Results

• Within expectations – Reported 4Q17 core earnings of RM360.8m, bringing FY17 earnings to RM1.5bn, which was 96.6% of HLIB FY17 forecast and 97.3% of consensus.

Deviations

• None.

Dividends

• None. Dividend proposal is only expected during AGM by May 2018. Given the strong operating cashflow and on going monetization exercises, we can expect final dividend of 10-12sen in addition to existing 12sen interim dividend.

Highlights

• YoY: Core earnings dropped by 33.8% on the back of higher cost elements related to fuel prices, staff costs (salary adjustments and higher bonus provisions to reward its employee for the group’s strong earnings for the pass 2 years) and interest costs related to bank facilities charges.

• QoQ: Similarly, core earnings declined by 22.6% mainly on higher fuel costs, staff costs, and bank charges.

• YTD: Core earnings decreased by 4.1%, due to the higher depreciation and lease charges (deliveries of new aircrafts) and lower losses attributed to minority interests of PAA and IAA, indicating stronger earnings for both PAA and IAA.

• Outlook: Capacity growth for 2018 is expected c.12% YoY, with addition of 24 aircrafts (vs. 196 aircrafts by end 2017).

• AirAsia has hedged 16% of 2018 jet fuel requirements at US$63/bbl (vs. current jet fuel price at US$80/bbl). The higher jet fuel costs can be easily offset by RM appreciation and improving operational efficiency.

• IAA (Indonesia) has completed its listing exercise by end 2017 with market capitalization of US$336m, while PAA (Philippines) is expected to be listed by end 2018. The completion of transferring listing status of AirAsia Bhd to AirAsia Group Bhd is targeted by 2Q18. Major shareholder Tony has previously indicated potential re-listing of MAA in KLSE again, which will further monetize the value to MAA and potentially further dividend payout post the exercise.

• Management is confident that AAC divestment will be concluded by end 1Q18. AAC was previously guided to value at US$1-1.2bn (RM4.0-4.8bn). The cash proceeds will be utilized to pare down debts and pay out dividend.

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 ↔

• AirAsia is expected to remain on growth trajectory from the strong capacity expansion, high load factors and low jet fuel costs. Near term catalysts include asset monetization exercises and listing of JV/Associates in 2018, which will further enhance AirAsia’s valuation.

Valuation

• Maintain BUY recommendation with higher TP of RM5.00 (from RM4.18) based on SOP, after imputing valuation for AAC, TAA, IAA and PAA.

Source: Hong Leong Investment Bank Research - 28 Feb 2018