 80% level.
AirAsia India also did not disappoint with a passenger growth of 27.2% q-o-q and a load factor of 82.8%, due to the new routes and route frequencies added.
The letter-of-demand announcement came in after several news circulated recently regarding the sinking problem at the klia2. It is too premature to assess the value of the damage, hence we have not included this in our earnings estimate. — PublicInvest Research, Aug 3
This article first appeared in digitaledge Daily, on August 4, 2015.