AirAsia reported 4QFY16 net profit of RM465.3m (4Q15: RM541.2m). Excluding forex gain of RM54.1m, impairment for investment associate in Philippines (PAA) of RM163.8, gain on disposal of aircraft of RM22.4m and tax incentives, AirAsia recorded 4QFY16 core net profit of RM439.7m (4Q15: RM464.0m). For full year FY16, AirAsia core net profit increased by 83.0% YoY to RM1.6bn (FY15: RM884.5m). The core net profit was in line with our estimates, but slightly above consensus expectation, accounting for 99.6% and 106.7% respectively. Hence, we maintain our earnings forecast and Neutral call on AirAsia with target price of RM2.50, pegging to 10x multiple of FY17F EPS.

• Revenue for 4Q16 declined by 10.7% YoY to RM1.9bn, mainly due to one-off maintenance reserve fund adjustment of RM457m recognised in 4Q15, which was recorded under its aircraft operating lease income. Excluding that, the revenue for 4Q16 increased by 13.2% YoY. This was on the back of increased in passenger carried by 4.6% YoY, which was in line with the jumped in average seat km (ASK) by 5.7% YoY in 4Q16. The increase in revenue in 4Q16 was also due to higher revenue per ASK (RASK) to 15.7 sen, compared to 14.8 sen in 4Q15 (+6.1% YoY). For full year FY16, revenue surged 10.2% to RM6.9bn, accounting for 104.4% of our full year estimates.

• Net profit in 4Q16 fell 16.0% YoY to RM465.3m, compared to RM554.1m in 4Q15. For full year FY16, its net operating profit improved by 62.6% to RM1.7bn. This was mainly due to lower aircraft fuel expenses (-21.1% YoY), bringing its cost per average seat km (CASK) in FY16 declined by 9.3% YoY to 11.1 sen. This was a result of lower average fuel cost in FY16 of USD59/bbl (vs FY15: USD77/bbl). CASK excluding fuel was, however, increased by 4.2% to 7.2 sen, mainly due to higher operating expenses by 5.9% YoY in FY16, owing to (i) staff cost jumped by 30.3% YoY due to payout of staff bonuses in 4Q16, which increased its staff cost by 42.2% QoQ, (ii) increase in aircraft operating lease expenses (+46.1%).

• Strategy in 2017. AirAsia strategies in 2017 are, (i) to improve cost efficiencies by raising its aircraft utilisation rate from 12.5 to 14 hours, renegotiating airport charges incentives and reducing fuel burn with better aircraft allocation. (ii) Asset monetisation through selling stake from its aircraft leasing arm of Asia Aviation Capital (AAC). Currently, it is waiting for the final bid submission in March 2017. In addition, it also plans to have a dual listing either in HKSE/NYSE, IPO of its crew training centre of AACE, full disposal of 25%-stake in AirAsia Expedia (AAE), setting up ground handling teams in Indo-China and China which provide ground handling services to other airlines. (iii) To grow ancillary revenue to RM60/pax by 2018, (iv) on track on the IPO Philippines (PAA) and Indonesia (IAA) by 2QFY17.

Source: PublicInvest Research - 24 Feb 2017