The 25% stake divestment in AirAsia Expedia JV (for MYR306.2m) will see AirAsia no longer be exclusively tied to Expedia hen packaging its flight  inventories.  This  gives  AirAsia  room  to  seek  other  online  travel agents with  a  bigger presence  as a platform to grow revenue.  Maintain BUY  and  MYR3.39  TP  (12x  FY15  P/E,  28%  upside).  Our  earnings forecasts are unchanged for now pending the upcoming results.

Monetising Expedia stake. Yesterday, AirAsia signed a share purchase (S&P) agreement with  Nasdaq-listed Expedia (EXPE US, NR). The S&P agreement will see AirAsia divesting  half of its 50% stake  in  the  AirAsia Expedia joint venture (JV) – formed back in 2011 – to its 50% JV partner, Expedia.  The  25%  stake  sale  amounts  to  USD86.25m  (MYR306.2m),which  will  be  satisfied  in  cash.  AirAsia  will  realise  a  disposal  gain  of MYR279.6m and the proceeds will be used to fund future working capital and capex needs.

Valuation. The  pricing  was arrived  at  using discounted future cash flow of  the  JV.  The  price  tag,  with  a  FY16  net  profit  forecast  of  MYR72m,values the JV company at 8.5x P/E. Expedia’s trailing 4-quarter earnings stand  at MYR59.4m, thus valuing the transaction at 10.3x. Pricing-wise, we  think  AirAsia  could  have  divested  at  a  higher  value  through  an eventual IPO sale. Expedia trades at FY15 P/E of 22.7x.  

Branching elsewhere.  Following the partial divestment, AirAsia will  no longer  be  exclusively  tied  to  Expedia  when  packaging  its  flight inventories  with tour/hotel deals. This gives AirAsia room  to seek other online  travel  agents  with  a  bigger  presence  as  a  platform  to  grow revenue. Nonetheless, AirAsia remains committed to growing the AirAsia Expedia JV in the future despite the reduced stake.

FY14 passenger growth in line. Separately, AirAsia also announced its FY14  passenger  numbers  (+1%  YoY).  Its  revenue  passenger  perkilometre  (RPK)  grew  3%  YoY,  5%  above  our  forecast.  Its  FY14  load factor  of  78.9%  was  slightly  weaker  than  our  forecast  of  79.5%. Furthermore,  4Q14  RPK  growth  came  in  flat  with  load  factor  down  by 7ppts to 78%, as AirAsia prioritises in growing airfares/yields rather than bumping up  its  load factor  through lowering airfares. AirAsia is slated to announce its 4Q14 earnings  on  26  Feb  after market close. We expect the  carrier  to  post  a  4Q14  core  net  profit  of  MYR187m  (+127%  QoQ,+97.6% YoY) to meet our full-year forecast of MYR284m.

BUY.  We keep our  earnings  forecasts unchanged  for now pending  the upcoming results. We maintain our BUY call with an unchanged  TP of MYR3.39 (12x FY15 P/E). 

Source: RHB