In  1HFY13, AIRA’s  earnings  missed  our  and  consensus  estimates  yet again due to the shortfall in associate contribution.  Yields came under pressure  as  we  had  anticipated,  dipping  10.6%  y-o-y  (5%  YTD). However,  with  the  election  uncertainties  having  faded,  Management sees  yield  improvement  ahead.    No  changes  to  our  FY14  earnings,  as we keep our MYR3.94 FV pegged at 13x FY14 EPS. Maintain BUY.  

- Associates let down again. AirAsia (AIRA)’s 1HFY13 earnings (YTD: -10.6%)  missed  our  and  consensus’ forecasts owing to poor  earnings from its associates as a result of losses from Philippines AirAsia (PAA), BIG as well as its Expedia JV. Nevertheless, Malaysia AirAsia continued to  report  encouraging  numbers  as  EBITDA  grew  5%  in  1HFY13  on  the back of an 8.4% revenue growth, as well as improved unit seat cost.  

- Yield  under  pressure.  As  expected,  yields  dipped  10.6%  y-o-y  (5% YTD), with Management attributing this to uncertainties over the general election  in  May  and  the  Lahad  Datu  incursion.  That  said,  we  think  the entry  of  Malindo  was  also  a  dampener.  Management  added  that  it  is reverting to  its previous  strategy  of  being load  active  and  yield  passive, which  suggests  that  AirAsia  is  also  feeling  the  heat  of  intensifying competition.  However,  as  Malindo’s  small  fleet  has  yet  to  make meaningful impact, Management affirmed its view that yields are likely to pick  up  in  the  near  term  as  the  election  overhang  faded.  We  are projecting for yields to drop 2% in FY13 and stay flat in FY14.  

- Briefing  takeaways:  i)  PAA  is  expected  to  be  profitable  next  year  as  it unifies its brand with partner, Zest Air,  ii) the group’s ancillary initiatives are corporate products that give buyers flight schedule flexibility, iii) and Management  is  still  bullish  on  the  Indonesian  market  as  the  domestic market share will widen from 5% to 7% by end-FY13.  

- Maintain BUY. We are lowering our associate earnings for FY13F from MYR107m to MYR65m on wider losses from PAA, BIG and the Expedia JV but retain our FY14 earnings estimates. We also keep our MYR3.94 FV, based on a  13x FY14 P/E. The current market cap of AIRA’s listed entities values its Malaysia operation at less than 8.5x FY14 P/E, which we find attractive relative to its peers’ average 12x. 

Source: RHB