Highlights/ Comments

• AirAsia has announced the disposal of 25% stake (6,144,280 shares) in AAE Travel PTE. Ltd. To Expedia for consideration of US$86.25m (RM306m).

• AirAsia is expected to report a gain of US$78.8m (RM279.m) from the disposal exercise, which will be recognized in 1Q15.

• We do not expect material impact to AirAsia’s bottomline, given the existing 50% stake in AAE only contributed 2.24% and 3.96% to AirAsia’s core earnings in FY13 and 9M14, respectively. FY13 9M14 RMm RMm AAE Travel Pte Ltd Contribution 8.10 20.30 % of AirAsia’s core earnings 2.24% 3.96%

• Based on our estimation, the disposal is transacted based on more than 60x PE, accounting for the potential strong future earnings growth of AAE.

• We are relatively positive on the disposal, given the high valuation. Furthermore, AirAsia still maintains 25% stake in AAE, protecting its interest in the joint collaboration between AAE and AirAsia Group.

• We remained positive on AirAsia given the potential recovery growth of air travel demand, less pressure on system yields, and the low jet fuel price environment.

Risks

• World crisis (i.e. war, terrorism and epidemic outbreak); surge in jet fuel price; US$ appreciation; weak air travel demand; and high speed train infrastructure between Singapore and Pulau Pinang.

Forecasts

• Unchanged

Rating

• Buy

Positives

• 1) Sustaining lowest cost LCC operator in Asiawith largest network and strong brand name; 2) Low jet fuel price; 3) Increasing ancillary income; and 4) Routes rationalization of major competitor MAS.

Negatives

• 1) Higher cost of living faced by consumers(from GST implementation); and 2) Regional air-demand slowdown and political issues.

Valuation

• Maintained BUY on AirAsia with unchanged target price of RM3.15 based on SOP as demand for air travel looks positive.

Source: Hong Leong Investment Bank Research - 18 Feb 2015