Results

• Within Expectations – Reported 4Q16 core earnings of RM549.0m and FY16 of RM1.8bn, achieving 101.2% of HLIB FY16 forecast, but above consensus at 117.3%.

Deviations

• None.

Dividends

• None. AirAsia usually recommends dividend in 2Q of the year.

Highlights

• YoY: Revenue jumped by 12.7% to RM1.9bn, driven by higher pax traffics. Despite higher bonus provisions (to reward staffs on AirAsia’s record earnings in 2016) by RM90m in 4Q16, core earnings increased by 65.6% on higher revenue and lower average jet fuel price.
• QoQ: Core earnings improved by 34.2% mainly due to higher yields (due to seasonality).
• FY16: Core earnings grew by 168.8% yoy, on higher traffics, improved ancillary income, lower jet fuel costs and stronger JV/Associates contributions (excl. IAA, PAA, AAI and JAA).
• Disposal of AAC (valued at US$1bn/RM4.4bn based on offer bid) is still on track to complete in 2Q17. The other ongoing assets monetization exercises include AACOE (RM200m based on 10x P/E) and Expedia (US$86m/RM380m based on disposal exercise back in 2015). The proceeds will be used for debt repayment (improve net gearing) and dividend payout.
• IPO Exercises: Listing of IAA and PAA are still targeted to complete by 2Q17, following its operational profits in recent quarters. AirAsia is also exploring dual listing into Hong Kong Exchange or New York Exchange for better valuation (value unlocking).
• Outlook: Guided continued strong load factor in 1Q17 and trending in 2017. Nevertheless, management expects yield deterioration, as AirAsia focuses on load factors. Management remains confident on its low cost structures and continues to outperform other competitors. Management guided for continued strong earnings in 2017 from capacity expansion (additional 30 A320s), higher ancillary income, strong load factors and low jet fuel costs (hedged 74% of requirement at US$60/bbl in 2017).

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

• Unchanged

Rating

BUY↔

• Despite the concern of RM depreciation, AirAsia is expected to remain on growth trajectory from the strong capacity expansion, high load factors and low jet fuel costs. Asset monetization and JV/Associates IPO exercises in 2017 will enhance AirAsia’s valuation.

Valuation

• Uphold BUY recommendation with unchanged TP: RM3.60 based on SOP (accounted for 20% higher share base in 2017, post completion of share placement by end 2016).

Source: Hong Leong Investment Bank Research - 24 Feb 2017