Netflix shares fell more than 8% in after-hours trading , as a disappointing second-quarter outlook and leadership changes outweighed otherwise solid first-quarter results. Weak Guidance Sparks Sell-Off Netflix forecast Q2 earnings of US$0.78 per share , below analyst expectations of US$0.84 , while revenue is projected at US$12.57 billion , missing the US$12.64 billion consensus . The weaker guidance raised concerns over near-term growth momentum , triggering a sharp negative market reaction. Strong Q1 Performance Fails to Impress For the first quarter: Revenue rose 16% YoY to US$12.25 billion (above estimates) Earnings surged 86% to US$1.23 per share However, earnings were boosted by a US$2.8 billion one-off termination fee , reducing the quality of underlying growth. Operating margin improved to 32.3% , but still came in below expectations (32.4%) , further dampening sentiment. Rising Costs and Strategic Sh...
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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