Aviation sector
Maintain overweight: We think there is sizeable value in AirAsia's and MAS' training academies given the imminent shortage of aviation professionals. These academies could potentially be commercialised to provide training for third party airlines and individuals. Most airlines in the region do not have a dedicated training programme and rely on recruiting from the market. We think this practice is not sustainable for the long term as it raises costs and the manpower availability may be patchy.

The aviation industry is growing rapidly, faster than its ability to recruit qualified professionals. Boeing predicts that airlines will need to double the number of current staff within the next 20 years. Manpower supply constraints will lead to an opportunity for aviation schools to flourish. AirAsia and MAS are somewhat insulated from this risk because both have a structured recruitment programme and world-class training facilities.

We explore the idea of creating a new entity which encompasses all the flying schools in Malaysia and the training academies (AirAsia and MAS), and setting up a public listed aviation training school. This could potentially unleash RM900 million to RM1.7 billion of value based on a multiple earnings range of eight to15 times (current education index is trading at 20 times PER). We also think this is beneficial to free up capital tied up in the training facilities and unshackle the burden of subsidising new recruits.

The existing schools/academies already have many attractive attributes: (i) equipped with the latest aviation technology (simulators, training equipment); (ii) high aviation standard recognition; and (iii) competitive costs (training cost, living expenses). Malaysia has a very high aviation standard and its staff are highly sought after by airlines all over the world. If commercialised, the one-stop centre will also be supported by two strong anchor customers, AirAsia and MAS, which have aggressive growth plans over the next five years. It is not overambitious to think that Malaysia could become a leading aviation training centre in the region.

We remain "overweight" on aviation; "buy" on AirAsia and MAS. The farsightedness of having a structured recruitment programme is one of the many commendable attributes of AirAsia and MAS. However, the market has not priced in this intrinsic value. We think on a conceptual basis, there is potentially RM350 million to RM650 million of value that can be crystallised from the creation of this aviation training centre for both AirAsia and MAS (AirAsia = 13 to 24 sen/share, MAS = 10 to 19 sen/share). - Maybank IB Research, Oct 14


This article appeared in The Edge Financial Daily, October 15, 2010.