Friday 29 Mar 2024
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KUALA LUMPUR (Nov 3): AmResearch has upgraded AirAsia Bhd to a Buy (from Hold) at RM2.50 with a higher fair value of RM3.10 (from RM2.10), pegging the stock at 12x FY15F EPS.

In a note Monday, the research house said several factors have prompted this tactical upgrade, name;y (1) earnings have reached an inflexion point with lower fuel price and bottoming yields; (2) a stronger balance sheet post perpetual Sukuk issuance; and (3) attractive valuations after a 30% correction since its previous high in 2011-2012.

AmResearch said that its FY14F-16F earnings extimates for the low cost carrier were raised by 6%-47% to factor in:- (1) lower spot crude oil price assumption of USD105/barrel; (2) conservative yield growth of 1%-2% over the next 3 years from flat previously; and (3) factors in incremental equity and cash from the Sukuk proceeds.

“We now expect FY15F/16F EPS growth of 35%/16% from 3%/7% previously.

“The massive increase in our forecast is due to a depressed earnings base previously, which translates into much higher sensitivity to changes in key variables,” it said.

The research house said fuel, which forms a significant chunk of cost (54% of cost), had fallen significantly by 7% over the past one month and by 25% from the recent high of USD115/barrel in June 2014 to USD86/barrel.

AmResarch said it expects little existing hedges for FY15F since Airasia was tight on cash in FY14 with little room to hedge further out.

“Although there is uncertainty in the mid-term outlook depending on how MAS restructures its short-haul business model, yield trends have bottomed, while MAS has already started cutting domestic capacity since July 2014.

“As Airasia has a fairly heavy reliance on domestic traffic, it should benefit from this development,” it said.

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