Affin maintains "Buy" rating on AirAsia, lower TP

From The Star Online: Business
6th Sep 2013

KUALA LUMPUR: Affin Research has maintained its “Buy” call on AirAsia with a lowered target price of RM3.60 given its earnings downgrade.

“We continue to like AirAsia’s sound fundamentals, which is backed by its strong operating statistics, as well as the group’s regional growth strategy,” it said in a note on Friday.

Affin said on average, fuel accounts for about 40- 50% of AirAsia’s operating cost.

“We gather that AirAsia has hedged 30% of its financial year 2013 fuel requirement at US$123 per barrel, leaving the remaining 70% at spot price,” it said.

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.

[Source]

A glut of new capacity in will force Asian airlines to ply some less profitable routes

From Star Online: Business
23rd Jan 2013

SINGAPORE: Low-cost South-East Asian airlines risk jeopardising their margins by buying too many planes too quickly, an influential aviation banker said.

Across the region, discount carriers have placed orders over the past two years for at least US$50bil worth of aircraft, taking new Boeing and Airbus jets to serve dozens of fresh routes and replace their fleets. They are betting the region's expanding middle class will demand more and more frequent air travel for years to come.

Many of those carriers were making the wrong decisions by trying to grow market share without anticipating pressure on profit margins, DVB Bank SE's Bertrand Grabowski, who heads the German bank's aviation and land transport finance divisions, told Reuters in an interview.

AirAsia plans to be the first choice for travellers

By Star Online: Business
3 November 2012

TEN years on after taking a chance to start a low cost airline, Tan Sri Tony Fernandes is sitting in a hotel room in the Westin Hotel in Busan, South Korea just after launching the Tokyo-Busan air sector that will be operated by his 49%-owned unit AirAsia Japan.

In a quiet surrounding, in contrast to his public persona and frenetic business empire, he gives an quick secession of interviews like he has done many times before.

For a man who is setting up affiliates across Asia, jet-setting to exotic destinations where the Formula 1 races are held and also appearing virtually every weekend on television while watching his Queens Park Rangers play, he is remarkably full of energy.

It was the same energy he had when he built AirAsia from two planes to 115 aircraft today, all along never wavering on the positiveness of his ebullient character. He is a man whose confidence never seems to fade.

AIRASIA - Competition coming sooner

By AmResearch
2 November 2012


HOLD

Price: RM3.05

Fair Value: RM2.80

• It was reported in a local daily this morning that Malindo is bringing forward its launch date to mid-March 2013 from earlier indication of May 2013. This follows the group’s (PT lIon Air) decision to delay the launch of Batik Air from March to end-2013 as the group intends to focus on positioning Malindo as a regional player.

AIRASIA - Back to square one

By AmResearch
15 October 2012

HOLD

Price: RM3.06
Fair Value: RM2.80


It was reported in local dailies this morning that the deal to acquire PT Batavia Air is off. It is said that AA will continue with organic growth in Indonesia and the reason for cancelling the deal was: (1) high cost of restructuring Batavia Air; (2) Management time and resources required to turnaround Batavia.

AirAsia - Crystallizing Valuations

By OSK Research

12 October 2012

The impending IPOs of AirAsia’s sister companies AirAsia X, Tune Insurance and associate Indonesia AirAsia will be positive for the group as this will crystallize RM806m into AirAsia’s valuations. Incorporating the IPOs’ pricing and the latest market cap of its Thai associate Asia Aviation, AirAsia is trading at an attractive 8.6x PE vs the sector average of 12x. The proposed Batavia acquisition has been called off, which we don’t find surprising given that it is debt-laden. We maintain our BUY call on AirAsia, while keeping our RM3.91 FV based on 12x FY13 EPS. 

Malindo Airways expected to give AirAsia a run for its money

By Star Online: Business
15 September 2012

It was a marathon meeting lasting 24 hours in a hotel in Singapore over two weeks ago that resulted in the creation of Malindo Airways.

The meeting was between Rusdi Kirana, president director of Indonesia's largest privately owned airline Lion Air and Malaysia's National Aerospace & Defense Industries (Nadi) low key businessmanTan Sri Ahmad Johan.

Both had desires to expand their empires. One to set up an airline in Malaysia the same way AirAsia has set up airlines in several countries, and the other wanted to get the regional MRO business because they had “scalability and expertise.''

All this started three months ago, according to those in the know.

RHB Research upgrades AirAsia to Trading Buy, FV RM3.63

By Star Online: Business
12 September 2012

KUALA LUMPUR: RHB Research Institute has upgraded AirAsia to a Trading Buy from Market Perform and maintained its fair value for the low-cost carrier at RM3.63.

It said AirAsia's near-term earnings growth prospects are less exciting as growth from its domestic operation is tapering off, coming from an enlarged base.

RHB Research also said not helping either, are lingering losses from its new low-cost carrier start-up in Japan and the Expedia JV, given the long gestation periods for these new ventures.

Aviation - Airlines Rejoice as Jet Fuel Gets Cheaper

By OSK Research26 June 2012

Jet fuel price has been on a downtrend since early May, plunging by 20% to an 18-month low of USD106.5/barrel this week. As jet fuel is the biggest cost component at up to 70% of total costs, an airline with the least hedging exposure and a low earnings base will see the most meaningful impact on earnings. THAI and SIA will have the highest earnings sensitivity to receding crude oil prices due to their slim margins and conservative hedging position respectively. The share prices of the airline stocks under our coverage are currently at an attractive below mid-cycle valuations. We maintain our OVERWEIGHT call on the sector, with AirAsia (FV: RM4.57) and Thai Airways (THB35.4) as our top BUYS.

Dynamics of oil prices. Jet fuel price has been on a downward trend since early May, plunging by 20% to an 18-month low of USD106.5/barrel. YTD, the jet fuel price has averaged USD127/barrel (YTD 2011: USD126/barrel). The price drop is in tandem with the fall in crude oil prices due to high oil inventories amid weaker demand arising from renewed concerns over the protracted European debt crisis and the slower than expected economic growth in China and the US. The decline in crude oil price is also linked to the oversupply of oil from both Saudi Arabia and Iran, which is facing trade sanctions. Nevertheless, China and India continue to import oil from Iran despite the sanctions, while Saudi Arabia continues to supply more oil to fill the gap created by the anticipated shortage due to the sanctions.

Spreads get slimmer. The spread between WTI and Brent crude has been narrowing significantly of late due to a pipe reversal between the hub at Cushing in Oklahoma and the refineries in the Gulf of Mexico. This has allowed the previous glut of oil extracted from domestic oil production from shale deposits stored in Cushing (benchmarked by the WTI) to be transported by pipe (instead of rail) to the Gulf of Mexico for refining. As the supply glut eases, the spread between WTI and Brent has accordingly narrowed. In the US, the demand for oil imports is dropping as the country is extracting oil from shale deposits and becoming more energy independent, which in turn has put further downward pressure on Brent oil price. As the US is one of the key major oil importers, the lower oil imports into the country essentially leads to surging inventory globally amid weak demand, which is in turn favorable for jet fuel price. 

THAI, SIA reap the benefits of low jet fuel prices. Jet fuel is the biggest cost component, making up about 70% of an airline’s total costs. The downtrend in jet fuel price means that airlines with the least hedging exposure and a low earnings base would see the most earnings upside. Figure 1 overleaf suggests that THAI and SIA have the highest earnings sensitivity to the recent drop in crude oil due to their low earnings base and hedging positions respectively. AirAsia’s earnings, however, are the least sensitive to jet fuel price movement given its high hedging position (at 40% in 2Q and 20%-25% in 2H), as well as high-margin low cost model, which fetches a net profit margin of 20% vs the less than 5% among its peers under our coverage.

Best time to hedge. In a matter of a few weeks, the shape of the forward curve for jet fuel has shifted from a state of backwardation to that of a contango, meaning that future prices are anticipated to be higher than the current spot price in the longer term. This means that airlines will be in a favorable position to lock in hedging positions from 2H onwards.

Global headlines shake confidence. Recent global news headlines on Europe’s lingering debt crisis, a weakening US economy and the slowing manufacturing activities globally may have been cause for worry. Generally, things are worse than anticipated and central banks and policy makers globally are expected to do whatever it takes to spur growth.  As all eyes are now on Europe’s debt crisis, the region’s failure to support a bailout will negatively affect the global economy.

Passenger demand seems encouraging. Recent statistics from SIA and Thai Airways show that demand for air travel has been resilient across the board, including traffic from/to Europe. In the immediate term, we see passenger travel possibly picking up during the summer holidays as well as due to the on-going Euro football championship and upcoming Olympics. For instance, Thai Airways’ advance bookings indicate that as much as 75% of its seats may be filled in June, well above last year’s 65.7% and 72% in May 2012, while AirAsia’s advance bookings are 3ppt higher than last year’s load factor, suggesting that demand is very encouraging. Furthermore, a weaker Euro will draw long haul travellers to the European region. As such, we think that in the immediate to medium term, air travel demand will remain encouraging and continue to see growth. However, due to intense competition, notably from carriers from the Middle East, the upside on yields may be somewhat limited. All in, given the sharp drop in jet fuel price, we expect breakeven load factors across the airline industry to improve. 

But cargo may disappoint. The weaker than expected global manufacturing data is a source of worry for the air freight market. A recovery can only be expected as towards end-2012, provided that the European debt crisis is contained. SIA has the highest exposure in the cargo segment among the airlines we cover. Despite these concerns, yesterday’s announcement that SIA will commence joint freighter services with China Cargo Airlines between Shanghai and Singapore from 26 June 2012 will stimulate tonnage carried and load factor. These two cities will essentially function as hubs for SIA’s vast global network.  

OVERWEIGHT. We are of the view that the prices of the airline stocks under our coverage are currently at attractive levels. As such, this is an opportune time to accumulate as these counters are trading below their mid-cycle valuations. However, investors should take heed of the cautious global outlook as all eyes are now on how Europe will tackle its debt crisis. We have BUY calls on the stocks across our coverage, with AirAsia being our top pick at a FV of RM4.57, followed by THAI Airways, at a FV of THB35.40.

[Source]

AirAsia surprises investors

By Star Online: Business

17 May 2012

But its plan for significantly higher dividend may not trigger re-rating

PETALING JAYA: AirAsia Bhd surprised its shareholders and analysts when it announced its intention to pay a significantly higher dividend for the financial year ended Dec 31, 2011 (FY11).

“Increasingly, companies are giving out higher dividends and they realised that having a good dividend policy will boost investor sentiment,” an analyst said.

Analysts said the generous dividend from AirAsia may not trigger a re-rating for the counter but re-rating catalysts would come from the initial public offerings of AirAsia X, Thai AirAsia and Indonesia AirAsia.

They also warned that the aviation industry was currently undergoing a turbulence as soaring fuel prices pushed expenses higher.

On Tuesday, AirAsia recommended a first and final single-tier dividend of 50% or five sen per ordinary share of 10 sen for its FY11.

The proposed dividend, which requires the approval of shareholders, would be payable in cash on July 20 to the holders of ordinary shares registered in the Record of Depositors at the close of business on June 21.

Analysts say AirAsia’s re-rating catalysts will come from the initial public offerings of AirAsia X, Thai AirAsia and Indonesia AirAsia

It added that the dividend was tax exempt in the hands of the shareholders and the notice of entitlement would be announced and advertised at a later date.

“The announced five sen dividend was higher than our previous expectations of 2.6 sen (10% payout) and FY10 net dividend of 2.8 sen. The dividend represents about 20% payout of AirAsia's FY11 core earnings of 26 sen,” Hong Leong Investment Bank Research (HLIB Research) said.

HLIB Research is positive on the dividend payout as it believes AirAsia has reached a strong and stable growth and is in position to better reward shareholders.

“We do not expect the dividend payout (of about RM140mil) to have any significant impact on AirAsia's strong cashflow. Furthermore, AirAsia is likely to realise gains from the listing of its 49%-owned AirAsia Thai unit by June,” it said.

It added that the latest development would gradually change investors' perception that the stock not only had high growth but also was in position to declare dividend commencing FY10.

HLIB Research said AirAsia was exposed to risks such as world crisis (war, terrorism and epidemic outbreak), delay in the completion of KL International Airport 2, high jet fuel price and the development of high-speed train between Singapore and Pulau Pinang.

[Source]

AirAsia - 1Q12 set to outperform aviation peers BUY

By Am Research
15 May 2012


1Q12 set to outperform aviation peers

- We maintain BUY on AirAsia Bhd (AA) with an unchanged fair value of RM4.20/share, ahead of 1Q12 results announcement on 23 May. Our fair value continues to peg AA at 12x FY12F earnings. From an operating perspective, AA defied industry trends in 1Q12, registering a 12% YoY growth in raw passenger traffic to 4.8mil (Malaysian operations). Traffic in terms of RPK (revenue-passengerkilometre) grew by 9% given shorter average stage length. Loads were maintained at 80.3% (1Q12) versus 80.1% (1Q11). 

- Growth was driven by the introduction of new routes, e.g. KL-Danang, KL-Semarang, KL-Surat Thani and KLPalembang. AA’s 1Q12 operating statistics underpin  our view that demand for low cost flights remains resilient compared to FSCs. MAS as a comparison has shown a 10% RPK contraction and 5% load factor deterioration in 2M12. 

- We foresee yield improvement in FY12F driven primarily by the exit of Firefly’s jet operations from November 2011. As a yardstick, AA’s yields grew 8% YoY in 4Q11, reversing a 2%-21% YoY yield contraction in the past 2 years. Assuming a seasonal contraction of 8% in 1Q vs. 4Q (historical 3-year trend), we estimate 1Q12 yields at 15.5sen/RPK, implying an 11% YoY growth.

- Despite a 10% higher fuel price YoY, we estimate that 1Q12 core earnings may register flattish YoY growth at RM160milRM170mil. Buffers to the higher fuel prices are:- (1) An 11% YoY yield growth, partly inflated by the absence of fuel surcharge in 1Q11; (2) 9% YoY pax traffic expansion. At our estimated net profit, AA’s 1Q12 will account for 21%-22% of our FY12F earnings of RM767mil and 17%-18% of consensus FY12F estimates of RM920mil (consensus numbers may have included TAA and IAA contribution).

- Fuel price is a key risk to our projections. In 1Q12, jet fuel averaged US$132/barrel vs. our full-year forecast of US$125/barrel (ex-hedging). However, jet fuel price peaked in March and has now eased to US$125/barrel levels (See Chart 1). Any further easing of jet fuel price underpins AA’s earnings expansion in subsequent quarters. Every US$1/barrel drop in jet fuel improves earnings by 1.4%.

- Thai AirAsia (TAA) performed well in 1Q12 – RPK +14% YoY, pax traffic +17% and load factor +1.3pp YoY to 85.6%. Indonesia AirAsia (IAA), however, saw loads contract 2ppts to 77% given IAA’s initiative to strengthen its Surabaya hub by improving connectivity, resulting in a +19% YoY capacity.

- From a valuation standpoint, AA is cheap at an implied 10x FY12F earnings (ex-associate value of RM0.96/share). LCC peer, RyanAir in comparison trades at 13x forward PE.

Price RM3.58 

Fair Value RM4.20

[Source]

Dropped deal won’t affect AirAsia, say analysts

They see challenging times ahead for MAS, but business as usual for the low-cost carrier

PETALING JAYA: While analysts remain sceptical about Malaysia Airlines' (MAS) turnaround plan, some of them opine that AirAsia Bhdwill not be impacted by the unravelling of the share-swap deal betweenKhazanah Nasional Bhd and AirAsia.

Analysts expect MAS to have a challenging time ahead, but they said it would be business as usual for AirAsia.

“Reversal of the share swap could dampen sentiment in MAS shares. MAS will need to move on from here, and its immediate problem is to solve its cashflow,” an analyst said, adding that there were many areas where MAS and AirAsia could work together to save cost.

To recap, last August, major shareholders of MAS and AirAsia agreed to swap shares, with Khazanah agreeing to sell 20.5% of its over 68% stake in MAS to Tune Air Sdn Bhd, while Khazanah bought a 10% stake in AirAsia from Tune Air. As part of the deal, Khazanah was to possibly take a 10% stake in AirAsia's sister company, long-haul low-cost carrierAirAsia X.

It was reported that the Malaysian Airlines System Employees' Union (Maseu) had met with Prime Minister Datuk Seri Najib Tun Razak to express its objection to the comprehensive collaboration framework (CCF) between the two airlines, which involved the share swap.

Kenanga Research believes that the cancellation of the share-swap deal would not bring any material impact to its forecasts. “However, the sentiment in MAS will be negatively affected as the management risks losing the value-added contribution from AirAsia's Tan Sri Tony Fernandes to turn around the operations of MAS.”

“Furthermore, with jet fuel prices hovering at US$130 (RM390) to US$140 (RM420) per barrel, coupled with the low seasons in the first and second quarters, MAS is likely to face a challenging time turning around its earnings in the current financial year ending Dec 31, 2012 (FY12),” it said.

Separately, Kenanga said there were more expectations and surprises for AirAsia in FY12 apart from its CCF with MAS, such as the launch of Japan AirAsia and listing of Thai AirAsia and Indonesia AirAsia.

“At first glance, the share swap will only bring the additional benefits for AirAsia via maintenance and bulk purchasing. Nonetheless, we opine that the cancellation of the share swap will less likely affect its business fundamentals throughout FY12 and FY13 (as compared with MAS),” Kenanga said.

OSK Research said the cancellation of the share-swap deal would not come as a surprise as MAS's unionised workforce had been applying intense pressure to call off the deal. But OSK said it saw some drawbacks in this development as some areas in the CCF between the two competing carriers might not present win-win situations for both airlines.

“As a case in point, the CCF for aircraft purchases may not benefit AirAsia as it already enjoys an upper hand in purchasing Airbus planes (being one of Airbus's top customers). Furthermore, with no equity interest aligned, given the reversal of the share swap, we think the CCF would not be the ultimate goal sought by a stronger carrier,” it said.

Earlier, OSK said AirAsia would still benefit from the capacity cuts by MAS, which was unlikely to boost its capacity anytime soon in view of its ailing financial condition.

“Furthermore, we think the share-swap reversal could boost the sentiment in AirAsia, as foreign investors prefer the low-cost carrier as a standalone business without any link to the Malaysian Government,” it added.

[Source]

Donald Trump on oil prices.

From The Desk Of Donald Trump: Obama's Deal

"Even though gasoline and oil prices are going right through the roof, I have no doubt in my mind that President Obama may need to deal with the sorties to flood the market with oil before the election so that he can at least keep it down a little bit, after the election, it's going to be a mess, you're gonna see number you've never seen. If he wins. Let's hope he doesn't win. So remember what I've said, if he wins, oil and gasoline, through the roof, like never before. I believe a deal was made. It's a soon to see deal, so let's see whether or not I was right, it's not going to be a pretty picture."

Donald Trump opines President Obama will flood the market with oil supply at least until the election in Nov 2012 to push down oil price.
After the election, DT thinks that oil prices is going to skyrocket if President Obama wins.

Remarks:

Sell all oil-input dependent stocks especially the aviation,logistic and transportation sector, eg. AIRASIA,AIRPORT,MAS

Buy O&G sector that extract and sell oil, eg. HIBISCUS, Petronas, DIALOG