AIRASIA (5099) : AirAsia Bhd - The inflection point is now
Target RM3.35 (Stock Rating: ADD)
AirAsia’s 9M14 core earnings look 37% better than our previous numbers, as yields stabilised in the 3Q, instead of continuing the yoy weakening trend that was evident since 2Q13. We believe yields in Malaysia will strengthen yoy in 4Q14, leading to higher yoy core earnings for the first time in almost two years. This is the inflection point that will finally move the share price. Lower jet fuel prices literally add fuel to the fire, lowering costs dramatically and allowing us to raise our FY14 core EPS by 260% (from a low base), while our FY15-16 core EPS forecasts are raised 28-36%. We reiterate our Add call and raise our target price, still based on 1.7x P/BV (average since 2008).
Highlights of 3Q14
AirAsia reported a group core net profit of RM78m in 3Q14, down 46% yoy due mainly to lower profits at Malaysia AirAsia (MAA) and a reversal into losses at Thai AirAsia (TAA). In the Malaysian home base, ASK and RPK growth was in the low single digits, as MAA kept capacity in check to address the current market oversupply. As a result, underlying ticket yields dropped only 1.5% yoy, and a successful push to raise ancillary income (+9% yoy) helped total yields stay stable yoy basis, which was a meaningful achievement under the present circumstances. Despite top-line stability, MAA’s 3Q earnings dropped because an average of six A320s were idled and did not contribute revenue, although depreciation and interest expense continued to be booked on them.
Indonesia AirAsia (IAA) experienced a major turnaround
IAA reported troublingly large losses in 4Q13, 1Q and 2Q14 due to the rupiah fall, but broke-even in the 3Q by axing unprofitable routes and idling two excess planes, and we expect it to turn a small profit in 4Q14. While TAA reported two consecutive quarters’ of losses because of the domestic price war and weak inbound tourism, we also expect it to turn a small profit from 4Q14.
Upside for Malaysia in 4Q14 and FY15
We expect MAA to report a core net profit of RM163m in 4Q14, up 19% yoy due to (1) a forecast 9% yoy yield recovery from the low 4Q13 base, (2) a US$14/bbl drop in jet fuel price to US$109 net of hedging losses, and (3) revenue accretion from the reactivation of three idled A320s. There will be further upside in FY15, as MAA is taking delivery of only one A320, giving time for industry yields to recover, and the full-year effect of lower oil prices will be felt.
Source: CIMB Daybreak - 20 November 2014
Target RM3.35 (Stock Rating: ADD)
AirAsia’s 9M14 core earnings look 37% better than our previous numbers, as yields stabilised in the 3Q, instead of continuing the yoy weakening trend that was evident since 2Q13. We believe yields in Malaysia will strengthen yoy in 4Q14, leading to higher yoy core earnings for the first time in almost two years. This is the inflection point that will finally move the share price. Lower jet fuel prices literally add fuel to the fire, lowering costs dramatically and allowing us to raise our FY14 core EPS by 260% (from a low base), while our FY15-16 core EPS forecasts are raised 28-36%. We reiterate our Add call and raise our target price, still based on 1.7x P/BV (average since 2008).
Highlights of 3Q14
AirAsia reported a group core net profit of RM78m in 3Q14, down 46% yoy due mainly to lower profits at Malaysia AirAsia (MAA) and a reversal into losses at Thai AirAsia (TAA). In the Malaysian home base, ASK and RPK growth was in the low single digits, as MAA kept capacity in check to address the current market oversupply. As a result, underlying ticket yields dropped only 1.5% yoy, and a successful push to raise ancillary income (+9% yoy) helped total yields stay stable yoy basis, which was a meaningful achievement under the present circumstances. Despite top-line stability, MAA’s 3Q earnings dropped because an average of six A320s were idled and did not contribute revenue, although depreciation and interest expense continued to be booked on them.
Indonesia AirAsia (IAA) experienced a major turnaround
IAA reported troublingly large losses in 4Q13, 1Q and 2Q14 due to the rupiah fall, but broke-even in the 3Q by axing unprofitable routes and idling two excess planes, and we expect it to turn a small profit in 4Q14. While TAA reported two consecutive quarters’ of losses because of the domestic price war and weak inbound tourism, we also expect it to turn a small profit from 4Q14.
Upside for Malaysia in 4Q14 and FY15
We expect MAA to report a core net profit of RM163m in 4Q14, up 19% yoy due to (1) a forecast 9% yoy yield recovery from the low 4Q13 base, (2) a US$14/bbl drop in jet fuel price to US$109 net of hedging losses, and (3) revenue accretion from the reactivation of three idled A320s. There will be further upside in FY15, as MAA is taking delivery of only one A320, giving time for industry yields to recover, and the full-year effect of lower oil prices will be felt.
Source: CIMB Daybreak - 20 November 2014
