AirAsia Bhd
(Nov 30, RM3.14)
Maintain hold call with an unchanged target price (TP) of RM3.41 per share: AirAsia Bhd’s revenue rose 14.8% year-on-year (y-o-y) to RM2.4 billion in the third quarter of financial year 2017 (3QFY17), on the back of higher passenger growth and higher available seat kilometres (ASK) growth. ASK increased by 14% y-o-y on the back of a higher aircraft utilisation rate (approximately 13.61 hours/day for 3QFY17 compared with 12.23 hours/day in 3QFY16), resulting in revenue per available seat kilometre (RASK) declining by 1% y-o-y. Average base fares decreased by 2% y-o-y (3QFY16: RM176; 3QFY17: RM172) as the airline reduced fares to compete with other airlines. Operational costs saw an overall increase of 20.5% y-o-y. Key operating expenses such as staff costs rose 18% y-o-y, while fuel expenses increased by 18% y-o-y on the back of higher fuel prices. 

AirAsia is selling its shareholding in the Asia Aviation Centre of Excellence (AACE) and the company is expecting to receive US$100 million (RM409 million) cash proceeds in 4QFY17. The group is also disposing of it Ground Team Red Malaysia (GTR) and will receive US$89 million cash proceeds in December this year. 

We make no changes to our earnings, although the nine-month FY17 (9MFY17) net profit constitutes 65% of our FY17 forecast (74% of our core net profit forecast). This is because we expect earnings to be seasonally stronger in 4QFY17. Moreover, AirAsia has increased its domestic market share in Malaysia (46% to 54%), Thailand (30% to 31%) and the Philippines (14% to 16%). We maintain “hold” with an unchanged TP of RM3.41, based on 10 times FY18 estimated earnings per share. 

Key risks include aggressive fare cuts from heightened competition, a stronger/weaker dollar and higher/lower fuel costs. — Affin Hwang Investment Bank Research, Nov 30