Thursday, November 21, 2013

AirAsia - Through the Turbulence (Kenanga)

AirAsia Berhad -
Price: RM2.51
Target Price: RM3.51
Through the Turbulence

Period  3Q13 / 9M13
Actual vs. Expectations AirAsia’s 9M13 core net profit of RM481.5m makes up 55% and 65% of our and streets’ full year estimates, respectively. As we are expecting a strong 4Q13 finish, the results are broadly within our but exceeded consensus expectations.

Dividends  No dividends declared as expected.

Key Results Highlights 9M13, AirAsia’s core earnings managed to grow marginally by 4% to RM481.5m despite the intense ticket pricing competition going on within the region, mainly underpinned by 7% growth in revenue. The 7% growth in revenue was mainly driven by its ancillary income business and other operating income (i.e. aircraft operating lease income and fuel surcharge) which saw double-digit improvements of 16% and 42%, respectively.

 QoQ, AirAsia managed to chalk 28% growth in its core earnings from RM142.6m to RM183.1m despite higher fuel costs of RM538.1m (+8%). The impressive growth was driven by the recovery on its RASK of 16.4 sen (+4%) underpinned by the better contribution from its ancillary income whereby its ancillary income charges per pax improved by another 5% from RM39 to RM41 coupled with a better contribution of RM23.9m (+84%) from its associates, mainly from TAA, AACOE and Expedia. On the

cost perspective, AirAsia managed to bring down its staff cost by 15% to RM137.3m from to the better utilisation of technology and introduction of self-checking services for its passengers, while its others cost was down by 28% to RM32.2m as AirAsia had reduced some sponsorship expenses given that the brand name has already matured in certain regions.

 YoY, its revenue continued to improve by another 3% to RM1280.3m despite a 6% dip on its RASK from 17.5 sen to 16.4 sen which was further offset by the 11% increase in ASK while its load factor inched by another 1ppt to 78. Subsequently, its core earnings also improved by another 12% from RM163.9m to RM183.1m. The growth in earnings was also supported by better contribution from its other income (i.e. brand license fee) which increased 4.4x to RM37.8m and contribution from associates that turned profitable.

Outlook  Post teleconference with AirAsia, we came away feeling positive on its initiatives and strategy to further bring costs down, growing its ancillary income per pax from RM40 to RM50 in the next 12-18 months and also continuous support for the growth of its associates, i.e. TAA, IAA, PAA.

Change to Forecasts No changes to our earnings estimate.

Rating Maintain OUTPERFORM We reiterate our OUTPERFORM call on AirAsia as its current foreign shareholding stood at a recent low of c.50% as per management guidance coupled with this latest stellar performance, which has further reaffirmed our conviction in making it our 4Q13 Top Pick.

Valuation  We maintain our TP of RM3.51 based on an unchanged 11x FY14 PER.

Risks to Our Call  A spike in average jet fuel price above USD130/barrel.

Source/Extract/Excerpts/来源/转贴/摘录: Kenanga-Research,
Publish date: 21/11/13

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