9M17 CNP of RM1218m was above our/consensus estimates accounting for 86%/93% of full-year forecasts stemming from stronger-than-expected load factors coupled with the higher-than-expected average fares. No dividends as expected. Upgrade FY17-18E earnings by 23- 20%. Post adjustment to earnings; reiterate OP with higher TP of RM4.75 (from RM3.95) based on unchanged 9x FY18E PER.

Above expectations. 9M17 CNP of RM1.22b was above our/consensus estimates accounting for 86%/93% of full-year estimates. The positive deviation stemmed from stronger-than-expected load factors coupled with the higher-than-expected average fares. No dividends as expected.

Result highlights. 9M17 CNP of RM1.22b improved 10% due to: (i) higher revenue (+14%) driven by higher load factors of 88% (+1ppt) backed by higher capacity (+8%) and higher average fare of RM173 (+2%) leading to improved RASK (+4%), and (ii) lower finance costs by 3%. 3Q17 CNP of RM442m was down 7% despite marginally higher revenue of 3% due to: (i) higher maintenance costs (+99%) as AirAsia Philippines recorded higher maintenance for its redelivery of aircrafts back to third party lessor, and (ii) higher depreciation (+23%) from Indonesia AirAsia engine overhaul costs.

Outlook. AIRASIA is 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%) operations. 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. AIRASIA is targeting to list Philippines AOC by 2Q18.

For the remainder of FY17, AIRASIA has currently hedged 75% of their fuel at USD61/bbl. Moving forward, AIRASIA is continuing with their plan to continue unlocking assets for special dividends with the upcoming sale of AAC within the near horizon. We note that management has finalised the last two bidders for AAC and targets to conclude the sale of by 4Q17.

Strong upgrade to earnings. Post results review, we adjust our FY17- 18E earnings upwards by 23-20% to RM1.74-1.76b after factoring for higher load factors of 89% (+4ppt) and (ii) higher average fares of RM171 (+4%).

Valuations. Post adjustment to earnings, we reiterate our OP call with a higher TP of RM4.75 (from RM3.95) based on unchanged FY18E PER of 9.0x (5-year average). We continue to like AIRASIA for their strong growth potential on the back of an expanding capacity without sacrificing yields owing to their dynamic pricing model and competitive advantage within the aviation space from its low operational costs.

Source: Kenanga Research - 30 Nov 2017