Journey to Wealth

AirAsia - Still Above The Clouds

kiasutrader
Publish date: Wed, 31 Oct 2012, 09:14 AM

Despite  flattish  numbers  from  its  Indonesian  business,  AirAsia  Group's  3Q operating  stats  were  commendable,  led  by  Thailand's  stellar  growth  on aggressive expansion. With yields expected to climb 6% y-o-y following MAS' exit from  the  LCC  space,  we  estimate  that  AirAsia  will  record  revenue  of  RM1.24bn and a core net profit (inclusive of its associates) of RM225.3m, representing a y-o-y  increase  of  15%  and  17%  respectively.  We  keep  our  earnings  forecast  on AirAsia with our FV unchanged at RM3.91. Maintain BUY. 
 
Commendable  stats.  3Q  operating  stats  for  the  AirAsia  Group  were  commendable, although its Indonesia side reported flattish numbers as it was operating  a smaller fleet with  one  aircraft  less  compared  to  the  corresponding  period  last  year.  Meanwhile Thailand  reported  a  stellar  growth  due  to  its  aggressive  expansion,  as  it  added  four additional  aircraft.  Malaysia  AirAsia  (MAA),  Indonesia  AirAsia  (IAA)  and  Thai  AirAsia (TAA) reported Revenue Passenger KM (RPK) growth of 8.8%,  -0.3% and 14.7% y-o-y respectively, on the back of a load factor of 76.7% (-0.8ppts y-o-y), 77.6% (-0.2ppts) and 81.7%  (+2ppts).  On  a  YTD  basis,  the  RPK  numbers  reported  by  MAA,  IAA  and  TAA were  up  8.1%,  3.4%  and  14.6%  respectively.  On  a  q-o-q  basis,  it  was  seasonally weaker  for  MAA  due  to  Ramadhan  celebration,  although  this  was  not  the  case  for Indonesia  and  Thailand.  Indonesia  typically  records  stronger  traffic  during  Ramadhan given  its  massive  nationwide  exodus,  while  improved  summer  travel  demand  will  spur Thailand's traffic.
 
Within forecasts. MAA's 9M YTD traffic came in marginally better than our forecast at 74% of the full-year RPK, compared with  73% in the year-ago period. This is likely the result  of  its  focus  on  shortening  the  average  stage  length.  For  IAA  and  TAA,  the numbers  were  also  in  line.  Average  stage  lengths  for  the  three  carriers  were  lower  by 1.1%, 8.9% and 5.0% respectively from last year, suggesting that aircraft utilisation were optimised  for shorter  routes  which are  mostly  domestic.  This  bodes  well  for  yields  and margins (from higher ancillary revenue turnover), and ultimately profitability. 

3Q earnings outlook. With yields expected to be higher by 6% y-o-y (at 19.9sen/RPK), thanks to MAS' exit from the LCC space, we estimate that AirAsia will record a revenue of  RM1.24bn  and  a  core  net  profit  (inclusive  of  its  associates)  of  RM225.3m, representing y-o-y increases of 15% and 17% respectively.  
 
Maintain  BUY.  We  keep  our  earnings  forecast  on  AirAsia  with  our  FV  unchanged  at RM3.91 premised at 12x PE. Maintain BUY.
Source: OSK
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