Period

2Q15/1H15.

Actual vs. Expectations

AIRASIA’s 1H15 core net profit of RM262m accounts for 41% both our and consensus’ fullyear estimates. We deem the results as inline as we are expecting a stronger 2H15 backed by a seasonally stronger quarter in 4Q15.

Dividends

No dividend declared in 2Q15, as expected.

Key Results Highlights

YoY, AIRASIA’s 1H15 core net profit saw a major improvement by 72% to RM262m despite a flattish revenue of RM2,622m. This is mainly due to the improvements in operating margins driven by lower fuel costs that came down by 14%, coupled with better contribution from its associates (+569%) i.e. TAA, AAE Travel. That aside, average fare and ancillary per pax also seen minor improvements by 1% to RM133.1/pax and RM42.6/pax, respectively.

QoQ, its 2Q15 revenue improved by 2% to RM1,325m, but its core net profit declined by 28% to RM109m. The decline in profitability was mainly driven by several factors, i.e. spike in staff costs (+12%) due to late bonus payments, higher financing costs (+7%) and also a lower contribution from its associates (-65%). On a positive note, its average fare per pax has seen an improvement of 4% to RM135.5/pax, while its passenger load factor remains healthy at 80% (+5ppt) as a result of better capacity management.

Outlook

Moving forward, we believe that should the yields be maintained at current levels, AIRASIA will continue to benefit from lower jet fuel costs. That aside, management highlighted in its teleconference that they are highly confident in turning around its Indonesian (IAA) and Philippines (PAA) associates by year-end. Their plan of raising funds of c.USD200m for both IAA and PAA through convertible bond and equity injection is still on-track and management is targeting to complete the exercise by year-end.

Change to Forecasts

No change in our earnings estimates.

Rating

Maintain OUTPERFORM

Valuation

We are reiterating our OUTPERFORM call on AIRASIA with a lower Target Price of RM1.86 based on 1.32x FY15E PBV, after factoring in the potential impairment of RM1.6b in our Scenario 2 analysis report dated 19th June 15.

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 - 21 Aug 2015