Period

3Q15/9M15.

Actual vs. Expectations

AIRASIA registered core net profit (CNP) of RM443.6m in 9M15 which we deem as within our, but above consensus, full-year estimates, with hit rates of 68% and 80%, respectively. We are expecting a strong fourth quarter performance due to the holiday season. Meanwhile, consensus could have been too conservative with their yield assumptions.

Dividends

No dividend declared in 3Q15, as expected.

Key Results Highlights

YoY, 9M15 came in with a net loss of RM13.4m, due to the write-down of accumulated losses in AirAsia Indonesia and AirAsia India arising from the recent “capital injection” into these two associates. However, should we strip-off these one-offs; we CNP would have been RM443.6m (+76%). The improvements are mainly driven by several factors such as: (i) improvements in RPK (+11%), (ii) yield (+5%) driven by the improvements in average fare (+6%), and (iii) lower CASK of 12.9 sen (-7%) thanks to lower jet fuel costs (-10%).

QoQ, its 3Q15 CNP jumped by 65% to RM181.2m, also due to similar reasons above. For example, (i) RPK improved by 7% underpinned by a healthy load factor of 81% driven by improvement in demand from both international and domestic market, (ii) average fare was up by 16% to RM156.6/pax as a result of increased demand and capacity cuts by competitors. As for its ancillary income, it remained flattish at RM42.3/pax.

Outlook

Moving forward, we remained positive on management’s efforts in turning around both its associates, i.e. AirAsia Indonesia and AirAsia Philippines, as the travel sentiment has recovered from the previous air mishaps, and we expect a strong fourth quarter for AIRASIA due to the holiday season. That said, management is still working effortlessly in consolidating its associates which will provide investors more clarity on its accounts in coming future.

Note that in 3Q15, management has introduced a detailed segmental breakdown for its associates in BURSA, a move we strongly believe will help to regain investors’ confidence in the stock.

Forecasts

No change in our earnings estimates.

Rating

Maintain OUTPERFORM

Valuation

We reiterate our OUTPERFORM call on AIRASIA with an unchanged Target Price of RM1.86 based on 1.32x FY15E PBV at -0.5SD of its 5-year average Fwd PBV, after factoring in the potential impairment of RM1.6b in our analysis (please refer to our report dated 19th June 15 for details).

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 - 27 Nov 2015