KUALA LUMPUR (Jan 11): The bright prospects for the aviation sector going into 2018 have prompted analysts to maintain their "Overweight" rating on the industry.
In a note today, MIDF Amanah Investment Bank Bhd Research (MIDF) said it believes airlines like AirAsia Bhd and AirAsia X Bhd (AAX) are to remain buoyant, underpinned by continuous improvement in operational costs, coupled with aggressive capacity expansion, despite challenges such as rising fuel prices.
MIDF noted a better competitive environment is expected to lead to a more rational pricing regime, increasing airlines average yield.
“We expect the growth of passengers’ traffic to remain in positive territory, driven by higher international passengers,” MIDF said.
Overall, MIDF expects Malaysia Airports Holdings Bhd (MAHB) to benefit from encouraging developments such as the net addition of aircraft and higher utilisation rates by airlines.
“Considering that travel demand is to remain robust in CY18, we continue to like MAHB as a proxy to Malaysia’s resilient inbound/outbound travel industry, being the largest airport operator in Malaysia,” MIDF said.
The research house opined MAHB will able to see annual passenger traffic number surpassing the psychological 100 million within two years, while only forecasting a relatively conservative growth of 4%. Hence, MIDF recommended a "Buy" call and target price of RM9.98 for MAHB.
Moreover, MIDF suggests AAX’s business will stay intact in CY18, supported by its ongoing expansion to other routes, catering to long-term structural demand.
With anticipation AirAsia’s CY18 outlook continues to be positive due to its aggressive capacity expansion and inventive strategies to drive costs lower, MIDF maintained their "Buy" call on AirAsia (target price (TP): RM4.02) and AAX (TP: 43 sen).
Meanwhile, HLIB Research in a note today, imputed passenger traffic growth of 6% and 4.8% for MAHB for 2018 and 2019 respectively.
“Given a balance growth of supply-demand environment in 2018, we expect yield to sustain into 2018,” HLIB said.
Noting jet fuel price (in tandem with crude oil price) has risen to US$75 per barrel (bbl) in recent months, HLIB expects the price to trend lower to average US$65 to US$70/bbl in 2018, as global crude oil supply normalises back in January 2018, and non-OPEC oil nations taking opportunity to increase production.
AirAsia Group has hedged only 16% of its requirement in 1H18 at US$62/bbl, as the group expects jet fuel prices to trend down in 1H18, HLIB said.
Furthermore, with the strengthening ringgit, MAHB could see a lower translated earnings contribution of Istanbul Sabiha Gocken International Airport (ISGA) in Euro (€), HLIB said.
Meanwhile, AirAsia will see a positive impact from a higher operational cost structure (jet fuel, maintenance and debts) denominated in US dollars, which would be partially offset by the rise in average jet fuel prices in 2018, the research house noted.
HLIB has also maintained a "Buy" call on MAHB with higher TP of RM10.00 and a "Buy" call on AirAsia with higher TP of RM4.18.