AirAsia X -
Target Price: MYR1.31
Staying Ahead Of The Pack
AAX has signed its single largest Airbus order of 25 aircraft, which will be delivered starting 2015. Including the existing firm orders, the purchase will boost its fleet to 57 aircraft by 2019. The fleet expansion will support AAX’s ambition to become the region’s leading long haul low cost carrier. We keep our valuations unchanged and maintain our BUY recommendation and MYR1.31 FV.
57-strong fleet by 2019. On 18 Dec, AAX signed an incremental aircraft purchase agreement with Airbus SAS to purchase 25 more Airbus A330-300 aircraft. Based on the list price, this purchase will cost approximately USD6.0bn. Given the large order, we reckon that the discounts could be substantial. This latest purchase of aircraft to be delivered starting from 2015, together with pre-existing orders that will bring AAX’s fleet to 32 aircraft by 2016, will boost the carrier’s fleet to 57 by 2019. This will comprise 51 AAX-owned aircraft and six A330-300s on lease from International Lease Finance Corporation, of which three have already been delivered.
Strengthening its market lead. AAX’s aggressive fleet expansion plans will enable it to strengthen its hold in the long haul low cost carrier space and help to improve its profitability due to better economies of scale. Associate company, Thai AirAsia X, is scheduled to commence operation by 1QFY14 while AAX itself may set up a new hub in Bali, Indonesia, by end-2014. In the long run, the carrier also plans to set up a hub in India to connect the carrier to European destinations.
No immediate financial impact. The latest aircraft purchase will not make an immediate financial impact on AAX, but the company needs to honour the payment upon delivery through external financing, internally generated reserves or cash generated from operations.
Maintain BUY. We continue to like AAX’s cheaper valuations versus its regional and global peers. Hence, we maintain our BUY recommendation on AAX, in line with our OVERWEIGHT view on the Malaysian aviation sector. Our unchanged MYR1.31 FV, based on 8.5x adjusted FY14F EV/EBITDAR, is largely in line with those of other Asian low cost carriers
Publish date: 20/12/13