Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: MIDF
AirAsia Bhd (June 9, RM1.33)
Maintain trading buy at RM1.27 with target price of RM1.47: In a statement on June 8, AirAsia X CEO Azran Osman-Rani announced that AirAsia X is planning for an initial public offering (IPO) by 2H11 to fund the acquisition of 27 new Airbus aircraft.
This is part of its ongoing efforts to expand its routes further from the current eight it is flying to London, Taipei, China (Tianjin, Hangzhou, Chengdu), Australia (Gold Coast, Melbourne, Perth) and India (Mumbai, Delhi).
With the expansion of its routes to South Korea and Japan, AirAsia X is increasing its aircraft to 11 from eight it currently has.
In its third year of operation, AirAsia X achieved revenues of RM720 million for FY09 with a net profit of RM87 million. This translates to a net profit margin of 12.1%. It is projected that its revenue will exceed RM1 billion in FY2010.
It is still uncertain how much AirAsia X is planning to raise from the IPO exercise. The latest IPO of a budget carrier, Tiger Airways, in the Singapore Exchange, raised S$247.7 million or RM583.5 million with an opening price of S$1.50, which values the company at 12.6 times PER (price-earnings ratio) of its March FY2011 earnings.
For AirAsia's IPO in 2004, it raised RM863 million, with a price of RM1.25 for institutional investor and RM1.16 for individual investors.
On a historical basis, we expect that AirAsia X would raise between RM500 million and RM900 million. We believe this would be sufficient for AirAsia X to start on its plan for aircraft expansion.
However, given that each aircraft cost an estimated RM400 million, we expect that the total number of aircraft would be scaled depending on the final fund raised.
We are positive to the planned IPO of AirAsia X as it would finally separate AirAsia from AirAsia X. This separation would allow the two respective companies to concentrate on its core competencies while taking advantage on synergies such as a common brand and feeder services ' long haul passenger on AirAsia X feeding into AirAsia for short haul travelling and vice versa.
Also, the separation would allow AirAsia X to stand on its own. Hence, any future burden on AirAsia to carry AirAsia X will be lifted.
We believe that the impact of the planned AirAsia X IPO to AirAsia would be minimal as it does not contribute significantly to AirAsia's earnings. Any potential upside for AirAsia would be on its 16% holdings of AirAsia X should it earn an attractive valuation during the IPO.
We maintain our trading buy recommendation as we do not expect the planned IPO to have any significant impact on AirAsia. We expect the catalyst would be the continuing growth in traffic on the back of an expected increase in regional tourism. Our target price of RM1.47 is pegged to a PER of 10 times based on the average PER of its peers. ' MIDF Research, June 9
This article appeared in The Edge Financial Daily, June 10, 2010.
Company Name: AIRASIA BHD
Research House: MIDF
AirAsia Bhd (June 9, RM1.33)
Maintain trading buy at RM1.27 with target price of RM1.47: In a statement on June 8, AirAsia X CEO Azran Osman-Rani announced that AirAsia X is planning for an initial public offering (IPO) by 2H11 to fund the acquisition of 27 new Airbus aircraft.
This is part of its ongoing efforts to expand its routes further from the current eight it is flying to London, Taipei, China (Tianjin, Hangzhou, Chengdu), Australia (Gold Coast, Melbourne, Perth) and India (Mumbai, Delhi).
With the expansion of its routes to South Korea and Japan, AirAsia X is increasing its aircraft to 11 from eight it currently has.
In its third year of operation, AirAsia X achieved revenues of RM720 million for FY09 with a net profit of RM87 million. This translates to a net profit margin of 12.1%. It is projected that its revenue will exceed RM1 billion in FY2010.
It is still uncertain how much AirAsia X is planning to raise from the IPO exercise. The latest IPO of a budget carrier, Tiger Airways, in the Singapore Exchange, raised S$247.7 million or RM583.5 million with an opening price of S$1.50, which values the company at 12.6 times PER (price-earnings ratio) of its March FY2011 earnings.
For AirAsia's IPO in 2004, it raised RM863 million, with a price of RM1.25 for institutional investor and RM1.16 for individual investors.
On a historical basis, we expect that AirAsia X would raise between RM500 million and RM900 million. We believe this would be sufficient for AirAsia X to start on its plan for aircraft expansion.
However, given that each aircraft cost an estimated RM400 million, we expect that the total number of aircraft would be scaled depending on the final fund raised.
We are positive to the planned IPO of AirAsia X as it would finally separate AirAsia from AirAsia X. This separation would allow the two respective companies to concentrate on its core competencies while taking advantage on synergies such as a common brand and feeder services ' long haul passenger on AirAsia X feeding into AirAsia for short haul travelling and vice versa.
Also, the separation would allow AirAsia X to stand on its own. Hence, any future burden on AirAsia to carry AirAsia X will be lifted.
We believe that the impact of the planned AirAsia X IPO to AirAsia would be minimal as it does not contribute significantly to AirAsia's earnings. Any potential upside for AirAsia would be on its 16% holdings of AirAsia X should it earn an attractive valuation during the IPO.
We maintain our trading buy recommendation as we do not expect the planned IPO to have any significant impact on AirAsia. We expect the catalyst would be the continuing growth in traffic on the back of an expected increase in regional tourism. Our target price of RM1.47 is pegged to a PER of 10 times based on the average PER of its peers. ' MIDF Research, June 9
This article appeared in The Edge Financial Daily, June 10, 2010.
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