Briefing Note

• AirAsia has many “defences” against Malindo Airways (Malindo), the up-and-coming rival of AirAsia in the domestic market, including its lower cost structure, strong balance sheet, much bigger size, highly recognised brand and good safety record.
• AirAsia may not need to cut ticket prices (or cut ticket prices in a significant way) to counter price cutting by Malindo, if any. This is because Malindo will not have the capacity to replicate all of AirAsia’s domestic routes, and for those popular routes it can, its frequencies may be just a fraction that of AirAsia.
• AirAsia is having second thoughts on the acquisition of Batavia Air of Indonesia. It now feels that growing its Indonesian operations organically may not be a bad idea after all.
• Fair value is RM3.63. Maintain Trading Buy.

Source: RHB Research - 14 Sep 2012