AirAsia X -
Thai Venture Takes Another Step Forward
AirAsia X (AAX) informed Bursa Malaysia yesterday that it entered into a Joint Venture Agreement (JVA) with Mr Tassapon (TB) and Mr Julpas Kruesopon (JK) on Wednesday to govern the relationship between the parties in Thai AirAsia X (TAAX). This marks a step forward for AAX towards setting up its new hub in Thailand as guided by management.
- Briefly on the JVA. Under the agreement, AAX will hold 49% while TB and JK will hold 41% and 10% interest respectively in TAAX’s issued and paid up capital of THB400m. TAAX, which is expected to receive the air operator’s licence (AOL) by end-September, will subsequently submit its application for an air operator’s certificate (AOC). It will commence operations once it obtains approvals from the authorities. As we highlighted in our report initiating coverage on AAX, we expect the carrier to commence operation by 2QFY14 with two aircraft to two destinations, i.e. Seoul, South Korea and Tokyo, Japan.
- Expansion on track. This JVA marks a step forward for AAX towards expanding to become the leading long-haul low-cost carrier in the region. This expansion is also in line with AAX’s strategy to be the first mover to capture a larger market share to achieve economies of scales. Currently, there is no direct competition for AAX in Bangkok, which is a tourism and travel hot-spot in ASEAN. In addition, Thai AirAsia (TAA) has established a strong brand name in Bangkok for TAAX to leverage on. TAA’s existing
presence also lowers the regulatory barriers to entry for TAAX vs other potential new entrants.
- Outlook remains bright. We remain positive on AAX’s outlook, which we think should kick-start smoothly once it obtains the necessary approvals as TAAX is able to offer greater connectivity options to its passengers from its hubs in Kuala Lumpur and Bangkok. For its first year of operations, we estimate AAX’s start-up losses at MYR12.4m.
- Maintain BUY, MYR1.65 FV. We make no changes to our earnings forecast as this development is within our expectation. We maintain BUY on AAX, with MYR1.65 FV, derived from 8.5x adjusted FY14F EV/EBITDAR. We see the recent selldown of AAX’s shares as a window of opportunity to accumulate the stock at a lower price.
Publish date: 19/09/13