20 November 2014 3QFY14 Results Review AirAsia Bhd Expect brighter prospects ahead Maintain BUY Unchanged Target Price (TP): RM2.94 INVESTMENT HIGHLIGHTS Results slightly below expectations but we expect 4Q to pick up, benefiting from lower fuel price and recovery in yield. TAA failed to turnaround due to political instability which impacted tourist arrivals. IAA achieved marginal breakeven due to +27%yoy surge in fare yield as cost inflation from the weak Rupiah was passedthrough. Maintain BUY with an unchanged TP of RM2.94, pegged to FY15 PER of 10x. Slightly below expectations. Adjusting for the unrealised forex loss of RM103m, AirAsia posted 3Q14 core net gain of RM119m, a -24%yoy decline. Sequentially, earnings improved strongly from RM26m in 2Q14. The 9M14 core net profit of RM271m accounted for 51% and 53% of ours and consensus full year forecasts respectively (historically, 9M14 constitutes 55-60% of full year estimate). However, we view earnings as being only slightly below our expectation as we expect 4Q14 earnings to surge, benefiting from lower fuel price and recovery in yield. Rational competition and stabilising yield trend in Malaysia. The 3Q14 RASK inched up +0.7%qoq to 15.5 sen and grew +2.0%yoy, signifying stabilising yield trend amidst rational competition. The load factor was flattish at 76% with slight +1%yoy growth in ASK. CASK grew +3%yoy to 12.8 sen despite lower average jet fuel price of USD117/b (- 13%yoy) realised. The ancillary income grew +15%yoy to RM47/pax. TAA failed to turnaround this quarter. TAA s losses widened in 3Q14 to -RM17m compared to -RM13.8m in 2Q14 due to wider gap between RASK and CASK amidst capacity expansion. The dampened travel demand from political instability led to the decline in average fare. Also, TAA now receives less incentive with the relocation of its operations to the Don Mueng airport from Suvarnabhumi Airport. IAA marginal breakeven. The Indonesian associate was the best performing associate. IAA achieved marginal breakeven of RM0.2m in 3Q14 compared to a net loss of RM46m in 2Q14. This was due to cost inflation from Rupiah s weakening being passed-through to consumers, resulting in +27%yoy surge in RASK. IAA had also reduced its capacity aggressively by -17%yoy. RETURN STATS Price (19 Nov 2014) Target Price Expected Share Price Return RM2.46 RM2.94 +19.5% Expected Dividend Yield +2.8% Expected Total Return +22.3% STOCK INFO KLCI 1,824.39 Bursa / Bloomberg Board / Sector Syariah Compliant 5099/ AIRA MK Main/ Trading Services No Issued shares (mil) 2,783.0 Par Value (RM) 0.10 Market cap. (RM m) 6,846.1 Price over NA 1.3x 52-wk price Range RM2.18-RM2.62 Beta (against KLCI) 1.3 3-mth Avg Daily Vol 5.3m 3-mth Avg Daily Value Major Shareholders RM12.9m Tune Air 19.09% Wellington Management Co. 13.69% EPF 8.33% Aviation abbreviations used in this report: RPK: Revenue Passenger Kilometers ASK: Available Seat Kilometers RASK: Revenue per ASK, CASK: Cost Per ASK FSC: Full Service Carrier, LCC: Low Cost Carrier MAA: Malaysia AirAsia TAA: Thai AirAsia; IAA: Indonesia AirAsia; PAA: Philippine AirAsia Pax: Passenger Slower fleet delivery schedule. AirAsia would be taking delivery of 13 Airbus aircrafts in FY15. It has proposed to switch 4 of its orders to A320-NEO while another 4 will be put up for sale. MAA and TAA would be taking delivery of 1 and 4 aircrafts respectively. In FY16 and FY17, 18 aircrafts for each year would be delivered to AirAsia. KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES
INVESTMENT STATISTICS FYE Dec FY13 FY14F FY15F FY16F Revenue (RM m) 5,181.4 5,437.6 6,027.1 6,901.0 EBITDA (RM m) 1,420.9 1,396.4 1,771.2 2,086.4 EBIT (RM m) 786.5 686.8 1,018.8 1,241.3 Pretax Profit (RM m) 443.1 493.2 842.1 1,006.3 Net Profit (RM m) 444.0 641.2 847.1 1,011.3 Core Net Profit (RM m) 594.9 473.2 822.1 986.3 Core EPS (sen) 21.4 16.9 29.2 34.9 Core EPS growth (%) (30.6) (26.4) 42.2 16.2 PER(x) 11.5 14.5 8.4 7.0 Net Dividend (sen) 4.0 6.0 7.0 8.0 Net Dividend Yield (%) 1.6 2.4 2.8 3.3 Source: Company, Forecasts by MIDFR Reiterate BUY with unchanged TP of RM2.94. Given uneven recovery pace of the yield base and lower average jet fuel price, we reduced our FY14 earnings estimate by -13% but kept our FY15 forecast unchanged. We take the view that the domestic aviation sector has seen its worst and are now on a recovery phase with competition intensity lessening and lower fuel price going forward. Hence, we retain our BUY recommendation on AirAsia with unchanged TP of RM2.94. Our valuation is premised on 10x of FY15-PER. AirAsia: 3QFY14 RESULTS SUMMARY All in RM m unless stated otherwise Quarterly Results Cumulative Comments FYE Dec 3Q14 %YoY %QoQ FY14 %YoY Revenue 1,317.0 2.9% 0.5% 3,930.4 2.7% -ticket sale 890.0 0.1% 1.5% 2,648.6-1.9% -ancillary income 234.3 8.7% -0.7% 696.6 7.5% Yield declined 5.4%yoy amid the higher traffic by 9%yoy The average ancillary income achieved at RM47 per pax. -lease income 192.7 9.6% -2.8% 585.2 21.7% Operating exp. (1,145.1) -4.7% 4.8% (3,461.4) -7.2% EBITDAR 402.0 0.3% 15.4% 1,154.3-4.7% EBITDA 352.3 0.1% 18.3% 1,003.6-6.3% Depreciation (180.4) -9.5% 5.1% (534.7) -12.8% EBIT 171.9-8.1% 59.8% 468.9-21.5% Interest income 37.9 >100% 52.8% 83.6 65.6% Interest exp. (135.4) -27.3% -5.8% (381.5) -18.5% Associate 26.6 11.6% >100% 34.1 3.3% Exceptional profit rise in AACOE and AA Expedia was due to one-off tax writeback E.I. (103.0) 23.0% <-100% 127.4 >100% Pre-tax profit 26.5 5.7% -89.6% 415.5 54.2% Net profit 5.4-84.8% -98.5% 512.2 >100% Core net profit 118.9-23.6% >100% 271.2-35.1% 2
3 Core EPS (sen) 4.3-23.6% >100% 9.8-35.1% Operating Stats: M'sia Passenger carried ('000) 5,288.9 0.5% -5.1% 16,235.3 1.8% RPK (m) 6,524.0 6.6% -4.0% 19,734.0 7.0% ASK (m) 8,521.0 8.9% -0.2% 25,001.0 6.6% Load factor (%) 76.6% -1.6% -3.1% 78.9% 1.0% average fare (RM) 169.0 0.0% 7.6% - - Fuel Expenses (521.1) 3.2% 10.4% (1,633.4) -4.8% Unit fuel cost (USD/b) % fuel cost of OPEX 117.0-11.4% -9.3% - - 46.2% -8.2% -5.0% - - RASK (sen/km) 15.46-5.4% 0.7% - - CASK (sen/km) 12.79 1.2% -4.0% - - Source: Company, MIDFR Lower average fuel price towards the end of September. AirAsia Group Operating Statistics Malaysia 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Passengers carried (m) 4.749 5.206 5.168 5.510 5.263 5.913 5.373 5.573 5.289 RPK (m) 5,505 6,059 5,997 6,333 6,118 6,885 6,411 6,799 6,524 ASK (m) 7,077 7,357 7,700 7,915 7,828 8,139 7,945 8,355 8,521 Load factor 77.8% 82.4% 77.9% 80.0% 78.2% 84.6% 80.7% 79.7% 76.6% fleet (end of period) 59 64 66 66 66 72 72 80 81 Thailand 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Passengers carried (m) 1.962 2.272 2.564 2.423 2.557 2.956 3.117 2.807 2.855 RPK (m) 2,079 2,321 2,614 2,551 2,769 2,895 3,057 2,855 2,957 ASK (m) 2,564 2,801 3,012 3,064 3,282 3,593 3,822 3,667 3,553 Load factor 81.1% 82.9% 86.8% 83.3% 84.4% 80.6% 80.0% 77.9% 83.2% fleet (end of period) 25 27 28 29 31 35 37 37 40 Indonesia 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Passengers carried (m) 1.513 1.613 1.721 1.922 2.058 2.153 2.096 1.987 1.847 RPK (m) 1,833 1,830 2,047 2,282 2,458 2,506 2,399 2,288 2,159 ASK (m) 2,349 2,440 2,747 2,873 3,245 3,271 3,126 2,937 2,704 Load factor (%) 78.0% 75.0% 74.5% 79.4% 75.7% 76.6% 76.7% 77.9% 79.8% fleet (end of period) 19 22 22 24 26 30 30 30 30 Source: Company, MIDFR
4 DAILY PRICE CHART Chua Boon Kian Chua.bk@midf.com.my 03-2173 8393
MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to riseby>15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Negative total return is expected to be -15% over the next 12 months. TRADING SELL Stock price is expected to fallby>15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 5