AIRASIA (5099) : RHB Research upgrades aviation sector to Overweight from Neutral
KUALA LUMPUR: RHB Research has upgraded the aviation sector to Overweight as the slump in oil prices would benefit the sector.
"While we do not see demand growing strongly, sector earnings would be underpinned by the yield recovery, with an additional positive impact from lower jet fuel price.
"As such, we upgrade the sector to Overweight from Neutral. We prefer AirAsia for its compelling valuations and thrifty operating structure and the stock remains our sector top pick," it said on Tuesday.
It said soon-to-be privatised Malaysian Airline System (MAS) is in the midst of a restructuring that will likely involve capacity cuts on loss-making routes and frequency reductions.
More importantly, this ought to put to an end to its irrational pricing strategy, the chief cause behind the sector’s depressed yields.
"MAS has yet to announce the size of its capacity cuts, but we estimate that this could be 10-15% of its available seat per kilometres (ASK) at best, as its core focus ought to be on cutting its workforce (by 30%) and raising ticket prices," it added.
Moreover, RHB expects 2015 passenger growth to inch up 6% on-year after recovering from the tragic MH370 and MH17 incidents in 2014.
"This year, we forecast for passenger growth of 4.4% on-year, less than the 18.4% growth recorded in 2013," it said.
The recovery in 2015 passenger growth may not reach double-digit levels, though, given the uncertain consumer sentiment.
"For 2016, we expect a passenger growth of 5%. The weaker Ringgit could also have positive implications on inbound foreign tourist arrivals that would benefit airlines and airport operators," it noted.
However, it prefers to stick to those that have scale in their operations with proven cost efficiency structures.
" As such, we see AirAsia as a sound pick.
"Within our Malaysian aviation coverage, AirAsia X’s bottomline would be the most sensitive to jet fuel price fluctuations.
"We note that the carrier is unprofitable currently and we estimate that a 1US$/bbl change oil prices would have an inverse impact in its bottomline by RM12.4mil and RM13.5mil in FY15 and FY16 respectively.
"Meanwhile AirAsia’s sensitivity to a 1US$/bbl change would inversely impact earnings by 2.3% in both FY15 and FY16 (or approximately RM18.4mil-19.2mil)," it added.
Carriers with strong balance sheets and cash piles like AirAsia could possibly take the opportunity to take a larger hedging position of its needed fuel intake into 2016.
http://www.thestar.com.my
KUALA LUMPUR: RHB Research has upgraded the aviation sector to Overweight as the slump in oil prices would benefit the sector.
"While we do not see demand growing strongly, sector earnings would be underpinned by the yield recovery, with an additional positive impact from lower jet fuel price.
"As such, we upgrade the sector to Overweight from Neutral. We prefer AirAsia for its compelling valuations and thrifty operating structure and the stock remains our sector top pick," it said on Tuesday.
It said soon-to-be privatised Malaysian Airline System (MAS) is in the midst of a restructuring that will likely involve capacity cuts on loss-making routes and frequency reductions.
More importantly, this ought to put to an end to its irrational pricing strategy, the chief cause behind the sector’s depressed yields.
"MAS has yet to announce the size of its capacity cuts, but we estimate that this could be 10-15% of its available seat per kilometres (ASK) at best, as its core focus ought to be on cutting its workforce (by 30%) and raising ticket prices," it added.
Moreover, RHB expects 2015 passenger growth to inch up 6% on-year after recovering from the tragic MH370 and MH17 incidents in 2014.
"This year, we forecast for passenger growth of 4.4% on-year, less than the 18.4% growth recorded in 2013," it said.
The recovery in 2015 passenger growth may not reach double-digit levels, though, given the uncertain consumer sentiment.
"For 2016, we expect a passenger growth of 5%. The weaker Ringgit could also have positive implications on inbound foreign tourist arrivals that would benefit airlines and airport operators," it noted.
However, it prefers to stick to those that have scale in their operations with proven cost efficiency structures.
" As such, we see AirAsia as a sound pick.
"Within our Malaysian aviation coverage, AirAsia X’s bottomline would be the most sensitive to jet fuel price fluctuations.
"We note that the carrier is unprofitable currently and we estimate that a 1US$/bbl change oil prices would have an inverse impact in its bottomline by RM12.4mil and RM13.5mil in FY15 and FY16 respectively.
"Meanwhile AirAsia’s sensitivity to a 1US$/bbl change would inversely impact earnings by 2.3% in both FY15 and FY16 (or approximately RM18.4mil-19.2mil)," it added.
Carriers with strong balance sheets and cash piles like AirAsia could possibly take the opportunity to take a larger hedging position of its needed fuel intake into 2016.
http://www.thestar.com.my
