Thursday 28 Mar 2024
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KUALA LUMPUR (Feb 24): Aviation analysts are worried about oncoming aircraft capacity in the Malaysian market this year.

Yesterday, AirAsia Bhd announced that it will grow its fleet size to over 200 aircraft this year. Malindo Airways Sdn Bhd is reportedly planning to take at least 10 additional aircraft in 2017, while Malaysia Airlines Bhd will take delivery of six new Airbus A350-900s between the fourth quarter of 2017 and the second quarter of 2018.

In a report today, Deutsche Bank AG research analyst Joe Liew sees the oncoming aircraft capacity in Malaysia to result in downward yield pressure over the next 12 months.

He is forecasting AirAsia's earnings before interest and taxes (EBIT) to decline by 46.7% from 2016 to 2018 and has a "sell" recommendation on the stock with a RM1.75 price target.

AirAsia reported EBIT of RM2.05 billion in the financial year ended Dec 31, 2016 (FY16), which was 19.4% higher than Deutsche Bank's RM1.72 billion forecast.

"While (AirAsia) management continued to be positive on the outlook for their business despite fare competition, we are worried about oncoming capacity in Malaysia," said Liew.

CIMB Research transport analyst Raymond Yap also expects competition to intensify in the second half of 2017.

"Malindo Air's remarkable capacity expansion during 2016 and planned growth in 2017 mean that AirAsia will face more competition this year. AirAsia is also planning to expand its capacity by eight aircraft (for its Malaysian operations) this year, after shrinking the fleet last year. With the weaker ringgit and higher oil price, we forecast AirAsia's FY17 core earnings per share (EPS) to fall 52%," he said in a report today.

Yap is maintaining an "add" call on AirAsia with a target price of RM3.73, noting that the sale of the budget airline's leasing arm Asia Aviation Capital Ltd is moving towards completion, with final bids due on March 27.

"We forecast special dividends of RM1.12 per share this year," he added.

AirAsia shares ended the morning session 3 sen or 1.09% lower at RM2.73, with 15.07 million shares traded. Its market capitalisation stood at RM9.19 billion.

 

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