Company Update

• Malindo Airways, a 51:49 JV between Subang-based National Aerospace & Defence Industries Sdn Bhd (Nadi) and Indonesia-based low-cost carrier Lion Air, is expected to take to the sky in May 2013.
• Theoretically, Malindo Airways, being a new entrant to the domestic market in Malaysia, could go all out for market share at the expense of profitability by under-cutting prices. AirAsia, on the other hand, may also want nip the competition in the bud by dropping fares. This could result in a full-scale price war.
• However, practically, Malindo Airways’ significance as a threat to AirAsia depends very much on how quickly and sizeably it can scale up its operations (that remains unclear at the moment). Over the longer term, its survival also depends on its ability to beat or at least match AirAsia’s extremely low cost structure.
• Value has emerged after the knee-jerk selldown on AirAsia following the recent uptick in crude oil prices as well as on the back of the latest news on Malindo Airways.
• Fair value is RM3.63. Upgrade to Trading Buy from Market Perform.

Source: RHB Research - 12 Sept 2012