AirAsia Bhd
(April 3, RM3.11)
Maintain neutral call with a target price (TP) of RM3.19: AirAsia Bhd, through its wholly-owned subsidiary AirAsia Investment Ltd, will subscribe to a 30% joint venture (JV) for a low-cost carrier in Vietnam for 300 billion Vietnam Dong (RM58.2 million). 

The remaining stake will be subscribed by Gumin Company Ltd (69.9%) and Tran Trong Kien (one share). The Hai Au Aviation Joint Stock Company, which currently operates a general aviation business in Vietnam, will form the vehicle for the JV, and will be using the AirAsia brand for a fee as agreed between AirAsia and the JV. 

In addition, AirAsia also has agreed to provide a loan to the JV company amounting to US$2 million (RM8.86 million), while Gumin will provide a loan of US$4 million. The JV is expected to commence operations by early 2018, upon obtaining relevant regulatory approvals.

It currently operates daily direct flights from Hanoi to Halong Bay. It also offers sightseeing flights over Halong Bay, and private charter flights for VIPs to Halong, Hanoi and other airports within Vietnam. It currently owns three Cessna Grand Caravan 208B — EX amphibian aircraft.

We believe the JV would not make material contribution to the group’s bottom line in the short term. However, we view this positively, as this may help enhance its route connectivity within the Asean region.

We maintain our “neutral” call on AirAsia, but with a higher TP of RM3.19 (from RM2.50), as we roll over our valuation to 10 times financial year 2018 forecast (FY18F) earnings per share, and adjust accordingly our fleet size, aircraft fuel price (from US$75-US$80 to US$65-US$75) and US dollar-to-ringgit exchange rate (from RM3.90 to RM4.30) estimates, resulting in an earnings adjustment of an average of 23.9% for FY17F to FY19F. — PublicInvest Research, April 3