By Shuli Ren

AirAsia (5099.Malaysia) has soared 127% this year, as its Malaysian operation improved and after the airline said it would sell a majority stake in its leasing arm Asia Aviation Capital.

JP Morgan resumed coverage on the Malaysian low-cost airline with a Sell rating and 2.50 Malaysian ringgit per share price target, implying another 14% downside. Analyst Hoy Kit Mak wrote:

We believe that share price performance is now more at risk due as its key associates – Indonesia Air Asia and Philippines AirAsia – remain loss-making at the operating level, increased competitive intensity in each of its markets (restructured Thai Air in Thailand, Lion Air in Indonesia, Cebu Air & Philippine Airlines in Philippines and Jet Airways, Indigo & SpiceJet in India), sale of majority stake in Asia Aviation Capital (AAC) could result in a net reduction of earnings estimates, potential unanticipated FX losses in 2H16 and downside risks to consensus expectations (our estimates are 25-30% below consensus for 2017-18E).

JP Morgan’s price target of M$2.50 implies 7 times their forward EBITDAR estimates, in line with AirAsia’s average valuation since 2014. “We believe it is more reasonable to value AirAsia at 7x until we see a more sustained recovery in operating profitability at its associates. Our price target implies 2017E P/B of 1.2x vs ROE of 14% which seems fair.”

blogs.barrons.com/asiastocks/2016/09/15/airasia-time-to-sell-says-jp-morgan/