Malaysia’s benchmark index retreated as profit-taking in key heavyweights weighed on sentiment, while overall market activity remained active. Summary FBM KLCI fell 0.83% to 1,684.93 , dragged by losses in banking and selected large-cap names, despite steady trading participation. Market Performance FBM KLCI : 1,684.93 (-0.83%) FBM Mid 70: -0.00% (flat) FBM Small Cap: -0.23% FBM ACE: +0.20% Broad market was mixed , with weakness concentrated in large caps. Market Breadth & Trading Activity Total volume: 3.54 billion shares Total value: RM4.19 billion Gainers: 456 Losers: 678 Unchanged: 550 Market breadth turned negative , reflecting cautious sentiment. Top Movers – KLCI Gainers Axiata (6888.MY) +1.54% Petronas Gas (6033.MY) +1.18% Sunway (5211.MY) +1.15% Losers Hong Leong Bank (5819.MY) -3.29% Maybank (1155.MY) -3.02% CIMB (1023.MY) -2.47% Banking sector weakness was the main ...
Retain BUY recommendation with unchanged target price (TP) of RM3.85
Highlights/ Comments
- AirAsia has updated its fleet plan for 2017 with an expected growth of 26 net additional aircrafts (+15.9% yoy). Fleet expansion is expected to continue until 2028, with an average of 19-20 aircrafts per annum. New deliveries of A320NEO (15% fuel saving) has begun since Sep 2016, while the A321NEO (20% fuel saving) will begin in 2019.
- The planned double digit capacity growth is in view of the market showing signs of strong demand growth (especially traffics on North Asia sector). Given a rational market condition in all countries, management does not expect competitive pressure on its yields in 2017. As a matter of fact, management has seen strong forward bookings in 4Q16 (load factor of 90%) and in early 2017.
- Recently, BNM has given the approval on foreign funding for the placements of additional 20% shares (in AirAsia) by major shareholders. The exercise is expected to be completed by 1Q17, reflecting the major shareholders’ commitment on AirAsia’s growth potential.
- Management has guided that the impact from RM depreciation in 2017 will be more than offset by the earnings accretion from capacity expansion as well as higher average yields and ancillary incomes.
- Furthermore, shareholders stand to benefit (potentially higher dividend payout) from the ongoing restructuring exercise of the Group: 1) IPO of IAA and PAA; and 2) asset monetization of AAC, AACOE and Expedia.
Risks
- World crisis (i.e. war, terrorism and epidemic outbreak), shutdown of KLIA2, surge in jet fuel price and high speed train infrastructure between Singapore and Penang.
Forecasts
- Unchanged.
Rating
BUY↔
- Despite concerns of RM depreciation, AirAsia is expected to remain on a growth trajectory from the strong capacity expansion, high load factors and low jet fuel costs. Asset monetization and JV/Associates IPO exercises in 2017 will enhance AirAsia’s valuation, with higher dividend payout.
Valuation
- Reiterate our BUY recommendation with unchanged TP of RM3.85 based on unchanged 10% discount to SOP. We view that recent sell down (mainly by foreign shareholders on RM depreciation impact to RM investment value) presents an attractive entry point for local investors to accumulate AirAsia shares and ride with the expected corporate restructuring exercises, earnings growth and higher dividend payout in 2017.
Source: Hong Leong Investment Bank Research - 06 December 2016
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