Investment Highlights

• We maintain our BUY call with AirAsia with an unchanged fair value of RM3.63 per share, based on 10x CY18 P/E, consistent with its regional and global peers. We make no changes to our FY17-19F earnings forecasts. Key risks to our call include further weakening of RM against USD, and tougher-than-anticipated competition in the sector.

• AirAsia’s 1HFY17 core net profit off RM649.7m came in within expectations, accounting for 53% of our full year forecast and 50% of consensus. An interim dividend of 12.0 sen per share was declared.

• Core revenue for 2QFY17 grew 19% YoY to RM2.38bil. This was driven by a 10% YoY growth in total passenger carried to 9.61mil passengers, with revenue passenger kilometers (RPK) increasing 11% YoY to 12.52bil. Seat capacity in 2QFY17 increased 8% YoY to 10.83mil seats, with available seat kilometers (ASK) increasing 8% YoY to 14.2bil. This translated into a 2%-pts higher YoY seat load factor to 89%. Revenue/ASK (RASK) increased 11% YoY to 15.35sen, with average fare increasing 10% YoY.

• AirAsia’s 2Q17 core net operating profit increased 59% YoY to RM395.4mil, due to the reduction in maintenance and overhaul expenses. Overall, group cost/ASK (CASK) increased 5% YoY to 13.22sen, and CASK ex-fuel decreased 2% YoY to 8.21sen.

• AirAsia’s associates sustained growth in load factor and total passenger carried in 2QFY17. Thai AirAsia’s revenue grew 7% YoY to THB8.35bil, due to a 3-ppts higher seat load factor to 86%, and a 8% YoY higher RPK, which outstripped a 5% YoY increase in ASK. However, operating profit dropped 48% YoY to THB397.0bil, mainly due to 9% YoY increase in CASK.

• AirAsia India’s revenue grew 84% YoY to INR3.48bil in 2Q17, due to a 3-ppt higher seat load factor to 90%, and a 62% YoY higher RPK, which outstripped a 55% YoY increase in ASK. However, operating loss widened 38% YoY to INR242.4mil, mainly due to a 16% YoY increase in CASK to 314.55 sen.

• We expect AirAsia to record another commendable performance in FY17 due to a sustained strong demand in the region. It is planning to increase an additional 22 planes through a combination of finance and operating leases in 2H17. We also believe the risk of potential further escalation in costs to be minimal, with 78% of its FY17 fuel requirement hedged at USD60/barrel, and 15% hedged for 1HFY18 at USD61 per barrel.

Source: AmInvest Research - 30 Aug 2017