KUALA LUMPUR: Low-cost carrier AirAsia Bhd, whose share price dropped by as much as 12.9% yesterday on news that one of its planes had gone missing on its way to Singapore from Surabaya, Indonesia, may experience some weakness in the near term, said aviation analysts.

As at press time, the Indonesia AirAsia plane had yet to be found, which disappeared after its pilot failed to get permission to fly higher to avoid the bad weather on Sunday. The plane, an Airbus 320-200, was carrying 162 passengers and crew. 

AirAsia’s share price fell as much as 38 sen or 12.9%, its biggest one-day decline, to reach an intraday low of RM2.56 yesterday, and was the third biggest loser on Bursa Malaysia. It ended the day 8.5% down to RM2.69, lowering its market capitalisation to RM7.49 billion.

The counter was also the most active stock on the local bourse, with some 103.03 million shares traded.

Share prices of related companies such as AirAsia X Bhd (AAX) and Tune Ins Holdings Bhd also declined, with AAX down 5.5 sen or 8% to settle at 63 sen, while Tune Ins closed one sen or 0.6% lower at RM1.75.

Shares in airport operator Malaysia Airports Holdings Bhd were also not spared, falling 15 sen or 2.2% to close at RM6.65.

In a note to clients yesterday, Maybank Investment Bank Bhd aviation analyst Mohshin Aziz expects weakness in AirAsia’s share price in the near term, while the research house reviewed its “buy” rating on the stock and target price of RM3.25.

“Expect share price weakness in the near term. Our FY15 (financial year 2015)-FY16 earnings forecasts have downside bias and our ‘buy’ call and target price, pegged to 11 times FY15 price-to-earnings ratio are under review,” he said.

Mohshin said there would be some financial impact on AirAsia from the incident, but saw it being contained due to the group’s 49% holding in Indonesia AirAsia.

PublicInvest also expects a short-term impact from the incident, but remains positive on AirAsia’s overall prospects.

“Due to this incident, we expect AirAsia’s share price to be under pressure in the immediate term, but AirAsia remains fundamentally strong and is expected to benefit from lower jet fuel costs in 2015,” it said.

While the research house does not expect any significant financial impact, it said the incident may affect short-term demand for air travel, which could pressure passenger and earnings growth.

Going forward, PublicInvest expects softer market sentiment for the aviation sector as a whole in early 2015 due to the number of air incidents this year.

The research house maintained an “outperform” call on AirAsia, with a target price of RM3.30.

CIMB Investment Bank Bhd sees demand for Indonesia AirAsia’s flights will likely be most affected in the first three months of 2015, adding that there could be some spillover effect on demand for AirAsia flights in Thailand and Malaysia.

“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,” it said.

CIMB noted that Indonesia AirAsia will be liable to pay US$175,000 (RM612,500) per passenger or more under the Montreal Convention, but added that the payments should be adequately covered by insurance.

The research firm is maintaining its “add” rating on AirAsia, with a target price of RM3.35.

Similarly, RHB Research analyst Ahmad Maghfur Osman said while the incident would mostly impact Indonesia AirAsia, it might also affect yields of the AirAsia group as a whole.

“A 2.5% reduction from our base case on the underlying yields for FY15 (assuming load factor stays unchanged) would reduce FY15 earnings by 6%.

“But with yields already at rock bottom levels as a result of Malaysian Airline System Bhd’s irrational pricing strategy, we estimate that AirAsia’s downside in yields would not be hard hit,” said Ahmad Maghfur.

This article first appeared in The Edge Financial Daily, on December 30, 2014.