AirAsia Bhd - Outlook to improve from 2Q15
Target RM3.20 (Stock Rating: ADD)
AirAsia’s full-year group core net profit of RM143m was only 67% of our forecast, with Malaysia AirAsia undershooting our 4Q14 estimate by some 60%, though partially offset by Thai AirAsia’s better-than-expected earnings. Although we had correctly anticipated an 8% yoy yield improvement in the 4Q, passenger loads unexpectedly fell 6% pts yoy, indicating that the market strongly resisted AirAsia’s attempts at raising ticket prices. We reduce FY15 forecasts by 26% on lower load assumptions, but cut FY16 by only 9% as AirAsia is getting rid of its surplus fleet in 2015 which will reduce its cost base. Our target price is lowered, still based on the sector average CY16 P/E of 11x. Maintain Add, because AirAsia is taking aggressive action to manage costs.
Why did MAA underperform in 4Q14?
Although airline seat capacity between West and East Malaysia was stable and supported improved yields, seat capacity within Peninsular Malaysia saw mid-teens capacity increases over the past 12 months on the back of aggressive turboprop fleet deployment from Subang Airport by Malindo and Firefly. So when AirAsia raised its ticket prices, customers ran off to other airlines causing loads to drop. In the end, 4Q’s revenue per unit of ASK capacity (RASK) was little changed from 4Q13’s low base, which we view as very disappointing. On the cost front, AirAsia unexpectedly decided to book two months’ bonus provision entirely in 4Q14 to lift flagging employee morale, which took us by surprise. It also suffered from the strong US$, but was unable to benefit fully from the weaker oil price as a result of legacy hedges.
Poor immediate outlook for 1Q15
The crash of QZ8501 caused AirAsia to withhold marketing campaigns in Jan- Feb. Hence, MAA forecasted its 1Q yields to drop yoy and guided its loads at just 74%, down 7% pts yoy. A possible 10% drop in RASK to just 12 sen, plus the 8% depreciation of the ringgit, will unfortunately more than offset the 26% yoy drop in the all-in average price of jet fuel to US$90/bbl in 1Q15.
2Q15 onwards should improve considerably
Earnings should trough in 1Q15, because MAA will cut its fleet cut down from 81 to 75 planes this year by moving excess capacity to overseas associates and by selling older planes. We forecast its average jet price to drop to US$80/bbl in 2Q15. The resumption of marketing from Mar will also help raise loads.
Source: CIMB Daybreak - 27 February 2015
Target RM3.20 (Stock Rating: ADD)
AirAsia’s full-year group core net profit of RM143m was only 67% of our forecast, with Malaysia AirAsia undershooting our 4Q14 estimate by some 60%, though partially offset by Thai AirAsia’s better-than-expected earnings. Although we had correctly anticipated an 8% yoy yield improvement in the 4Q, passenger loads unexpectedly fell 6% pts yoy, indicating that the market strongly resisted AirAsia’s attempts at raising ticket prices. We reduce FY15 forecasts by 26% on lower load assumptions, but cut FY16 by only 9% as AirAsia is getting rid of its surplus fleet in 2015 which will reduce its cost base. Our target price is lowered, still based on the sector average CY16 P/E of 11x. Maintain Add, because AirAsia is taking aggressive action to manage costs.
Why did MAA underperform in 4Q14?
Although airline seat capacity between West and East Malaysia was stable and supported improved yields, seat capacity within Peninsular Malaysia saw mid-teens capacity increases over the past 12 months on the back of aggressive turboprop fleet deployment from Subang Airport by Malindo and Firefly. So when AirAsia raised its ticket prices, customers ran off to other airlines causing loads to drop. In the end, 4Q’s revenue per unit of ASK capacity (RASK) was little changed from 4Q13’s low base, which we view as very disappointing. On the cost front, AirAsia unexpectedly decided to book two months’ bonus provision entirely in 4Q14 to lift flagging employee morale, which took us by surprise. It also suffered from the strong US$, but was unable to benefit fully from the weaker oil price as a result of legacy hedges.
Poor immediate outlook for 1Q15
The crash of QZ8501 caused AirAsia to withhold marketing campaigns in Jan- Feb. Hence, MAA forecasted its 1Q yields to drop yoy and guided its loads at just 74%, down 7% pts yoy. A possible 10% drop in RASK to just 12 sen, plus the 8% depreciation of the ringgit, will unfortunately more than offset the 26% yoy drop in the all-in average price of jet fuel to US$90/bbl in 1Q15.
2Q15 onwards should improve considerably
Earnings should trough in 1Q15, because MAA will cut its fleet cut down from 81 to 75 planes this year by moving excess capacity to overseas associates and by selling older planes. We forecast its average jet price to drop to US$80/bbl in 2Q15. The resumption of marketing from Mar will also help raise loads.
Source: CIMB Daybreak - 27 February 2015
