AirAsia Bhd
(April 6, RM2.28)
Maintain buy with target price of RM2.55: Over the past three months, despite the cheaper jet fuel price, AirAsia’s share price has taken a beating due to foreign selling, the further strengthening of the US dollar against the ringgit as well as the entry of a new airline — flymojo, which is managed by Fly Mojo Sdn Bhd.

We notice that with the inception of flymojo in March 2015, AirAsia has responded by giving out very attractive ticket prices in order to retain market share and garner forward bookings. As such, we are cutting our average fare assumptions for AirAsia for its financial year ending December (FY15) and FY16 by 2% to RM175 to RM185, from RM178 to RM187 previously.

We are lowering our FY15 to FY17 earnings forecasts by 17% to 22%, on lower average fares and stronger greenback assumptions (at 3.68 to a US dollar from 3.35 previously). Hence, we lower our 12-month target price to RM2.55 (from RM3.15 previously), based on an unchanged 12 times calendar year 2016E price-earnings ratio (three-year average). We believe that most of the negative news flow has been reflected in the share price.

Risks to our recommendation include: (i) aggressive selling by foreign funds; (ii) a spike in jet fuel prices; and (iii) a weakening of the ringgit against the US dollar. — AffinHwang Capital, April 6

This article first appeared in The Edge Financial Daily, on April 7, 2015.