This article first appeared in The Edge Financial Daily on December 4, 2017

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