We maintain our BUY call and MYR2.89 TP (based on 12x FY15F P/E, 89% upside) on AirAsia. While there were no new takeaways after the conference call, we remain optimistic on its outlook on the turnaround from its Indonesia and Philippines associates. Our bearish case scenario on the impairment test works out at MYR1.59. We rule out a rights issue materialising as AirAsia has a pipeline of incoming cash.

• Briefing highlights. No new takeaways from what was highlighted earlier, ie USD100m cash equity funding by local partners at Indonesia AirAsia (IAA) and Philippines AirAsia (PAA) that management guided could be coming in the next three months, followed by a USD100m convertible bond issuance each by IAA and PAA to a new pre-IPO investor. It also stood by its accounts transparency, which we concur.
• Recovering leases owed. Discussions mainly centred on recovering amounts owed to AirAsia by its associates, notably IAA and PAA. So far, its auditors are satisfied with management’s turnaround plan at IAA and PAA, noting that forward loads and yields over the coming quarters are showing signs of improvement. Both IAA and PAA are lagging behind competitors such as Citilink and Cebu Air. As mentioned last Monday, in the possible absence of equity funding, we remain positive on its associates’ outlook. W e do think it will be challenging in the near term for IAA and PAA to start regularising the amounts owed over the next oneyear, given their weak balance sheets. We only expect IAA to start making partial payments (at least the annual payments due) by FY16 (FY17 for PAA). Combined, these annual lease payments (excluding roughly 6% interest on amounts due and intercompany loans) work out to MYR552.3m (IAA: MYR386m, PAA: MYR166m). Management guided that the two can start making partial repayments as early as this year and to fully settle amounts due in five years. We have a more conservative earnings expectation, though we do not rule out that IAA’s and PAA’s net profits could turn out to be better than expected.
• Impairment stress scenarios. We work out various impairment test scenarios overleaf in determining AirAsia’s RNAV. We rule out a rights issue materialising to fund IAA and PAA, given the pipeline of incoming cash from sale and leaseback transactions – MYR112m (eight aircraft) is due in 2Q15 with another potential MYR225m (16 aircraft) by year’s end.
• Maintain BUY. Maintain BUY and MYR2.89 TP (12x FY15F P/E). We see minimal downside as our bearish case scenario on impairmentstress tests is at MYR1.59. The stock trades at 6.3x FY15F P/E.