• HLIB maintains a BUY rating on AIRASIA with an institutional target price of RM3.15, or 19% upside potential. AIRASIA’s share prices corrected 15.6% from a high of RM2.94 (26 Dec 2014) to a low of RM2.48 (7 Jan) before trending sideways to end at RM2.64 on 18 Feb. Currently, AIRASIA is trading at 8.5x FY15 P/E, about 20% discount to its 5-year historical P/E. Hence, we believe current price weakness presents good buying opportunity as potential hook-ups in RSI and slow stochastic indicators could suggest downside risks are ebbing and implying imminent technical rebound from ongoing triangle consolidation.
• HLIB’s BUY rating is premised on 1) Sustaining lowest cost LCC operator in Asia with largest network and strong brand name; 2) Low jet fuel price; 3) Increasing ancillary income; and 4) Routes rationalization of major competitor MAS.
• Beneficiary of sliding oil prices. Jet fuel price plunged significantly to US$60/barrel (dropped 50% vs. US$120/bbl in early 2014), due to global production oversupply issue. AirAsia is benefiting from the slump in jet fuel price, given over 60% of its operational cost is attributed to jet fuel. AirAsia has hedged 50% of jet fuel requirement for 2015 at US$88/bbl with the remaining 50% leveraging on current US$60-65/bbl levels (average for FY15 likely to be below US$80/bbl).
• Ripe for a technical rebound. Immediate resistance levels are situated nearby RM2.72 (10-d/30-d SMAs) and RM2.78 (downtrend line). A decisive breakout above RM2.78 will spur prices to retest RM2.85 (intraday high of 14 Jan) and 52- week high of RM2.94 (26 Dec high) zones.
• Key supports are located at RM2.60 and RM 2.53 (61.8% FR) Cut loss below RM2.47 (3sen below 200-d SMA of RM2.50).

Source: Hong Leong Investment Bank Research - 23 Feb 2015