AirAsia Bhd
(March 18, RM2.26)
Maintain buy with unchanged fair value of RM3.30. At the Langkawi International Maritime and Aerospace Exhibition on Tuesday, it was announced that a new airline called flymojo will be launched. Mixed reports are indicating that flymojo will either be a “value” or a “full-service” airline, targeting the intra-Asean market.

Fly Mojo Sdn Bhd signed a letter of intent (LoI) with Bombardier to purchase 20 CS100 aircraft with an option for another 20. No timeline for the firming up of orders or delivery schedule was revealed. 

It is understood that flymojo is expected to be launched in October 2015 and commence flights in the first quarter of 2016.

The CS100 is a slightly smaller aircraft compared with the A320 that AirAsia is using and cheaper at a list price of US$73 million (RM269.37 million) against the latter’s US$79 million, and the B738s that Malindo Air and Malaysia Airlines are operating. 

Maximum seating in a single class configuration goes up to 125 seats compared with the A320’s 180 seats, while flight range is a bit shorter at 2,950 nautical miles  (nm) (5,463km) against the A320’s 3,300nm.

Fly Mojo is understood to be fully Malaysian owned with Datuk Seri Alies Anor Abdul, a renowned figure in Malaysian political circles, as its chairman and Datuk Janardhanan Gopala Krishnan as managing director.

Unlike Malindo Air, which is based in klia2 and Subang, flymojo is using Senai, which entails much smaller connectivity and feeder traffic from long haul, as its main hub and Kota Kinabalu as a secondary hub, which gives access to Northeast Asian traffic. 

As such, we do not see flymojo being in direct competition with AirAsia which operates mainly out of klia2, except perhaps for the highly profitable Kuala Lumpur to Kota Kinabalu International Airport route where AirAsia is already mounting high frequency 13-time daily flights. 

Other than this, we do not see a new competitor at the Senai hub, which entails much smaller pax traffic than even that of the Kota Kinabalu hub, to be much of a competitive issue for AirAsia in the near term.

After complete delivery of all 20 aircraft, we estimate flymojo will account for just 19% of Malaysia AirAsia’s current capacity.

Separately, foreign shareholding in AirAsia has retreated from the previous high of 60% in December 2014 to 58% at end-February 2015. 

After a sharp selldown post weak  fourth quarter 2014 (4QFY14) earnings, AirAsia is now trading at just eight times FY15 earnings on the back of a 42% three-year earnings compound annual growth rate and 14% FY15 return on equity. — AmResearch, March 18

This article first appeared in The Edge Financial Daily, on March 19, 2015.