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Author: kltrader   |   Latest post: Thu, 20 Sep 2018, 09:25 AM

 

AirAsia – Closer to the Prize

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Macquarie Equities Research (MQ Research) maintained their Outperform rating on low cost carrier AirAsia Group (AirAsia) with a lower target price (TP) of RM5.00 (from RM6.30). In its report last Wednesday (8 Aug), MQ Research said that the TP excludes their estimated 75 sen special dividend, expected upon completion of the aircraft portfolio monetisation. AirAsia’s share price closed down 1.2% to RM3.45 last Friday.

Event

  • MQ Research reiterated their Outperform rating on Marquee stock idea AirAsia Group, with a target price of RM5.00 ahead of 2Q18 results due on 30 Aug. While lower year-on-year (YoY) profits are expected – cost outpacing revenue – MQ Research’s focus would be on updates re aircraft portfolio monetisation. In the last two months, newsflow has been positive, with 30 out of the 84 aircraft transferred to buyer, along with US$355mn proceeds received (12% of market cap).

Impact

  • MQ Research pencilled in a 75 sen special dividend post successful completion of the aircraft portfolio monetisation after considering AirAsia’s capex and balance sheet strength. MQ Research expects AirAsia to turn net cash, thus allowing it to pay most of the proceeds. To date, AirAsia has transferred 30 out of the 84 aircraft and have received gross proceeds of US$355mn, 30% of the US$1,185mn consideration.
  • 2Q op stats decent but weaker than expected. Traffic up 9% slower than the 12% capacity increase, resulting in load factor of 85.5%, 3.7ppt lower YoY. Culprits were its Malaysia operations, which saw demand not picking up to the high 13% growth in capacity, and its Indonesia biz, likely due to lower demand post the Bali volcano eruption.
  • 2Q18 profit after tax (PAT) of RM278mn expected, 32% down YoY. This assumes flat pax yields, as MQ Research believes promotions were used to encourage demand. Revenue expected to grow 8%, slower than the cost increase of 18%, largely due to an increase in the fuel bill (+27% YoY) and maintenance (+47% YoY).

Earnings and Target Price Revision

  • FY18E PAT cut 23% on higher fuel cost. FY19-20E PAT cut 39% each on mix of higher fuel cost and aircraft portfolio monetisation impact. Revised TP of RM5.00, excluding 75 sen special dividend expectation; including the estimated special dividend, MQ Research’s fair value cut is 9%.

Price Catalyst

  • 12-month price target: RM5.00 based on an enterprise value to earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EV/EBITDAR) methodology.
  • Catalyst: 2Q18 due on 30 Aug, special dividends, more newsflow on digital ventures

Action and Recommendation

  • Outperform reiterated.

Source: Macquarie Research - 13 Aug 2018

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Labels: AIRASIA

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