AIRASIA (5099) : AirAsia Bhd - Standing tall despite turbulence
Target RM3.35 (Stock Rating: ADD)
The disappearance of IAA Flight QZ8501 is tragic news. The key concerns for AirAsia are (1) to what extent will IAA’s passenger demand in Indonesia fall by, and for how long, and (2) to what extent will the Indonesian incident affect the Malaysian and Thai operations. Of less concern are the costs related to claims and salvage, which should be adequately covered by insurance. We maintain Add with an unchanged target price, based on 1.7x CY15 P/BV (average since 2008), because we believe that Indonesian demand should not be too adversely affected for too long, and the contagion effect should be limited for now. Rerating catalysts include lower fuel costs and improving yields in Malaysia. Investors should accumulate on price weakness.
What Happened
Indonesia AirAsia (IAA) Flight QZ8501 from Surabaya, Indonesia to Singapore lost contact with air traffic control at 7.24am on 28 December and is believed to have crashed into the Java Sea amid turbulent weather. A total of 162 people were on board, of which 155 were Indonesian nationals.
What We Think
The disappearance is a heart-wrenching tragedy and marks the third accident involving a Malaysian-linked commercial airline in nine months. Under the Montreal Convention, IAA will be liable to pay US$175,000 per passenger or more, but these payments should be adequately covered by insurance.
The negative impact on demand for IAA’s flights will likely be felt most sharply in the first three months, and the pace of the subsequent recovery will depend in large part on (1) how quickly the plane is found, i.e. whether there is closure, (2) the quality of AirAsia’s public relations and engagement efforts, and (3) public perception on the cause of the accident, i.e. due to bad weather or pilot error. Helping IAA, is the fact that up to this point it has had an excellent safety track record, against questionable practices by most other Indonesian LCCs.
Negative demand contagion to Thai AirAsia and to Malaysia should be expected, since the AirAsia livery on the affected plane is very prominent, but unless there is a second incident in the very near future, the AirAsia group’s strong safety track record and very attractive commercial offerings, may help limit the contagion and ensure a speedier demand recovery.
What You Should Do
AirAsia’s share price will likely fall today following the tragic news. We view this as a good opportunity to accumulate into this high quality airline company, with liquidation value of RM2.40 as very strong support.
Source: CIMB Daybreak - 29 December 2014
Target RM3.35 (Stock Rating: ADD)
The disappearance of IAA Flight QZ8501 is tragic news. The key concerns for AirAsia are (1) to what extent will IAA’s passenger demand in Indonesia fall by, and for how long, and (2) to what extent will the Indonesian incident affect the Malaysian and Thai operations. Of less concern are the costs related to claims and salvage, which should be adequately covered by insurance. We maintain Add with an unchanged target price, based on 1.7x CY15 P/BV (average since 2008), because we believe that Indonesian demand should not be too adversely affected for too long, and the contagion effect should be limited for now. Rerating catalysts include lower fuel costs and improving yields in Malaysia. Investors should accumulate on price weakness.
What Happened
Indonesia AirAsia (IAA) Flight QZ8501 from Surabaya, Indonesia to Singapore lost contact with air traffic control at 7.24am on 28 December and is believed to have crashed into the Java Sea amid turbulent weather. A total of 162 people were on board, of which 155 were Indonesian nationals.
What We Think
The disappearance is a heart-wrenching tragedy and marks the third accident involving a Malaysian-linked commercial airline in nine months. Under the Montreal Convention, IAA will be liable to pay US$175,000 per passenger or more, but these payments should be adequately covered by insurance.
The negative impact on demand for IAA’s flights will likely be felt most sharply in the first three months, and the pace of the subsequent recovery will depend in large part on (1) how quickly the plane is found, i.e. whether there is closure, (2) the quality of AirAsia’s public relations and engagement efforts, and (3) public perception on the cause of the accident, i.e. due to bad weather or pilot error. Helping IAA, is the fact that up to this point it has had an excellent safety track record, against questionable practices by most other Indonesian LCCs.
Negative demand contagion to Thai AirAsia and to Malaysia should be expected, since the AirAsia livery on the affected plane is very prominent, but unless there is a second incident in the very near future, the AirAsia group’s strong safety track record and very attractive commercial offerings, may help limit the contagion and ensure a speedier demand recovery.
What You Should Do
AirAsia’s share price will likely fall today following the tragic news. We view this as a good opportunity to accumulate into this high quality airline company, with liquidation value of RM2.40 as very strong support.
Source: CIMB Daybreak - 29 December 2014
