Highlights/ Comments

• Last Friday, Bali, Indonesia was shocked by ash spewing from Mount Raung located at the eastern end of the island of Java which prompt the local government to close four airport in the region for safety purposes. The affected airports are Denpasar, Lombok, Banyuwangi and Jember.

• Some notable affected airlines that service flight to Bali are Jetstar, Virgin Australia, Indo AirAsia and Indo AirAsia X.

• However, the airports are able to recommence from time to time depending on Mount Raung condition, hence airlines are still servicing its customer if the condition permits them. 

• As of Sunday 12th July 2015 afternoon, local government gave airlines the green light to continue service while still maintaining a high alert on the volcano activities.

• We would not be overly concerned unless the situation persists which will result in Indo AirAsia (IAA) losing Indonesian travelers during the Eidul Fitr holiday in a weeks’ time (Muslim holiday after Ramadhan) as well as travelers from Australia (Bali is Australian hot spot during winter season).

Risks

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

Valuation

• Maintained BUY and TP of RM3.11 based on unchanged 10% discount to SOP.