INVESTMENT HIGHLIGHTS

• 1QFY18 ASK grew strongly +18.0%yoy

• ASK growth was primarily from expanded fleet size

• Load factor eased to 87.0%

• Target price of RM4.80 unchanged pending full year results

1FY18 ASK grew +17.6%yoy. In 1QFY18, AirAsia consolidated AOCs’ (Malaysia+Indo+Phil) ASK increased +17.6%yoy and +2.1%qoq. This was higher than the increase in ASK of +14.0%yoy registered in 1QFY17. Notably, the growth of ASK in 1QFY18 was above our expectations of +10%yoy.

ASK growth from addition of new aircrafts. Fleet size saw an addition of seventeen new aircrafts from 1QFY17 to 123 aircrafts. In comparison to the last quarter, the number of aircrafts under Air Asia’s AOC increased by +7. There were 7 new routes introduced: 4 in Philippines and 3 in Indonesia. Meanwhile, 16 routes saw an increase in frequencies: Malaysia (13), and Indonesia (3). We expect ASK to pick up further in FY18 as AirAsia plans to add circa nine more aircrafts to its consolidated AOCs in 2018.

Load Factor remains comfortable at 87.5%. Despite the significant ASK expansion, AirAsia managed to maintain its 1QFY18 load factor at a healthy level. During the same quarter, AirAsia consolidated (AOC)’s RPK increased +15.4yoy while recorded +2.9%qoq. We deem the quarteron-quarter growth as encouraging despite a seasonally stronger travel season in 4Q17 last year.

TAA showing improvements, as load factors ticked up +2ppts yoy in 1QFY18. TAA’s ASK increased +17.0%yoy as it took 3 new aircraft, enlarging its fleet size to 59 aircrafts. During the quarter, TAA added seven new routes while eleven existing routes saw frequency additions.

Maintain BUY. The group’s 1QFY18 operational results was robust, setting an encouraging sign throughout the year. Despite the strong ASK expansion, the group was able to maintain a healthy load factor with continuous increase in RPK. While we see the We remain positive on AirAsia’s earnings prospect predicated on: 1) stable demand growth with continuous ASK expansion and 2) new areas of growth in Air Asia India and Air Asia Japan. Hence, we are maintaining our BUY recommendation with TP of RM4.80.

Source: MIDF Research - 30 Apr 2018