FY16 CNP of RM1,602m was within our and consensus expectations making up 99% and 105% of estimates, respectively. While no dividends were declared in FY16, we note that AIRASIA typically announces full- year dividends in the month of April. Maintain our FY17E earnings and introduce FY18E CNP of RM1.49b. Maintain our OP call with an unchanged TP of RM3.82.

Within expectations. FY16 CNP of RM1602m was within our and consensus expectations making up 99% and 105% of estimates, respectively. For now, no dividends declared in FY16. It typically announces full-year dividends later in the month of April.

Results Highlight. FY16 CNP of RM1602m was up 123% YoY on the back of a 10% growth in revenue underpinned by: (i) improved load factors (+6ppt) albeit an additional growth in capacity of 7%, (ii) higher average fare (+10%), and (iii) enhanced ancillary income (+5%). In addition, profitability improvement attributed to RM172.8m contributions from associates’ vs. FY15 associate loss of RM866m. 4Q16 CNP was up 12% QoQ underpinned by: (i) 15% increase in revenue from higher average fares (+13%) which contributed to better yields (+13%) due to the year-end seasonal factor, and (ii) lower net interest expense (- 48%) as net gearing improved to 1,3x (from 1.5x).

Outlook. Going forward, we remain positive on AIRASIA’s outlook premised on decent jet fuel cost whereby 75% is hedged at USD60 in FY17, improving RASK through further improvement in ancillary income per pax of which they aspire to hit RM55/pax by FY17E and RM60/pax by FY18 via digital platforms i.e. capturing user data and provide relevant content to user to induce spending. That said, we also remain excited with their monetisation plans, especially the divestment of its leasing arm i.e. AAC, in which final bids are expected by 27th March. Besides AAC, management note that plans for further monetisation include listing of Indonesia and the Philippines associates and AACE.

Maintain FY17E earnings. Post results, we make no changes to our FY17E earnings. We also introduce our FY18E earnings of RM1.52b based on load factors of 86%.

Maintain OUTPERFORM. We are reiterating our OUTPERFORM call on AIRASIA with an 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 - 24 Feb 2017