AirAsia’s share price is barely off its 3-year low despite recording a respectable 1Q14 earnings.

FY14 outlook is positive, with scope for market share gain and higher yields, factors that will lead to earnings recovery.

Maintain BUY with an unchanged TP of MYR2.65 as valuation is attractive relative to global peers.

What’s New

2Q14 should see a modest passenger traffic growth of 3%-4% YoY ─ in line with capacity deployed, with prospect for higher YoY yields. The challenges faced by its rival MAS should enable AirAsia to gain some market share and support on some key routes. The business landscape for AirAsia is improving.

What’s Our View

We believe the languishing share price does not commensurate with the Company’s fundamentals. It is continually gaining market share, yields are on an uptrend and KLIA2 provides an unbridled platform for growth. In addition, the Company intends to initiate share buybacks up to 10% of its paid-up capital ─ which it can easily do with its MYR1.3b cash pile. Such shareholder friendly initiatives almost always get rewarded in share price appreciation.

Maintain BUY with an unchanged target price of MYR2.65, based on FY14 PER target of 10.5x, which is on par with the global LCC average. The current share price is close to its 3-year low of MYR2.20, which trades at only 1.02x FY15 P/BV. Suffice to say, the stock is trading at deep value and the market has not priced in an improving business landscape.  

Source: Maybank Research - 16 Jul 2014