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Friday, November 25, 2016

Brokers Report: AIRASIA - Cushioned By Lower Fuel Cost

Maintain neutral call with target price (TP) of RM2.50

AirAsia reported net profit of RM353.9m for its 3QFY16, compared to a net loss of RM405.7m. Excluding forex loss of RM2.7m, tax incentives of RM118.7m and gain on disposal of its aircraft of RM84.2m, its core net profit for the quarter was RM391.1m (3QFY15: core net profit of RM158.1m). For 9MFY16, AirAsia core net profit was RM1.18bn, which came in within our but above consensus full year expectations, accounting for 72.5% and 85.7% respectively. The improvement in 3Q results was due to higher passenger seat sales and aircraft operating lease income by 9.3% YoY and 29.3% YoY respectively, as well as lower fuel expenses by 20.6% YoY. We maintain our Neutral call on AirAsia, with target price of RM2.50 pegged on 8x FY17F EPS. Our target price is based on FY17F enlarged share capital that includes the proposed share placement to Tune Live Sdn Bhd.
  • 3QFY16 revenue was RM1.69bn (+11.3% YoY), contributed mainly from increased passenger seats sales on the back of higher passengers carried to 6.6m (+5.3% YoY) and average passenger fare to RM164 (+4.5% YoY). It also recorded the highest passenger load at 89.3% (2QFY16 at 86.8%). Furthermore, its aircraft operating lease income has increased by 29.3% YoY in 3Q16. For 9MFY16, its revenue increased by 21.1% to RM5.0bn, 75.3% of our full year estimates.
  • 3QFY16 net profit was RM353.9m, compared to a net loss of RM405.7m in 3Q15. Excluding one-off items, its core net profit for 3Q16 was RM391.1m (3Q15 of RM158.1m). Cost per average seat km (CASK) in 3Q16 declined by 10.2% YoY to 10.51 sen. This is due to lower average fuel cost in 3Q16 of USD62/bbl vs USD79/bbl in 3Q15, reducing its aircraft fuel expenses by 20.6%. For 9MFY16, its core net profit was RM1.18bn, compared to RM420.5m in 3Q15. (Table 1-3)
  • Outlook. 4Q 2016 was expected to see stronger demand due to year end holidays and festivities, coupled with better fare environment. Going forward, management expects to achieve RM60 for its ancillary revenue, from an average of RM48 for FY16. Meanwhile, its fuel cost volatility was mitigated as it already hedged 70% of its fuel cost at USD59/bbl for 4Q 2016 and 74% at USD60/bbl for 2017. Currently, the Singapore jet fuel was standing at USD56.82/bbl. Moving into 2017, AirAsia hinted that it will unlock the value of its non-core assets e.g. Asia Aviation Capital (AAC), AirAsia Academy (AACE) (through IPO) and AirAsia Expedia (AAE Travel). In respect of weaker ringgit, management clarified that only 33% of its USD borrowing was unhedged, while 47% was hedged at a rate of 3.2348. While, 50% of its USD non-borrowing costs are hedged up to 2QFY17. Moreover, the currency risk is also expected to be mitigated by increasing its average fare and ancillary income.

Source: PublicInvest Research - 25 November 2016

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