KEY INVESTMENT HIGHLIGHTS

• 4QFY19 preliminary ASK and RPK inched higher due to additional frequencies and routes

• Still expecting a normalized PAT of RM199.2m for FY19 due to MFRS16 impact

• Passengers carried to and from China expected to face temporary headwinds due to the pandemic outbreak

• Adjusting earnings downwards to reflect lower RPK

• Maintain BUY with revised TP of RM1.86 per share

4QFY19 preliminary ASK and RPK inched higher. In 4QFY19, AAGB’s consolidated AOCs (Malaysia, Indonesia and Philippines) recorded a preliminary RPK growth of 6.0%, Meanwhile, the ASK grew slightly higher by 7.0% during the same period. As such, the load factor remained healthy above 80.0% at 82.0% in 4QFY19. The growth seen in these operational statistics was partially attributable to the launch of the Kuala Lumpur to Da-Lat, Vietnam route and the commencement of flights utilizing the first Airbus A321neo in late 2019 by AirAsia Malaysia. Apart from that, Airasia Indonesia launched six new routes while AirAsia Philippines added frequencies to popular destinations such Bangkok, Cagayan de Oro and Caticlan.

Expecting a solid 4QFY19 financial performance. Following the year-on-year improvement in operational statistics for 4QFY19, we are expecting AAGB to record a normalized profit after tax of more than RM50m in the same period. This is in contrast with the >RM200m loss recorded in 4QFY18 caused by the +48.4%yoy increase in fuel price expense to RM3.9b and higher operating lease expenses due to the completion of AAGB’s sale and leaseback transaction with BBAM. All in, we are still estimating a normalised profit after tax (PAT) of RM199.2m for FY19. Although normalized PAT in FY19 is expected to be lower than in FY18, FY19 should be viewed as a new base following the effects of the implementation of MFRS16 beginning January 2019.

Potential impact from coronavirus outbreak. According to past figures during the 2003 SARS outbreak, MAHB’s passenger traffic growth in Malaysia took a breather that year to fall by just -1.5%yoy to 33.5m. In addition, total international passengers at KLIA Main Terminal travelling to and from China declined by -10.7%yoy during the same period. Henceforth, it would be apt to consider any potential impact that the coronavirus outbreak towards the passengers carried by AAGB. Management guided that the AAGB’s ASK for China routes contributes approximately 10% to 15% of the total ASK. In comparison with AAGB’s long-haul affiliate, AAX, we opine that the ASK for China routes is higher given the non-exposure to ASEAN.

Source: MIDF Research - 30 Jan 2020