AIRASIA (5099) - What's wrong with the perception on Airasia?
Which stock in Malaysia probably has the most followings among fund managers overseas but yet it is still valued at below $2 billion? Airasia. It is over 50% owned by funds overseas, has more followings than any Malaysian blue chips and covered the most among Malaysian companies by Bloomberg but yet valued at a lower valuation that Grab. (Anyone knows Grab yet? - You know, if you mix around the entrepreneurial community, even Grab is no longer a Malaysian brand but more of a Singaporean now. I have nothing to comment here.)
Why?
For a young company in a still young emerging space, people expect it to be valued at low single digit PE, while people can allow Grab, Lazada to continue to lose money for many more years. We expect Airasia to start making profits in its new country that it ventures in i.e. India, Indonesia, Philippines, Japan but can forgive many others thinking that what Grab or Lazada does is "disruptive". Let me tell you this, Airasia has delivered for many years. Grab, Uber, Lazada and many more companies in the disruptive space have yet to deliver - financially.
Now, my question is - isn't Airasia and several other low costs carriers disruptive? Are they too old now to be categorised under the air-transport disruptive space? There is even a difference between Airasia and many more of its competitors in its space - such as Tiger Airways (which was acquired by SIA), Cebu Pacific, VietJet, Indigo etc. Airasia goes into other countries but the others largely still operated within their own country they excel in.
For the moment, we are giving negative value for a company that attempts to go overseas. Typically, my question is do any of these guys know how business works? In my previous article on Airasia, there is this Deutsche Bank analyst who gave zero value to its businesses in Indonesia, India and Philippines (if I am not mistaken) after having invested hundreds of millions into the countries.
I am asking - if I want to get into a country and think strategically, then I decide to put a lot of money and effort and then to be negatively valued, is it worth the effort? To business people such as the founders of Airasia, it is not all the time valuation by analysts but execution that counts. It is about getting bigger, growing and taking risks - taking positions. How many Malaysian businesses think that way? Try looking at the KLCI Composite companies.
But yet we do not cherish the entrepreneurial spirits of this Malaysian company, and giving them a lot of challenges in our own backyard. For one, I do not see the differences in treatment that is provided to Airasia compared than Malindo for example. One may say, it is free-competition but what about the preferential treatment provided by Singapore to its own country airlines. (Do you see a Singapore Airasia?) Philippines is similar and so are India, Japan, Vietnam and so on.
Very few people put a price to Airasia's brand value. When I mentioned how important that they have managed to partner Tata Group in its penetration into India, I think very few people understands it. If I say, (despite the recent cases) Tata is the most respected Indian company, very few people sees it that way yet. But if we talk to business people that try to do business into India, having a partner like Tata is sign of success.
I have been following Airasia's reporting for many years. I would say it has improved a lot but a lot of times, these improvement is not cherished. Because it is such a well known Malaysian brand and so much followings among the international investors, it has to do more than many more Malaysian companies. I suggest these investors to read Focus Lumber, MagniTech's Annual Report (no disrespect to the investors of these companies) - not the financials - then do read Airasia's and go to its website. Do you see the vast difference?
(Until now, I cannot understand the business model of the companies I mentioned although I know Focus Lumber is into "Lumber" and Magni Tech is into "textiles". That's all I can decipher besides looking into their accounts.)
If one can accept these companies (as investments) who are much more inferior in their reporting, what do we expect out of Airasia? Yes, they are challenged to the standard or reporting provided by the European, US airlines because often Airasia is compared against them - this is good. But the more you comply, the costlier it gets. (I am not against good reporting, but in fact pro it - however costs of reporting is a fact)
The recent case involving Rolls Royce - I see it as a problem (although it does not directly affect Airasia, as it does not do business with Rolls Royce as announced). This is because Airasia Group (or Tune) of businesses is so large that it involve many inter-company dealings and there could be much more scrutiny. I have to admit I myself am not too happy with some of the transactions, and there seems to be over-planning on its structuring.
As I said above, over time Airasia has adjusted a lot on its reporting format and continues to spend time and effort on improving the investing public's understanding on the group - but it seems the more they try to do, it has not translate into much.
As good as Tony Fernandez being a communicator, I think this part there seems to be a lack of trust towards the brand. He has gotten the message across towards the business public (such as Tata, Rakuten) but not the investment public and a lot more education is needed, as it seems.
AIRASIA (5099) - What's wrong with the perception on Airasia?
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