AirAsia announced its 4QFY17 operating statistics, with its passenger load for consolidated AOCs operation (Malaysia, Indonesia and Philippines) stood at 87.5% (vs load of 86.6% in 4Q16). Its passenger volume surged by 17% YoY to 10.4m, as 6 aircraft was added during the quarter, resulting in its available seat km (ASK) to increase by 14% YoY. Meanwhile, Thailand (TAA) and India (AAI) reported load factors of 88% and 85% respectively. Its Japan (AAJ) operation commenced its first flight on 29 October 2017. AirAsia’s 4QFY17 results and passenger yield data is expected to be released on 27th February 2018. We adjust our forex assumptions for FY18-19F to RM4.10/USD (previously RM4.30/USD) to be in-line with our internal forecast. This resulted in an increase in our earnings assumptions by an average of 18.3%. We increase our target price to RM5.40 (previously RM3.69), ascribing a higher valuation of 10x FY18 EPS (previously 8x) as we believe the sentiment will remain positive going forward due to stronger Ringgit, our in-house view that crude oil price would weaken from current level and potential corporate exercise (i.e. unlocking of assets e.g. aircraft leasing business of Asia Aviation Capital). Hence we reaffirm our Outperform call on AirAsia.

• 4QFY17 statistics. During the quarter, AirAsia consolidated operations added 6 aircraft to its fleet size (i.e. 4 for Malaysia, 1 each for Philippines and Indonesia), resulting in ASK rising by 14% YoY to 15.6bn. This was on the back of a 16% YoY increase in seat capacity to 11.9m. Its passengers carried increased by 17% to 10.4m, with revenue-passenger-kilometres (RPK) increased by 15% YoY to 13.4bn. Hence, it recorded higher passenger load by 0.9ppts to 87.5% (vs 4Q16’s load at 86.6%). We believe the demand in air travel during the quarter was mainly due to seasonally strong peak period from year-end holidays and festivities. For full year FY17, its traffic numbers increased by 11.4% YoY, exceeding its seats capacity growth of 9.5% YoY, with load increased by 1.3ppts to 88%. (Table 1)

• Associates’ performance. Thailand (TAA) remained strong, reporting a load factor of 88.5% on the back of passenger volume and capacity growing by 22.3% YoY and 12.8% YoY respectively, mainly driven by two additional aircraft during the quarter. Meanwhile, India (AAI) load was strong at 85.4%, as 1 additional aircraft was added to its fleet. For full year FY17, an average load factor of 87% was reported at TAA and AAI respectively. (Table 2-3)

Source: PublicInvest Research - 29 Jan 2018