AirAsia’s operational performance was better than ours and consensus forecasts. However, there were plenty of costs spikes, indicative of kitchen sinking exercise to ensure a ‘cleaner’ 2016 is at hand. This resulted in 4Q15 and 2015 core net profits of MYR17m and MYR279m falling short vs our MYR480m for 2015. We tweak our 2016-17 earnings forecasts by -3.7% and -3.0% respectively on management’s latest inputs and we introduce 2018 forecast. Maintain BUY with a slightly higher TP of MYR1.80 (from MYR1.75), pegged to an unchanged 1x 2016 P/BV.
Management is upbeat on 2016 outlook
Management stated that the underlying demand is very strong and they expect stronger traffic growth, with better loads and yields. We think 3Q15-4Q15 performance have shown that this is the inflection point, and the momentum should build going forward. Furthermore, the Group will enjoy a giant step-down lower fuel cost as the expensive fuel hedges in 2015 (50% at USD88/bbl) have expired. For 2016, about 30% of its fuel requirement is hedged at USD52/bbl.
Associates still struggling, but signs of turnaround
Apart from Thailand, all the other associates remain loss making. The Indian and Japanese associates’ losses are much more modest as they are in the start-up phase. We are assured that the associates will continue to improve in terms of yields and costs, and we forecast for the Indonesian and Philippines business having a good chance to turnaround in 2016. Risks on the downside, time to be more positive
2015 was a mixed bag for the Group; it started out very challenging but most of the problems are behind us and we have crossed the inflection point. The Malaysian operation will churn strong profits as it benefits from Malaysia Airlines’ (MAS) business restructuring. The associates will attain the benefits of economies of scale and the maturing of existing routes will add value to the Group. BUY.
Source: Maybank Research - 29 Feb 2016
