9M16 CNP of RM1,163.0m accounted for 77% and 85% of our and streets full-year estimates, respectively, which exceeded expectations as we expect a seasonal stronger 4Q. Positive deviation due to the higher-than expected load factor achieved YTD. No dividends declared as expected. Upgrade FY16E earnings by 7% after tweaking for higher load factor (+2ppt) while keeping FY17E estimates unchanged. Reiterate OP with unchanged TP of RM3.82.

Above expectations. 9M16 CNP of RM1,163.0m accounted for 77% and 85% of our and streets full-year estimates, respectively, which exceeded expectations as we expect a seasonal stronger 4Q. This positive deviation is mainly due to the higher-thanexpected load factor achieved YTD. No dividends declared as expected.

Results highlight. 9M16 CNP saw a significant surge of 162% YoY on the back of 21% growth in revenue that was driven by: (i) better load factor of 87% vis-à-vis 79% in 9M15 albeit an 8% growth in capacity i.e. ASK. In addition, the improvement in yield (sen/RPK: +5%) and its ancillary revenue per pax, which increased by 8% was also the main driver of the significant improvements in profitability. 3Q16 CNP increased 42% QoQ on the back of: (i) higher revenue (+4%) underpinned by better load factor of 89% vs. 86% coupled with higher average fares (+7%), (ii) improved contributions from associates (+214%), and (iii) lower net interest expense (-36%).

Outlook. Going forward, we remain positive on AIRASIA’s outlook premised on low jet fuel cost, improving yields through further improvement in ancillary income per pax of which they aspire to hit RM50/pax in the medium-term and RM60/pax in the longer term through the introduction of more in-flight products, passengers load factors and ancillary income. That said, we also remained excited with their divestment plans, especially its leasing arm i.e. AAC, which is expected by 1Q17 with a potential special dividend pay-out.

FY16 earnings upgrade. Post results, we tweak our FY16E load factor up 2ppt to 85% (from 83%) lifting FY16E earnings by 7% to RM1613m. We make no changes to FY17 CNP as FY17 load factor is already forecasted at 85%.

Maintain OUTPERFORM. We are reiterating our OUTPERFORM call on AIRASIA with unchanged Target Price of RM3.82 based on FY17E PER of 9.0x. We continue to like the stock for its growth potential, competitive advantage in the aviation industry from its low operating costs and a potential special dividend from its divestment in AAC.

Source: Kenanga Research - 25 Nov 2016