INVESTMENT HIGHLIGHTS

• 2QFY18 ASK grew strongly +12.0%yoy

• Larger fleet size led to ASK growth

• Load factor eased -3.0pptsyoy to 86.0%

• Target price of RM4.87 unchanged pending 2QFY18 results

2QFY18 ASK grew +12.0%yoy. In 2QFY18, AirAsia consolidated AOCs’ (Malaysia+Indo+Phil) ASK increased by +12.0%yoy to 15,962m. This was higher from ASK growth of +8.0%yoy registered in 2QFY17. Following the capacity expansion, AOCs continued its good run with RPK growth of +9.0%yoy to 13,612m.

Net addition of aircrafts led to growth. Fleet size saw an addition of eighteen new aircrafts from 2QFY17 to 124 aircrafts. In comparison to the last quarter, Air Asia’s AOC expanded its fleet by one aircraft in 2QFY18. There were four new routes introduced under AOCs: three in Philippines and one in Malaysia. Meanwhile, 11 routes saw an increase in frequencies: Malaysia (10), and Philippines (1). We opine ASK is expected to expand further in 2HFY18 as AirAsia received deliveries of few more aircrafts to its consolidated AOCs.

AOC’s load Factor was healthy at 86.0%. Against the backdrop of strong ASK expansion, load factor in 2QFY18 remained healthy at 86.0%. Despite ASK growing exponentially in tandem with the capacity expansion, its RPK has also followed suit.

TAA stayed resilient, with load factor of 85.0% in 2QFY18. TAA’s ASK increased +14.0%yoy as it operated five more aircrafts, enlarging its fleet size to 59 aircrafts. This was in comparison to the same period last year. During the quarter, TAA added frequencies on five routes.

Maintain BUY. The group’s operational numbers in 2QFY18 remained resilient, reflecting a healthy trend on routes in which the group operates. Its load factor continued to be robust supported by the continuous rise in RPK. Given these stable indicators, our positive outlook on the group stays intact on: 1) strong demand growth with continuous ASK expansion and 2) positive prospect in Air Asia India and Air Asia Japan. All things considered, we are maintaining our BUY recommendation with an unchanged TP of RM4.87.

Source: MIDF Research - 30 Jul 2018