INVESTMENT HIGHLIGHTS

• FY17 ASK grew +9.0%yoy

• ASK growth from increased aircrafts

• Load factor improved to 88.0%

• Target price of RM4.02 unchanged pending full year results FY17

ASK grew +9.0%yoy. In 4QFY17, AirAsia consolidated AOCs’ (Malaysia+Indo+Phil) ASK increased +14.0%yoy and +4.6%qoq. This extended an increase in ASK of +14.0%yoy registered in 3QFY17, leading to a +9.0%yoy increase in ASK in FY17. This is slightly below our expectations of 10%yoy. Recall that in in the first two quarters, ASK has been growing by single digit.

ASK growth from addition of new aircrafts. Fleet size saw an addition of six new aircrafts from 3QFY17 to 116 aircrafts. There were 7 new routes introduced: 4 in Malaysia and 3 in Indonesia. Meanwhile, 17 routes saw an increase in frequencies: Malaysia (12), Indonesia (4) and Philippines (1). We expect ASK to pick up further in FY18 as AirAsia plans to add circa 30 aircrafts to its consolidated AOCs in 2018.

Load Factor remains comfortable at 88.0%. Despite ASK expansion, AirAsia managed to maintain its 4QFY17 load factor at a healthy level with improvement of +1ppts yoy. During the same quarter, AirAsia consolidated (AOC)’s RPK increased +15.0yoy while recorded +4.3%qoq increase in light of seasonally stronger quarter. On annual basis, load factor improved by similar pattern, inching up by +1pptsyoy to 88.0%.

TAA showing improvements as well, as load factors ticked up +6pptsyoy in 4QFY17. TAA’s ASK increased +15.0%yoy as it took 2 new aircraft, enlarging its fleet size to 56 aircraft. During the quarter, TAA added 1 new route while 5 existing routes saw frequency additions.

Possible upward revision to our forecast. The group’s strong 4QFY17 operational result came in within expectation. We continue to like Air Asia because of the company continuous efforts to reinvent itself (by introducing new digital offerings) to ensure that it stays relevant in the highly competitive industry. We remain positive on AirAsia’s earnings prospect predicated on: 1) stable demand growth with conservative ASK expansion of +10.0%, and 2) new areas of growth in Air Asia India and Air Asia Japan. Hence, we are maintaining our BUY recommendation. However, we are reviewing our TP of RM4.02 as we believe that there may be a possible revision in our earnings following from the expected FY17 earnings release next month.

Source: MIDF Research - 29 Jan 2018