AirAsia - Sturdy 4Q Earnings Seen

By OSK Research
12th Feb 2013


Buy
Target MYR3.39
Previous MYR3.39
Price MYR2.66



We expect AirAsia’s 4Q earnings to soar on the back of strong RPK growth and load factor amid seasonally higher yields and flat jet fuel price. We maintain our BUY call on the stock, with our FV unchanged at RM3.39, premised on 11x FY13 earnings.
Incorporating the market caps of Asia Aviation and the group’s insurance arm, AirAsia is trading at a cheap 7.4x PE vs its historical and peers average of 10x and 12x respectively.

Encouraging numbers so far. In 4QFY12, Malaysia AirAsia (MAA), Thai AirAsia (TAA) and Indonesia AirAsia (IAA) reported that revenue passenger kilometres (RPK) grew by 7.8%/22.5%/10.9% respectively y-o-y. The encouraging numbers were due to seasonally stronger year-end air travel demand. Meanwhile, the full-year RPKs of MAA/TAA/IAA jumped 8.1%/16.6%/5.2% respectively, with load factors coming in at 79.5%/82.3%/77.1%.
Overall, the numbers from all three of the group’s country hubs came in well within our estimates. Following the introduction of five new routes in 4Q amid high seasonal demand, MAA’s load factor during that period hit 82.1%, its highest quarterly number since the 82.3% recorded in 4Q2011. The new routes are all international destinations – three to China (Kunming, Guangzhou and Nanning) and two to Indonesia (Solo and Lombok). We gather from management that the December 2012 load factor was also an all-time high.
We note that the q-o-q air travel momentum in 2012’s final quarter had remained resilient.

Robust 4Q results likely. We expect overall yields in 4Q, typically the strongest quarter, to jump 5%-6% y-o-y to 21.4-21.6 sen/RPK, propelled by seasonally higher airfares and take-up of ancillary services. We expect AirAsia to post revenue of RM1.48bn for 4Q (up by 16% y-o-y and 20% q-o-q), boosting its FY12 revenue to RM5.07bn (+12.7% y-o-y). With jet fuel price being relatively flat q-o-q and only up by 1.7% y-o-y in 4Q, the company’s 4Q core earnings, including those from non-equity accounted associates, may
touch RM334m (q-o-q: >100%, y-o-y: +7% y-o-y). For the full year, AirAsia’s core earnings could potentially meet our FY12 estimate for RM797.8m. AirAsia - together with Asia Aviation, the Thailand listed holding company of Thai AirAsia - are expected to report their 4Q earnings on 27 Feb. We do not expect any major upside in cost as the losses from its Philippines and Japan associates may be mitigated by higher earnings contributions from AirAsia Expedia, TAA and IAA.


MAINTAIN BUY. Threat from Malindo overblown. We maintain our BUY call on AirAsia
and our RM3.39 FV, premised on 11x FY13 EPS. The stock is currently trading at an 8.6x
FY13 PE, representing a 27% discount to its peers’ average multiple. Taking into account
the market caps of Asia Aviation and its insurance arm, AirAsia is trading at a cheap 7.4x
PE versus its historical and peer averages of 10x and 12x respectively. Elsewhere, we
expect the group’s upcoming IPOs (AirAsia X and IAA) to crystallize its valuations. That
being said, we feel that in view of the budget carrier’s strong network and fleet as well as
low cost structure, investor concerns over potential threat from new entrant Malindo
pressuring AirAsia’s yields and market share have been exaggerated.

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