Highlights

• Responding to changes in the global economic landscape (lower crude oil price and RM depreciation), PM Najib has announced a number of proactive measures to ensure Malaysia’s economy growth and development.

• Key Highlights: 1) Intensify the tourism industry. 2) Waive visa fees for tourists (including China). 3) Increase the frequency and extend the shopping hours of nationwide mega sales. 4) Accelerate promotion of domestic tourism through competitive domestic air fares.

Comment

• The government aims to encourage tourist arrivals (benefits to AirAsia and MAHB), in order to generate tourists’ receipts (inflow of foreign currencies). We expect tourist arrivals to improve in 2015 as the impact from 2014 incidents (MH370 and MH17 incidents, Sabah kidnapping incidents and Thailand coup) start to normalize. MAHB has reported passenger movements on China Sector showing sign of improvement with lower decline yoy in Dec.

• The government has budgeted RM316m for tourism industry in order to boost tourists’ receipts in conjunction with Malaysia Year of Festive 2015.

• At the same time, the government also encourages the locals to travel within Malaysia in order to curb the outflow of RM (defending RM from further weakening).

• The competitive domestic air fares measure is relatively in line with our existing assumption of AirAsia passenger yields declining 7.5% yoy. We expect airlines to offer more promotional fares to entice air travels in 2015 given the recent QZ8501 incident and expected consumer uncertainties. However, the lower yields (as well as depreciating RM) will only partially offset the benefits from the slump in jet fuel price, i.e. net benefit to AirAsia.

Risks

• World crisis (ie. war, tourism and epidemic outbreak), delay in KLIA2 completion, high jet fuel price and the development of high speed train between Singapore and Pulau Pinang.

Forecasts

• Unchanged.

Rating

• Overweight

Positives

• Government initiatives to boost tourist arrivals.
• Liberalization of ASEAN open sky policy.
• Implementation of ASEAN Economic Community.
• Low jet fuel cost.

Negatives

• Air incidents.
• Yield pressures due to overwhelming capacity growth.

Valuation

• Maintained BUY on AirAsia with unchanged target price of RM3.30 based on SOP.
• Maintained BUY on MAHB with unchanged target price of RM9.38 based on SOP.

Source: Hong Leong Investment Bank Research - 21 Jan 2015