• 1HFY17 ASK grew +2.3%yoy

• ASK growth from increased utilisation of aircraft

• Demand was upbeat despite 2Q being seasonally softer

• TAA showing improvements as well

• Maintain BUY with TP of RM3.94

1HFY17 ASK grew +2.3%yoy. In 2QFY17, AirAsia consolidated AOCs’ (Malaysia+Indo+Phil) ASK increased +8.3%yoy and +4.5%qoq. This reversed a decline in ASK of -3.2%yoy registered in 1QFY17, leading to a +2.3%yoy increase in ASK in 1HFY17. This is in line with our expectations that ASK growth would pick-up from 2QFY17, to achieve a full year growth of +10%.

ASK expansion from higher utilisation of existing aircraft. Fleet size was unchanged from 1QFY17 at 106 aircraft. There were 12 new routes introduced: 5 in Malaysia and 7 in the Philippines. Meanwhile, 15 routes saw an increase in frequencies: Malaysia (10), Indonesia (3) and Philippines (2). We expect ASK to pick up further in 2HFY17 as AirAsia plans to add 12 aircraft to its consolidated AOCs in 2017.

Demand was upbeat despite 2Q being seasonally softer, with RPK rising +11.3%yoy and +4.6%qoq. This contributed to a 1HFY17 RPK growth of +6.4%yoy. The growth in RPK led to a +2ppt yoy gain in load factors at 89% in 2QFY17. In the first half of 2017, load factors registered at 88.7%.

TAA showing improvements as well, as load factors ticked up 3ppt yoy in 2QFY17. TAA’s ASK increased +5%yoy as it took 5 new aircraft, enlarging its fleet size to 54 aircraft. During the quarter, TAA added 2 new routes while 7 existing routes saw frequency additions.

Maintain BUY with unchanged TP of RM3.94. Our TP derived from a forward price-to-earnings ratio of 10x FY18 EPS. Airasia remains our top aviation sector predicated on: 1) stable demand growth with conservative ASK expansion of +10%; 2) monetisation of AAC that could potentially lead to special dividends; 3) further consolidation of all AOCs under the AirAsia Group could provide better clarity on combined performance of all AOCs as opposed to MAA.

Source: MIDF Research - 4 Aug 2017