AirAsia fundamentally strong

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AirAsia Bhd
(Dec 29, RM2.69)
Maintain “outperform” with a target price (TP) of RM3.30
: Due to Indonesia AirAsia’s missing flight QZ8501, 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. Thus, we maintain our “outperform” call on AirAsia until the cause of the incident can be ascertained.

Indonesia AirAsia is a 49%-owned associate of the AirAsia group. The financial impact is still pending, depending on how much AirAsia will be financially liable until the cause of the incident can be determined. We expect it will not result in a significant financial impact but more of a market sentiment in the short term. 

However, it might affect short-term demand for air travel, hence near-term passenger growth and earnings may be under pressure. Nevertheless, as a group, AirAsia has long-term potential growth and low-cost competitive advantage.

After a number of air incidents this year, we expect softer market demand for air travel in early 2015. 

We maintain our “outperform” call on AirAsia with a TP of RM3.30 based on price-earnings multiple of 10 times (based on core net earnings) to its forecast for financial year 2015 earnings until the cause of the incident is determined. — PublicInvest Research, Dec 29


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