Wednesday, August 24, 2011

AirAsia Earnings Evaluation/Briefing: Time to Take Off

24 August 2011
Price Target: RM4.50
Share price: RM3.62


Results
# In line – Reported 2Q11 core net profit of RM142.9m, in line with our expectations but slightly behind consensus. 1H11 core earnings was RM266.0m, achieved 36.0% of HLIB estimates and 31.5% of consensus.

# 1H is seasonally lower. Recall 1H10 was only 32.8% of FY10 core net profit.

Deviations
None.

Dividends
None.

Highlights
# 2Q11 passenger yield (ticket sales/RPK) sustained qoq but down 10.6% yoy to 13.9sen. However, it is likely to improve in 2H11 due to seasonally stronger demand and ease of price competition.

# 2Q11 average ancillary income per passenger was RM49.8, similar to 1Q11 of RM49.9.

# Thai AirAsia and Indonesia AirAsia continued to post positive earnings in 2Q11 despite higher jet fuel cost. Thai AirAsia had fully repaid its loan to AirAsia, while Indo AirAsia still owes RM239.4m.

# Philippines AirAsia is expected to commence operation by 4Q11 with 2 A320s, while Vietnam AirAsia to commence by 1Q12 and Japan AirAsia by March 2012.

# Installation of winglets/sharklets to AirAsia existing Airbus fleets by 2013, reducing fuel consumption by 2%.

# Improve in net gearing to 1.48x from 1.57x (1Q11).

# Jet fuel hedged at 26% for 2H11 at average of US$114/bbl. Fuel surcharge will be continued despite jet fuel price dropped back to US$125/bbl from US$140/bbl.

Risks
World crisis (ie. war, tourism and epidemic outbreak), delay in KLIA2 completion, prolong surge in jet fuel price and the development of high speed train between Singapore and Pulau Pinang.

Forecasts
Unchanged.

Rating - BUY
Positives
- Beneficiary of strong air traffic into Malaysia, inline with government initiatives to boost tourism sectors.
- Largest and lowest cost LCC in Southeast Asia with strong brand name.
- Re-rating catalysts via IPO exercises of AirAsia X, Thai AirAsia and Indonesia AirAsia.
- Strong ancillary income and introduction of fuel surcharge.
- Elimination of Firefly as LCC player

Negatives
- Surging jet fuel cost.

Valuation
Maintained Target Price at RM4.50 based on Sum-of-Parts.


Source: HLIB Research

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