Period

1Q15

Actual vs. Expectations

AIRASIA’s 1Q15 core net profit of RM152.9m came in within expectations, accounting for 24% and 20% of our and streets’ full-year estimate, respectively.

Dividends

No dividend declared, as expected.

Key Results Highlights

YoY, AIRASIA’s 1Q15 core net profit improved by 21% to RM152.9m despite flattish revenue of RM1296.8m. The lift in earnings was mainly driven by lower jet fuel costs (-9%) coupled with higher associate contribution of RM37.2m (+128%) from Thai AirAsia that improved as the market in Thailand recovered, which led to higher load factor of 83% vis-à-vis 80% back in 1Q14.

QoQ, while its 1Q15 revenue declined by 12%, its core net profit grew by 51% to RM152.9m mainly driven by lower jet fuel costs (-22%) and staff costs (-14%). The decline in revenue was partly due to lower yields arising from lower average fare (-6%), ancillary per pax (-3%) coupled with a weaker load of 75% (-4ppt) due to seasonality.

Outlook

Moving forward, we believe that should its yields be maintained at current levels, AIRASIA would continue to benefit from lower jet fuel costs. That aside, management is still striving to achieve its ancillary target of RM50/pax by year-end. As for its Indonesia and Philippines associates, management is planning to list both of these entities by 2017 and 2018, which we believe is still achievable should they manage to turn around them by 2016.

Change to Forecasts

No changes in our earnings estimates.

Rating

Maintain OUTPERFORM

Valuation

We are reiterating our OUTPERFORM call on AIRASIA with an unchanged Target Price of RM2.55 based on 11x FY15 PER that is still below its peers’ average of 21x. That said, we also believe that it will continue to benefit under current operating environment due to lower jet fuel costs.

Risks to Our Call

Sharp decline in airfares on intensified price war.

Sharp fluctuation in currency and fuel price.

War, global political risk, pandemic.

Source: Kenanga Research - 29 May 2015