We attended One AIRASIA Global Investors day which were well attended by over 40 analysts. The aim of the Investor day was to allow analysts to get to know their management team better and also to announce AIRASIA’s 5-year transformation plan into a “digital” airline which would use technology to drive revenue higher and cost down. Furthermore, they reiterate their plan to own 100% of Thai, Philippines, Japan, Indonesia associates into 1 single airline – One AirAsia. Post briefing, we believe future growth for AIRASIA is imminent and hence reiterate our OP call with unchanged TP of RM4.05 the back of unchanged earnings.

A “digitalized” airline in 5 years. In the next 5 years, AIRASIA shared their growth plans to transform their existing traditional market airline model into a more tech-savvy digital airline. Ultimately, they plan to use ‘digitization’ to increase profitability by driving revenue up and costs down. They plan to engage Artificial Intelligence (AI) and leverage on user data they have collected over these years for multitude of applications. We gather that AI would be able to help (i) pin point more profitable routes for their capacity allocations, and (ii) enhance the pricing of their fares to maximize revenue as well as ancillary income (targeting RM60/pax). Meanwhile, they have engaged with BIG data specialists to leverage on their existing user data to increase marketing efficiency to touch base with a more targeted market. Furthermore, they plan to enhance passengers flying experience by having WIFI/Intranet installed in their planes so that passengers can be connected while flying by using their smartphones to purchase in-flight entertainments packages, i.e. movies, duty-free items and other merchandise. Previously, we note that inflight movies were only attainable through tablets rented from AIRASIA.

All in we are positive on AIRASIA’s direction of going digital which we believe would help drive growth further. In terms of costings, we believe the engagement of AI and big data specialist would cost the Group up to tens of millions, which are still insignificant compared to their FY18E CNP of RM1.5b. Meanwhile, we reckon CAPEX allocation of c.RM150- 300m would be needed for the installation of WIFI antennas onto their entire fleet of planes, which would be spread across in the next 5 years. We believe these CAPEX is manageable as we have already incorporated CAPEX allocation of RM1.5b each in our FY17-18E estimates.

One AIRASIA. Management reiterated that they are striving towards creating One AirAsia by consolidating and owning 100% effective stakes in Thai (current effective interest 45%), Philippines (current effective interest 19.6%), and Indonesia (current effective interest 49%). India would be left out from the equation for now given the stricter and more complicated regulations there. While we believe the goal is achievable through issuance of new shares at AIRASIA group level and subsequently swapping it with other existing shareholders of associates, we opine that it might not materialize in the near term given that there are still various regulation hurdles in respective countries to overcome. Meanwhile, management noted that AIRASIA is targeting to list Philippines AOC by 2Q18.

Earnings remain unchanged. Post investors day, we make no changes to our FY17-18E estimates as earnings impact of their digitalization might not be felt in the near term.

Valuations. Reiterate our OP call with an unchanged TP of RM4.05 based on FY18E PER of 9.0x (5-year average). We continue to like AIRASIA for their growth potential, competitive advantage within the aviation space from its low operational costs and potential special dividends of AAC.

Source: Kenanga Research - 06 Oct 2017