This article first appeared in The Edge Financial Daily on November 22, 2017

KUALA LUMPUR: AirAsia Bhd  group chief executive officer (CEO) Tan Sri Tony Fernandes has hinted that the third quarter ended Sept 30, 2017 (3QFY17) was a strong quarter for the low-cost carrier and that 4QFY17 results are proving to be even better than 3QFY17.

According to its preliminary operating statistics released on Nov 3, the airline flew 9.89 million passengers in 3Q of 2017, a rise of 12% over the 8.83 million passengers flown in 3Q of 2016.

“Third quarter strong[,] fourth [quarter] very strong ... Ancilliary and joint venture business [a] huge value,” Fernandes said in his personal Twitter account yesterday.

However, he expressed frustration with analysts over how they perceive the value of the airline’s stock, which has remained at a rather low valuation.

“I’m baffled at how analysts value us,” he tweeted, maintaining that dividends are strong. It had paid a dividend of 12 sen per share totalling RM401.02 million for the financial year ended Dec 31, 2016.

AirAsia is due to release its 3Q results on Nov 29.

Bloomberg data showed that out of the 24 analysts covering the stock, 16 recommend to a “buy” for the stock, five say “hold” and three recommend a “sell”. The consensus 12-month target price is RM3.59.

Year to date, AirAsia’s share price has risen 87 sen or 37.7% to close at RM3.18 yesterday, giving it a market capitalisation of RM10.66 billion. The closing price gives it a price-earnings ratio (PER) of 6.06 times.

Comparatively, its long-haul, low-cost affiliate AirAsia X Bhd has a PER of 17.76 times, while Singapore Airlines Ltd trades at 27.29 times its PER.

AirAsia’s 2Q net profit fell 57.2% to RM146.52 million from RM342.12 million a year ago, which was largely in line with consensus forecasts. While analysts are maintaining a positive outlook on its earnings potential for the coming quarters, they expect AirAsia’s bottom line to see a year-on-year (y-o-y) decline.

The consensus forecast for AirAsia’s net profit in 3QFY17 is expected to fall 16.6% to RM295 million compared with RM353.9 million a year ago, according to Bloomberg data.

This is despite a predicted increase in revenue to RM2.46 billion in 3QFY17, Bloomberg data showed. The company’s quarterly revenue rose 46.5% y-o-y to RM2.38 billion in 2QFY17.

Kenanga Research analyst Lum Joe Shen pointed to AirAsia’s planned consolidation of regional units as a possible dampener of earnings for FY18.

He also doesn’t see the proposed initial public offerings by AirAsia’s Indonesian and Philippine arms providing significant lift to its earnings.

PT Indonesia AirAsia is targeted to be listed by year end, while Philippines AirAsia Inc is likely to be listed next year, Fernandes said in Manila last week.

Meanwhile, the proposed disposal of a 49% stake in its ground handling business, Ground Team Red Sdn Bhd, to Singapore’s SATS Ltd is expected to result in a one-off gain of RM365.7 million.

In a note to clients dated Oct 31, CIMB Research raised its target price for AirAsia to RM3.67 from RM3.51, highlighting that the move is expected to boost its 4Q bottom line.

However, the research house noted that AirAsia may incur higher operating costs in the future as it would have to engage in commercial contracts with the new joint venture company, Ground Team Red Holdings Sdn Bhd.

Aviation-related stocks unfortunately appear to be an unpopular sector among fund managers.

“The prices of such stocks can swing for non-fundamental reasons such as jet fuel prices and the spread of contagious diseases [from country to country]” Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told The Edge Financial Daily.