AIRASIA X BERHAD -
A Step Closer To Establishing Bangkok Hub
Publish date: Mon, 14 Oct 15:13
AirAsia X (AAX) announced its 49%-owned associate, Thai AirAsia X (TAAX), has received approval from Department of Civil Aviation of Thailand for Air Operator‟s License (AOL). We are positive on AAX taking a step closer to establishing its operating hub in Bangkok, Thailand. Although AAX currently faces challenges from aggressive pricing from MAS and volatility in USD/MYR & fuel prices, we believe the strong growth prospects of AAX remain intact with ongoing fleet expansion and setting up operating hubs in Bangkok and Bali. As such, we maintain our Outperform on AAX with an unchanged target price of RM1.43.
Establishment of Bangkok hub. After the AOL approval, AAX will proceed with its submission for Air Operator‟s Certificate (AOC) to complete the process of licensing, which may take another three months. We expect AAX to get its Bangkok hub ready by 1Q14. Bangkok is a natural choice for AAX to set up a hub as it has a larger travel & tourism market relative to Kuala Lumpur and AAX has a competitive advantage of having feeder traffic & short-haul connectivity from Thai AirAsia. AAX‟s Bangkok hub will initially focus on North Asian markets (e.g. Japan and Korea) from its base at Bangkok - Don Mueang airport. Currently, there is no long-haul low-cost airline based in Bangkok.
Details on TAAX. AAX entered a joint venture agreement with Mr Tassapon Bijleveld and Mr Julpas Kruesopon on 18 September 2013 to govern the relationship between the three parties. AAX, Tassapon and Julpas own 49%, 41% and 10% of TAAX respectively. Tassapon is Thai AirAsia‟s CEO, while Julpas is an advisor to the Thailand prime minister. AAX expects its capital and investment outlay in TAAX up to 2015 will amount up to USD17.15m.
New routes and additional frequencies. On a separate note, AAX started its service to Male (Maldives) via Colombo (Sri Lanka) from 28 September 2013 with a four times weekly schedule. AAX will also commence its four times weekly flights (5x from December) to Adelaide from 30 October 2013. In addition, AAX will be increasing its flight frequencies to Melbourne (from 12x to 14x weekly) in October, Gold Coast (5x to 7x weekly), Perth (9x to 14x weekly) and Sydney (7x to 14x weekly) in November.
Maintain outperform. We reiterate our Outperform call on AAX with an unchanged 12-month target price of RM1.43 based on DCF valuation. While there are valid concerns on competition from MAS and USD/MYR appreciation, we believe the long-term growth prospects of AAX are intact with its ongoing fleet expansion and establishment of multi-hubs outside Malaysia. As such, the AOL approval from the Thai authorities is a good start to AAX‟s expansion outside Malaysia.
Source: PublicInvest Research - 14 Oct 2013
Publish date: 14/10/13