Highlights/ Comments

• AirAsia has updated its fleet plan for 2017 with an expected growth of 27 net additional aircrafts (+15.3% yoy). Fleet expansion (comprising of A320NEO and A321NEO) is expected to continue until 2028, with an average of 19-20 aircraft deliveries per annum (not including lease in).

In 2017, AirAsia will be focusing on:-

1) Cost efficiency – take deliveries of higher efficiency A320NEO, increase average aircraft utilization hours to 14 from 12.5, increase digitalization processes, renegotiate for better airport charges and incentives;

2) Improving ancillary income – target RM50/pax in 2017 and RM60/pax in 2018, from current RM47/pax, through Duty Free, Fly-Through and dynamic pricing;

3) Lobbying on One AirAsia – secure governments’ recognition on ASEAN ownership of AirAsia Group without restriction and eventual listing of AirAsia-ASEAN holding company; and 4) Monetizing assets – Partial disposal of AAC leasing company, full disposal of Expedia and IPO exercise for IAA, PAA and AACE.

The monetizing of AAC is on track to be finalized in 2Q17 . For AAC ( valued at US$1-1.2bn ), the value proposition lies on: 1) existing fleet of 29 owned aircrafts and expected another 7 aircrafts to be novated from AirAsia in 2017; 2) readily available clientele – AirAsia Group, one of the largest airline group with strong growth; and 3) large aircraft orderbook of AirAsia group with favorable pricing, which can be injected into AAC. Post disposals, the impact to AirAsia bottomline is up to RM440m per annum (assuming 100% disposal) vs. RM1.7bn group earnings.

AirAsia is also evaluating the idea of entering sales and lease back agreement for another 38 A320s (valued at US$0.9-1.2bn) with AAC.

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 Penang.

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

Reiterate our BUY recommendation with unchanged TP of RM3.60 based on unchanged 10% discount to SOP.

Source: Hong Leong Investment Bank Research - 9 Mar 2017