INVESTMENT HIGHLIGHTS

• 3QFY18 ASK grew steadily +10.0%yoy

• Load factor remained healthy at 82.0%

• TAA also stood resilient with a load factor of 81.0%

• Maintain BUY with unchanged TP of RM3.62 per share

3QFY18 ASK grew +10.0%yoy. In 3QFY18, AirAsia consolidated AOCs’ (Malaysia+Indonesia+Philippines) ASK increased by +10%yoy to 16,450m, In line with the capacity expansion, the AOC’s continued its good run with RPK growth of +5.0%yoy to 13,574m.

Net addition of aircrafts led to growth. Fleet size saw an addition of seventeen new aircrafts from 3QFY17 to 127 aircrafts. In comparison to the last quarter, Air Asia’s AOC expanded its fleet by three aircrafts in 3QFY18. Meanwhile, there were three new routes introduced under AOCs; two in Malaysia and one in the Philippines.

AOC’s load factor remained healthy at 82.0%. Despite the backdrop of faster ASK expansion compared to expansion in RPK, load factor in 2QFY18 remained healthy at 82.0%. Moving forward, we believe that the seasonal strength in 4QFY18 could further support the growth in ASK.

TAA stayed resilient, with a load factor of 81.0% in 3QFY18. TAA’s ASK increased +8.0%yoy as it operated six more aircrafts, enlarging its fleet size to 60 aircrafts. This was in comparison to the same period last year. During the quarter, total passengers carried by TAA increased by +4.0%yoy to 5.1m passengers, on the back of +9.0%yoy increase in capacity.

Maintain BUY. The group’s operational numbers in 3QFY18 remained rather resilient in the wake of the volatility in fuel price. Its load factor continues to be healthy supported by the continuous rise in RPK. Given these stable indicators, our positive outlook on the group stays intact on: 1) its compelling growth story, 2) stable operations with added capacity and 3) continuous improvement to derive higher values per km flown. In addition, we believe its integrated efforts to monetize its assets, via digitalization is strategic, as it takes advantage of its passengers’ database to enhance customer experience and improve ancillary incomes. All things considered, we are maintaining our BUY recommendation with an unchanged TP of RM3.62.

Source: MIDF Research - 29 Oct 2018