INVESTMENT HIGHLIGHTS

• FY18 ASK grew at +14.0%yoy partially driven by good mix of domestic and international routes for Malaysia operations

• Load factor remained robust at 85.0% in FY18 with strong passenger growth in the seasonally strong quarter

• TAA also stood resilient with a load factor of 85.0% in FY18

• Maintain BUY with unchanged TP of RM3.48 per share

FY18 ASK grew at +14.0%yoy. In 4QFY18, the ASK of consolidated AOCs (Malaysia+Indonesia+Philippines) of AirAsia Group Berhad (AAGB) increased by +14%yoy to 17,870m. The improvement in ASK was partially attributable to the good mix of domestic and international routes for Malaysian operations. This led to an annual increase in ASK by the same magnitude of +14.0%yoy in 2018.

Net addition of aircrafts led to growth. Fleet size saw a net addition of 25 new aircrafts from FY17 to 141 aircrafts in FY18. In comparison to the last quarter, AAGB’s AOC expanded its fleet by 15 aircrafts in 4QFY18. Looking forward, we expect ASK to be remained resilient as AAGB undertakes delivery 24 new aircraft in FY2019 while another 25 older aircrafts will be going through a sale and leaseback with Merah Aviation Holding Limited, an indirectly owned entity of Castlelake L.P.

AOC’s load factor remains comfortable at 85.0%. Despite the backdrop of faster ASK expansion at +14%yoy compared to expansion in RPK of just +11.0%yoy, load factor in 4QFY18 remained healthy at 84.0%. We believe that this was underpinned by the year-end seasonality factor which boosted 4QFY18’s number of passengers by 16.0%yoy. As such, 2018’s load factor stood commendable at 85.0%, which was within our estimates.

TAA stood strong, with a load factor of 85.0% in FY18. TAA’s ASK increased +12.0%yoy in the same year as it operated six more aircrafts, enlarging its fleet size to 62 aircrafts. During the year, total passengers carried by TAA increased by +9.0%yoy to 21.6m passengers, on the back the +11.0%yoy increase in capacity. This was in line with Thailand’s tourists arrivals reaching a record of 38.3m in 2018.

Maintain BUY. The group’s operational numbers in 4QFY18 remained robust with its healthy load factor 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. In relation to the spat between AAGB and MAHB, the symbiotic relationship between both parties could not be denied as more than 50% of the passenger growth for MAHB’s Malaysian airports in 2018 was contributed by klia2, with more than 90% of passengers carried by AAGB and its affiliates at the same airport. Therefore, we are optimistic that MAVCOM and the Government will structure an amicable solution for both parties in the near future. All things considered, we are maintaining our BUY recommendation with an unchanged TP of RM3.48 per share.

Source: MIDF Research - 29 Jan 2019