Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: HWANGDBS
AirAsia Bhd
(May 6, RM1.32)
Upgrade to buy at RM1.32, with raised target price of RM1.95: The International Air Transport Association (IATA) revealed that air travel demand is on the uptrend.
Traffic growth in the Asia-Pacific had recovered from its deepest decline of 15% year-on-year (y-o-y) in March 2009 to rise 13% in March 2010 following economic recovery.
We expect 8% GDP growth for Malaysia in 2010. Hence, AirAsia's fleet expansion programme is now timely to capture the recovery in demand. We expect AirAsia to record revenue-per-kilometre (RPK) growth of 12% to 15% each year in financial years ending Dec 31, 2010 (FY2010) to FY2011, assuming load factor of 72% to 74% (from 70% in FY2009). Note that despite weak market conditions in FY2009, AirAsia was able to book 14% y-o-y growth in RPK.
Ability to fund new aircraft purchases and repay loans is no longer a major concern. We expect operating cash flow or sales to improve from 26 sen in FY09 to 35 sen to 39 sen in FY2010 to FY2012 while cash ratio to rise from 0.5 times in FY2009 to 0.7 time in FY2012.
Meanwhile, net gearing should remain stable at 2.5 times to 2.7 times in FY2010 to FY2012 as AirAsia continues to raise debt to expand its fleet but this will be cushioned by stronger earnings. Our FY2010 to FY2011 core earnings are raised by 30% to 37% mainly on higher yield and load factor assumptions. Apart from ticket sales, ancillary business also offers huge potential while helping AirAsia to keep its fares low.
We project the total ancillary income to grow by 12% to 14% y-o-y each year over FY2010 to FY2012. The group will be able to capitalise on its growing passenger volume, as well as its large web visitor base while riding on its strong branding and existing infrastructure where costs are minimal.
Share valuations are bombed-out. The stock is trading at 6.1 times calendar year 2011 earnings per share and 1.1 times calendar year 2011 book value, 27% to 33% discount to its peers' and also hovering near its historical low valuations.
We believe this is unwarranted considering that earnings downside for AirAsia is limited as sector gradually recovers. Upgrade to buy with RM1.95 target price based on nine times calendar year 2011 earnings per share, consistent with the average small and mid-cap peers' valuation.
Catalysts for the stock include higher load factor, yield, and ancillary income. - HwangDBS Vickers Research, May 6
This article appeared in The Edge Financial Daily, May 7, 2010.
Company Name: AIRASIA BHD
Research House: HWANGDBS
AirAsia Bhd
(May 6, RM1.32)
Upgrade to buy at RM1.32, with raised target price of RM1.95: The International Air Transport Association (IATA) revealed that air travel demand is on the uptrend.
Traffic growth in the Asia-Pacific had recovered from its deepest decline of 15% year-on-year (y-o-y) in March 2009 to rise 13% in March 2010 following economic recovery.
We expect 8% GDP growth for Malaysia in 2010. Hence, AirAsia's fleet expansion programme is now timely to capture the recovery in demand. We expect AirAsia to record revenue-per-kilometre (RPK) growth of 12% to 15% each year in financial years ending Dec 31, 2010 (FY2010) to FY2011, assuming load factor of 72% to 74% (from 70% in FY2009). Note that despite weak market conditions in FY2009, AirAsia was able to book 14% y-o-y growth in RPK.
Ability to fund new aircraft purchases and repay loans is no longer a major concern. We expect operating cash flow or sales to improve from 26 sen in FY09 to 35 sen to 39 sen in FY2010 to FY2012 while cash ratio to rise from 0.5 times in FY2009 to 0.7 time in FY2012.
Meanwhile, net gearing should remain stable at 2.5 times to 2.7 times in FY2010 to FY2012 as AirAsia continues to raise debt to expand its fleet but this will be cushioned by stronger earnings. Our FY2010 to FY2011 core earnings are raised by 30% to 37% mainly on higher yield and load factor assumptions. Apart from ticket sales, ancillary business also offers huge potential while helping AirAsia to keep its fares low.
We project the total ancillary income to grow by 12% to 14% y-o-y each year over FY2010 to FY2012. The group will be able to capitalise on its growing passenger volume, as well as its large web visitor base while riding on its strong branding and existing infrastructure where costs are minimal.
Share valuations are bombed-out. The stock is trading at 6.1 times calendar year 2011 earnings per share and 1.1 times calendar year 2011 book value, 27% to 33% discount to its peers' and also hovering near its historical low valuations.
We believe this is unwarranted considering that earnings downside for AirAsia is limited as sector gradually recovers. Upgrade to buy with RM1.95 target price based on nine times calendar year 2011 earnings per share, consistent with the average small and mid-cap peers' valuation.
Catalysts for the stock include higher load factor, yield, and ancillary income. - HwangDBS Vickers Research, May 6
This article appeared in The Edge Financial Daily, May 7, 2010.
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