AIRASIA (5099) : CIMB Research ups AirAsia target price, more upside seen
KUALA LUMPUR: CIMB Equities Research has raised the target price of AirAsia from RM3.25 to RM3.35, which is an upside of 36.2% from the last traded price of RM2.46.
It said on Thursday AirAsia’s 9M14 core earnings look 37% better than its previous numbers, as yields stabilised in the 3Q, instead of continuing the on-year weakening trend that was evident since 2Q13.
“We believe yields in Malaysia will strengthen on-year in 4Q14, leading to higher on-year 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 1.7 times price-to-book value (average since 2008),” said the research house.
CIMB Research said the low-cost carrier reported a group core net profit of RM78mil in 3Q14, down 46% on-year due mainly to lower profits at Malaysia AirAsia (MAA) and a reversal into losses at Thai AirAsia (TAA).
In the Malaysian home base, available seat kilometres (ASK) and revenue passenger kilometres (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% on-year, and a successful push to raise ancillary income (+9% on-year) helped total yields stay stable on-year basis, which was a meaningful achievement under the present circumstances.
CIMB Research said 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) 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.
“We expect MAA to report a core net profit of RM163mil in 4Q14, up 19% on-year due to (1) a forecast 9% on-year yield recovery from the low 4Q13 base, (2) a US$14 a barrel 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,” it said. - The Star
KUALA LUMPUR: CIMB Equities Research has raised the target price of AirAsia from RM3.25 to RM3.35, which is an upside of 36.2% from the last traded price of RM2.46.
It said on Thursday AirAsia’s 9M14 core earnings look 37% better than its previous numbers, as yields stabilised in the 3Q, instead of continuing the on-year weakening trend that was evident since 2Q13.
“We believe yields in Malaysia will strengthen on-year in 4Q14, leading to higher on-year 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 1.7 times price-to-book value (average since 2008),” said the research house.
CIMB Research said the low-cost carrier reported a group core net profit of RM78mil in 3Q14, down 46% on-year due mainly to lower profits at Malaysia AirAsia (MAA) and a reversal into losses at Thai AirAsia (TAA).
In the Malaysian home base, available seat kilometres (ASK) and revenue passenger kilometres (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% on-year, and a successful push to raise ancillary income (+9% on-year) helped total yields stay stable on-year basis, which was a meaningful achievement under the present circumstances.
CIMB Research said 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) 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.
“We expect MAA to report a core net profit of RM163mil in 4Q14, up 19% on-year due to (1) a forecast 9% on-year yield recovery from the low 4Q13 base, (2) a US$14 a barrel 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,” it said. - The Star
