Reported 9MFY18 core PATMI of RM821.3m (-25.1% YoY), below HLIB forecast and consensus, dragged by the increasing jet fuel cost. In terms of AOC, MAA was still registering profits, partially offset by the losses in other AOCs. Management expects stronger earnings in seasonally stronger demand 4QFY18, while jet fuel price has trended downwards. Disposal of aircrafts exercise (to BBAM) is almost complete and a special dividend of 40s/share was declared. Maintain BUY with lower TP: RM3.85 (from RM4.00), based on SOP: RM4.30).
Below expectation. AirAsia Group (AAG) reported a core PATMI of RM155.4m for 3QFY18 and RM821.3m for 9MFY18, achieving 57.1% of HLIB’s FY18 forecast and 59.3% of consensus, dragged by the increase in jet fuel price YTD. On a positive note, Malaysia operation (MAA) was still registering strong profit despite the high jet fuel price environment and was able to offset the loss contribution from other country operations.
Dividend. Declared one-off special dividend of 40sen/share following the monetization of its aircraft assets (disposal to BBAM).
QoQ/YoY. Core PATMI declined by 51.3% QoQ and 66.7% YoY, dragged by the higher jet fuel prices, resulting lower group operating profits as well as loss attribution from TAA during the quarter.
YTD. Core PATMI declined 25.1%, mainly on higher jet fuel costs, competitive market environment, closure of Boracay Island (Philippines), volcanic disruption (Indonesia) and slowdown in Chinese tourist into ASEAN.
Outlook: Management will continue to focus on maximising revenue, increase ancillary income, improving its operational efficiency and reduce its non-fuel cost/unit to offset the higher jet fuel cost. Management guided positive forward booking outlook into 4QFY18. Management has hedged 48% of 1QFY19 jet fuel requirement at USD67.24/bbl (brent) and 27% of 2QFY19 at USD65.40/bbl (brent).
IAA & PAA: IAA was affected by volcano eruptions in Bali-Lombok islands while PAA was affected by closure of Boracay island. We expect PAA result to improve in 4QFY18, following the re-instatement of flights as Boracay island reopened in Oct 2018 while IAA to only show recovery in FY19. IAA will proceed with secondary listing exercise to raise funds (c. USD100-150m) by mid-2019. PAA is still on track for listing in 2H19.
AAI & JAA: Both AAI & JAA remained in the red as both AOCs were still in expansion and start-up stages. Management previously guided further cash injection of USD15- 20m is needed before both AOCs turn profitable in FY2020-21.
Forecast. Cut earnings for FY18 by 22.8%, FY19 by 9.7% and 10.7%, following the assumption of higher jet fuel costs.
Maintain BUY, TP: RM3.85. We maintain our BUY recommendation on AAG with TP of RM3.85 (from RM4.00), based on 10% discount to SOP of RM4.30. We maintain positive outlook on AAG, given: (1) declining jet fuel price; (2) potentially higher yield in view of competitors cutting capacities; and (3) strong balance sheet position with net cash of RM1.1bn as at end Sep 2018.
Source: Hong Leong Investment Bank Research - 30 Nov 2018
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