AIRASIA (5099) - AirAsia Bhd - Magic or madness?
Target RM2.50 (Stock Rating: HOLD)
The Malaysian government yesterday announced that Fly Mojo Sdn Bhd will launch a new full-service airline, flymojo, from Oct 2015, deploying CS100 jets. Firm orders for 20 have been placed with Bombardier, with 20 options. flymojo will be based out of Johor Bahru (JHB) and Kota Kinabalu (BKI) airports, and will deploy the jets on domestic and regional routes. While the airline is marketing itself as a premium airline, Malaysian aviation is already oversupplied and it will inevitably compete with AirAsia. As a result of this negative surprise, we no longer expect AirAsia’s share price to perform despite low oil prices, and downgrade from Add to Hold. We have not changed our forecasts, but now apply a new 20% discount to our share price target previously based on the sector average CY16 P/E of 11x.
What Happened
Fly Mojo Sdn Bhd (FMSB) is 81% owned by Azharuddin Satyapal Das Abdullah, and the remaining shares are held by Ismail Hue Kor Ming (10%) and MD Janardhanan Gopala Krishnan (9%). Its chairman is Datuk Seri Alies Anor Abdul. There is little public information about these individuals.
What We Think
flymojo will apparently fly “underserved routes” and “fill the gaps” left by the incumbent airlines with a “premium service”, but we do not see how it will not compete with AirAsia or any of the incumbents. AirAsia deploys 15% of its seat capacity at BKI and another 7% at JHB. Premium service demand is limited on non-trunk routes, so we expect flymojo’s routes to overlap AirAsia’s. The CS100 is a brand-new aircraft type that has not been commercially operated before, and has an advertised range of 5,500 km, capable of serving all of India and China. A single-class configuration with 28 inches of seat pitch (same as AirAsia) will see the aircraft fit 125 seats, and a two-class configuration with 32 inches in economy (same as Malindo) and 36 inches in business will fit 108 seats. We suspect flymojo will use the latter configuration. The 20 firm orders have a list value of US$1.47bn, or US$73.5m for each CS100. Assuming a 60% discount and an exchange rate of RM3.70, the 20 firm orders would cost FMSB RM2.2bn, although sale and leasebacks are planned.
What You Should Do
We are very disappointed with the negative developments on AirAsia’s 1Q15 performance, as well as the unexpected flymojo news. Malindo’s continued expansion add to the pressure, and other risks include a potential rights issue given how much cash support Indonesia AirAsia is now requiring.
Source: CIMB Daybreak - 19 March 2015
Target RM2.50 (Stock Rating: HOLD)
The Malaysian government yesterday announced that Fly Mojo Sdn Bhd will launch a new full-service airline, flymojo, from Oct 2015, deploying CS100 jets. Firm orders for 20 have been placed with Bombardier, with 20 options. flymojo will be based out of Johor Bahru (JHB) and Kota Kinabalu (BKI) airports, and will deploy the jets on domestic and regional routes. While the airline is marketing itself as a premium airline, Malaysian aviation is already oversupplied and it will inevitably compete with AirAsia. As a result of this negative surprise, we no longer expect AirAsia’s share price to perform despite low oil prices, and downgrade from Add to Hold. We have not changed our forecasts, but now apply a new 20% discount to our share price target previously based on the sector average CY16 P/E of 11x.
What Happened
Fly Mojo Sdn Bhd (FMSB) is 81% owned by Azharuddin Satyapal Das Abdullah, and the remaining shares are held by Ismail Hue Kor Ming (10%) and MD Janardhanan Gopala Krishnan (9%). Its chairman is Datuk Seri Alies Anor Abdul. There is little public information about these individuals.
What We Think
flymojo will apparently fly “underserved routes” and “fill the gaps” left by the incumbent airlines with a “premium service”, but we do not see how it will not compete with AirAsia or any of the incumbents. AirAsia deploys 15% of its seat capacity at BKI and another 7% at JHB. Premium service demand is limited on non-trunk routes, so we expect flymojo’s routes to overlap AirAsia’s. The CS100 is a brand-new aircraft type that has not been commercially operated before, and has an advertised range of 5,500 km, capable of serving all of India and China. A single-class configuration with 28 inches of seat pitch (same as AirAsia) will see the aircraft fit 125 seats, and a two-class configuration with 32 inches in economy (same as Malindo) and 36 inches in business will fit 108 seats. We suspect flymojo will use the latter configuration. The 20 firm orders have a list value of US$1.47bn, or US$73.5m for each CS100. Assuming a 60% discount and an exchange rate of RM3.70, the 20 firm orders would cost FMSB RM2.2bn, although sale and leasebacks are planned.
What You Should Do
We are very disappointed with the negative developments on AirAsia’s 1Q15 performance, as well as the unexpected flymojo news. Malindo’s continued expansion add to the pressure, and other risks include a potential rights issue given how much cash support Indonesia AirAsia is now requiring.
Source: CIMB Daybreak - 19 March 2015
