Investment Highlights

• We attended AirAsia’s Investor Day yesterday, paying a visit to AirAsia Teleport’s warehouse. Teleport is the cargo and logistics platform for AirAsia, aiming to utilise the airline’s aircraft belly space to move goods seamlessly in Southeast Asia, taking advantage of its existing vast network in the region.

• The key takeaways for our visit:

1) Disrupting the logistics sector: Teleport has a huge ambition in reimagining the express fulfillment for Southeast Asia’s logistics supply chain, aiming to shorten the traditional air cargo fulfillment process of 138 hours to only 12 hours. Speed and infrastructure are its key competitive edge, with continuous effort to position and prepare itself in the market to meet future demand and eventually gain from the e-commerce sector boom.

2) The business blueprint of Teleport: The company highlighted five plans of action, including integrating a digital “operating system”, first- and last-mile delivery and transact, allowing e-commerce storage at its airport hubs, cross-border connectivity, and driving for sameday delivery as standard.

3) Multiple business models and market presence:

Teleport plans to expand in two primary business lines i.e. Teleport business (deals with cargo and parcels) and Teleport social (deals with sellers and buyers via social media). This is in line with its objective to provide end-to-end logistics solutions for social commerce as it plans to shift its business focus from B2B to expanding into B2C, and eventually tapping into C2C, given the huge growth potential in the untapped market

• We believe there could be unrealized potential value in Teleport, leveraging its huge growth potential in the ecommerce sector. According to a report issued jointly by Google and Singapore’s Temasek, they are projecting the e-commerce sector to exceed a gross merchandize value (GMV) of US$100bil by 2025. However, we are equally cautious on the challenging business environment that could hinder the growth of the business, particularly the market readiness and country’s policies.

• We maintain our SELL recommendation on AirAsia with an unchanged fair value of RM1.45 based on 8x FY20F EPS. The positive outlook for Malaysia’s tourist arrivals (ahead of the Visit Malaysia Year 2020) will serve as a tailwind to AirAsia’s key strategy to aggressively grow its top line. However, this will be eroded by AirAsia’s higher cost structure arising from its planes that are now largely leased vs. owned previously.

Source: AmInvest Research - 1 Nov 2019