Posted by supersaiyan3 > 2019-02-17 10:33 | Report Abuse

Great writing!

I guess some of the more honest companies deserve a deeper look.

Posted by RainT > 2019-02-17 11:27 | Report Abuse

Problem is beware of AirAsia

I have many accounting items and is volatile to oil price

Posted by ChefSaham > 2019-02-17 18:45 | Report Abuse

Airasia has an impressive hedging strategy against oil prices

Posted by Shinnzaii > 2019-02-18 06:37 | Report Abuse

Diversify also need to see diverse to which business activity mah...if the diversify business have create value to your core business then should be ok one...some diversify business also tricky because the cost is higher...hehe

Posted by Springtime > 2019-02-18 06:58 | Report Abuse

AA with 100million customers can think and twist on how to take an extra RM1 here and there from each customer would be enough to meet any extra costs or make extra money. Which other company in Msia has 100m cash paying customer? Genting? Banks? Telcos?

Posted by Choivo Capital > 2019-02-18 14:58 | Report Abuse

This is a good try. But its too surface level, and the reasoning is not deep enough.

You did not illuminate the audience on the real economic power of Airasia or whatever edge it has.

I look forward to your future pieces.

Posted by newbie4444 > 2019-02-18 15:04 | Report Abuse

2019 oil got hedged 100% when drop to 50+?

Posted by (S = Qr) Philip > 2019-02-18 15:11 | Report Abuse

How about BJTOTO, I dont think you can buy toto with credit. :) Isn't that an all cash business?

Is that a good business? Not necessarily.

I think author forgot to mention that until recently, Warren buffett has been avoiding airplane stocks like the plague.

Only recently has berkshire bought delta and southwest airlines due to massive consolidation in the industry to make it attractive.

The main problem with airlines is the fact that you can lose an entire plane, your business, factory and production area which is worth hundreds of millions of dollars in one single flight, with no idea what happened. The nasty surprise can be very nasty and will hit the company earnings for multiple quarters.

On top of that the main raw material is a very expensive ingredient which is subject to change on an immediate basis and affects bottomline on a huge basis, due to the fact that it is 70%+ of entire AirAsia costs, its major expenses.This is also a nasty surprise, should fuel prices spike suddenly. These 2 costs are not something that you can pass through to the customer.

Just these 2 surprises is the main reason why so many airline stocks have gone bankrupt throughout the years.

Buying airline stocks is not for the faint of heart.

Having said that, AA is a fantastic company that is the best performer in its entire industry, and is always searching for new ways to monetize the fact millions of people spend hours sitting in their planes with nothing to do and no where to go. I'm surprised Tony hasn't thought of starting up flight casinos in international air space for long haul flights.

It's just that you need to know the underlying risk in buying airline stocks. You cannot just see the happy times when all making money without knowing your risk potential for loss when bad things happen.

One big metric which you don't put in your thesis is the number of mechanical delays, failures, loss of life and crashes AA versus the competitors and industry. This is important because you need to realize the bigger scope of business of AA, the higher the rate of risk of dangerous, company affecting damage.

Just ask MAS airlines. How much was the reputation loss after MH370? How big was the drop in passenger turnover after the crash? How much many to save it?

Thoughts to ponder.

Posted by (S = Qr) Philip > 2019-02-18 15:30 | Report Abuse

If you think there is no risk premium in buying airline stocks, you are either joking or crazy...

>>>>
Therefore, in Buffettology, no risk premium is applied.


also, malaysia 10 year bond rate is at 4%-5%, so anything you buy better do than this. You can't apply US government bond rates in emerging markets in my opinion.
>>>>
Warren uses long-term government bond rate as the discount rate. Here, we use 3.5% only.

Posted by Shinnzaii > 2019-02-18 15:31 | Report Abuse

Posted by (S = Qr) Philip > Feb 18, 2019 03:11 PM

" I'm surprised Tony hasn't thought of starting up flight casinos in international air space for long haul flights. "

Good idea...hot air balloon aircraft casino also not bad...

Posted by Jia Yi Young > 2019-02-18 15:59 | Report Abuse

RM28.92??

Posted by newbie8080 > 2019-02-18 18:58 | Report Abuse

Present Value = RM28.92?
How do you derived this figure?

Posted by PotentialGhost > 2019-02-18 19:38 | Report Abuse

Perfect article

Posted by Felicity > 2019-02-18 19:42 | Report Abuse

On top of that the main raw material is a very expensive ingredient which is subject to change on an immediate basis and affects bottomline on a huge basis, due to the fact that it is 70%+ of entire AirAsia costs, its major expenses.This is also a nasty surprise, should fuel prices spike suddenly. These 2 costs are not something that you can pass through to the customer.

Philip,
May I know how did the70% come about?

Posted by (S = Qr) Philip > 2019-02-19 11:04 | Report Abuse

hi felicity,thanks for catching my error. I meant to say it is 30%+, or (2,821,124) as per 2017 entire operating expenses costs, the biggest and most major expense in its operation (8.3 billion). And something that is totally uncontrollable and unproducable by air asia , as hedging on the jet fuel spot futures can only go so far.

Note that the net profit for Air Asia in 2017 is 1,571,374. a 15-20% swing in jet fuel prices can hit the bottomline of Air Asia very heavily. something that we smile when crude oil prices is low, but we will rue when we realize it will be difficult to pass the costs down easily.

Posted by Fabien Extraordinaire > 2019-02-19 14:23 | Report Abuse

hi Phillip, what's ur take on Dialog? Any insights to share?

Posted by (S = Qr) Philip > 2019-02-19 16:52 | Report Abuse

Other than it is a storage company that charges on flat rate similar to yinson with a good growing profit with exposure to PIC I have totally no idea. I like how the rates are standardized with no relation to oil price per barrel (as compared to the negotiations of bumi armada and sapura), but I guess it will continue to do well in the future, it is in a niche market after all.

Posted by (S = Qr) Philip > 2019-02-22 06:07 | Report Abuse

This is the part where I become the oracle of Kota Kinabalu.

KUALA LUMPUR (Reuters) - Malaysia’s AirAsia X Bhd recorded its third consecutive quarterly loss on Thursday, dragged down by an impairment provision while rising fuel costs also dented its performance in the October-December period.he airline’s average fuel price rose 29 percent from $69 to $89 per barrel during the period.

>>>>

hi felicity,thanks for catching my error. I meant to say it is 30%+, or (2,821,124) as per 2017 entire operating expenses costs, the biggest and most major expense in its operation (8.3 billion). And something that is totally uncontrollable and unproducable by air asia , as hedging on the jet fuel spot futures can only go so far.

Note that the net profit for Air Asia in 2017 is 1,571,374. a 15-20% swing in jet fuel prices can hit the bottomline of Air Asia very heavily. something that we smile when crude oil prices is low, but we will rue when we realize it will be difficult to pass the costs down easily.