AirAsia’s registered higher 3Q17 revenue of RM2,448m (+14.8% yoy) and net profit of RM363m (+9.3% yoy). This is mainly due to higher passengers carried (+12.0 yoy) and capacity (+14.3%). Despite recording double-digit growth in revenue, the bottom line only increased slightly due to higher operating costs. 9M17 core net profit constitutes 74% of our FY17 forecast and 86% of the consensus estimate. We make no changes to our full-year forecast as we expect 4Q17 to be stronger due to the holiday season. Maintain HOLD with an unchanged TP of RM3.41, based on 10x FY18E EPS.

Higher Revenue and Net Profit in 3Q17

AirAsia’s revenue rose 14.8% yoy to RM2.4bn in 3Q17, on the back of higher passenger growth and higher ASK growth. ASK increased by 14% yoy on the back of a higher aircraft utilisation rate (approximately 13.61 hours/day for 3Q17 compared to 12.23 hours/day in 3Q16), resulting in RASK declining by 1% yoy. Average base fares decreased by 2% yoy (3Q16: RM176 vs. 3Q17: RM172) as the airline reduced fares to compete with other airlines. Operational costs saw an overall increase of 20.5% yoy. Key operating expenses such as staff costs rose 18% yoy, while fuel expenses increased by 18% yoy on the back of higher fuel prices.

Monetisation of Assets

AirAsia is selling its shareholding in the Asia Aviation Centre of Excellence (AACE) and the company is expecting to receive US$100m cash proceeds in 4Q17. The Group is also disposing of Ground Team Red Malaysia (GTR) and will receive US$89m cash proceeds in December this year.

Maintain HOLD With Unchanged Target Price of RM3.41

We make no changes to our earnings although 9M17 net profit constitutes 65% of our FY17E forecast (74% of our core net profit forecast). This is because we expect earnings to be seasonally stronger in 4Q17. Moreover, AirAsia has increased its domestic market share in the Malaysia (46%→54%), Thailand (30%→31%) and Philippines (14%→16%). Maintain HOLD with unchanged target price of RM3.41, based on 10x FY18E EPS. Key risks: aggressive fare cuts from heightened competition, stronger/weaker dollar and higher/lower fuel costs. This note marks a transfer of coverage.

Source: Affin Hwang Research - 30 Nov 2017