AAX has signed its single largest Airbus order of 25 aircraft, which will be  delivered  starting  2015.  Including  the  existing  firm  orders,  the purchase will boost  its  fleet  to  57  aircraft  by  2019.  The fleet  expansion will  support  AAX’s  ambition  to  become  the  region’s leading  long  haul low  cost  carrier.  We  keep  our  valuations  unchanged  and  maintain  our BUY recommendation and MYR1.31 FV.

57-strong fleet by 2019. On 18 Dec, AAX signed an incremental aircraft purchase agreement with Airbus SAS to purchase 25 more Airbus A330-300 aircraft. Based on the list price, this purchase will cost approximately USD6.0bn. Given the large order, we reckon that the discounts could be substantial.  This  latest  purchase  of  aircraft  to  be  delivered starting  from 2015,  together  with  pre-existing  orders  that  will  bring  AAX’s  fleet  to  32 aircraft  by  2016,  will boost the carrier’s fleet  to  57  by  2019.  This  will comprise  51  AAX-owned  aircraft  and  six  A330-300s  on  lease  from International  Lease  Finance  Corporation,  of  which  three  have  already been delivered.  

Strengthening its market lead. AAX’s aggressive fleet expansion plans will enable it to strengthen its hold in the long haul low cost carrier space and  help  to  improve  its  profitability  due  to  better  economies  of  scale. Associate  company,  Thai  AirAsia  X,  is  scheduled  to  commence operation  by  1QFY14  while  AAX  itself  may  set  up  a  new  hub  in  Bali, Indonesia, by end-2014. In the long run, the carrier also plans to set up a hub in India to connect the carrier to European destinations.  

No  immediate  financial  impact.  The  latest  aircraft  purchase  will  not make an immediate financial impact on AAX, but the company needs to honour  the  payment  upon  delivery  through  external  financing,  internally generated reserves or cash generated from operations.

Maintain BUY. We continue to like AAX’s cheaper valuations versus its regional  and  global  peers.  Hence,  we  maintain  our  BUY recommendation  on  AAX,  in  line  with  our  OVERWEIGHT  view  on  the Malaysian aviation sector.  Our unchanged  MYR1.31 FV, based on 8.5x adjusted FY14F EV/EBITDAR, is largely in line with those of other Asian low cost carriers.

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Source: RHB