Results

• Within Expectations – Reported 4Q15 core earnings at RM264.7m and FY15 at RM595.6m, 105.1% of HLIB’s FY15 forecast and 99.5% of consensus.

Deviations

• None.

Dividends

• None. Usually announced in 1H of the next financial year. We expect net dividend of 4.0 sen (2.9% net dividend yield).

Highlights

• Excluding RM450m maintenance charge to associates, FY15 revenue improved 8.3% yoy to RM5.9bn on stronger pax traffics (RPK: +11.0% yoy). Yield (ticket yield/RPK) declined 6.0% yoy to 12.8sen due to termination of fuel surcharges since early 2015. Nevertheless, yield showed significant improvements in 4Q15 at 14.0sen given the more rational capacity deployed in the system (MAS cutting capacity and AirAsia slowed down expansion).

• Despite MYR depreciation against US$ (See Figure #9), overall margin improved in FY15 due to lower jet fuel costs (see Figure#8), which lowered unit cost operation.

• TAA (Thailand) operation remained healthy with expected continued strong growth in 2016, leveraging on the recovery of tourism industry (especially from China).

• Recognized further RM172.7m losses in IAA (Indonesia) in 4Q15 (despite the negative equity position) after AirAsia convinced auditor on upcoming 1H16 restructuring exercise. Back in 9M15, AirAsia had recognized RM625m losses from IAA (due to accumulated unrecognized losses), after Ai rAsia converted RM625m receivables into perpetual sukuk.

• AirAsia also recognized RM78m losses (including part of the previously accumulated unrecognized losses) in PAA (Philippines) in 4Q15, despite the usual practice of not recognizing losses due to negative equity position. AirAsia is expected to convert US$20m (RM80m) rec eivables from PAA into preference share by 1H16.

• Management remained positive on turnaround of IAA and PAA by 2016 with the ongoing restructuring exercise. The turnaround will shed more light to IPO exercises in 2018.

Risks

• World crisis (i.e. war, terrorism and epidemic outbreak), shutdown of KLIA2, surge in jet fuel price and high speed train infrastructure between Singapore and P. Pinang.

Forecasts

• We have increased FY16-17 earnings by +8.0% and +18.8% after adjusted for lower jet fuel cost assumptions.

Rating

BUY

Positives

• 1) Beneficiary of strong ai r traffic into Malaysia, in line with government initiatives to boost tourism sectors; 2) Largest and lowest cost LCC in Asia with strong brand name; 3) Low jet fuel price; and 4) Strong ancillary income.

Negatives

• 1) Strengthening of US$; and 2) Continued losses from associates IAA and PAA.

Valuation

• Maintained BUY with higher Target Price of RM2.14 (From RM2.00) based on SOP, post earnings adjustments.

Source: Hong Leong Investment Bank Research - 29 Feb 2016