Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: OSK
AsiaAsia Bhd
(June 2, RM1.20)
Reiterate trading buy at RM1.25 with target price of RM1.48: AirAsia announced on Bursa Malaysia that the company has received the approval of the finance ministry vide its letter dated May 27, 2010 for an extension of investment allowance incentive for a period of another five years from July 1, 2009 until June 30, 2014.
This is indeed a piece of good news for AirAsia as 60% of its qualifying capital expenditure (capex)'' incurred from July 1, 2009 to June 30, 2014 will enjoy permanent tax savings. While the investment allowance can only be set off against 70% of statutory income for each year of assessment, we think the company may begin to record deferred tax assets (positive tax) in the coming quarter by topping up this extended allowance with regular capital allowance. AirAsia has begun to record some reversal of capital tax allowance since 3QFY09 after the company decided to slow down on the delivery of new aircraft.
As the investment allowance is granted only for aircraft based in Malaysia, we suspect this may lead to the company parking more aircraft under its books. However, we are uncertain whether the aircraft that are subsequently leased to its associates can enjoy similar incentives.
Apart from that, should any aircraft be sold or leased within five years, there would be a claw-back of the investment allowance utilised on the said aircraft. This may discourage AirAsia from selling and leasing back the new aircraft in order to fully capitalise on the tax incentive.
As we have been valuing AirAsia based on profit before tax (PBT) to exclude the implications of deferred tax recognition and our original estimates already incorporated a positive tax of RM20 million for FY10, we are keeping our projection. Together with this piece of good news, we also excited with the potential announcement of some corporate exercises pertaining to its plans for AirAsia X and Indonesia AirAsia soon. The board is also in talks with new investors to buy out the majority stake in its Indonesia associate, which was put up for sale by the original investors.
With the corporate exercises in the pipeline and as the share price offers some upside after the recent weakness, we maintain our trading buy recommendation with an unchanged fair value of RM1.48, derived from nine times FY10 EPS (earnings per share core- PBT level). ' OSK Research, June 2
This article appeared in The Edge Financial Daily, June 3, 2010.
Company Name: AIRASIA BHD
Research House: OSK
AsiaAsia Bhd
(June 2, RM1.20)
Reiterate trading buy at RM1.25 with target price of RM1.48: AirAsia announced on Bursa Malaysia that the company has received the approval of the finance ministry vide its letter dated May 27, 2010 for an extension of investment allowance incentive for a period of another five years from July 1, 2009 until June 30, 2014.
This is indeed a piece of good news for AirAsia as 60% of its qualifying capital expenditure (capex)'' incurred from July 1, 2009 to June 30, 2014 will enjoy permanent tax savings. While the investment allowance can only be set off against 70% of statutory income for each year of assessment, we think the company may begin to record deferred tax assets (positive tax) in the coming quarter by topping up this extended allowance with regular capital allowance. AirAsia has begun to record some reversal of capital tax allowance since 3QFY09 after the company decided to slow down on the delivery of new aircraft.
As the investment allowance is granted only for aircraft based in Malaysia, we suspect this may lead to the company parking more aircraft under its books. However, we are uncertain whether the aircraft that are subsequently leased to its associates can enjoy similar incentives.
Apart from that, should any aircraft be sold or leased within five years, there would be a claw-back of the investment allowance utilised on the said aircraft. This may discourage AirAsia from selling and leasing back the new aircraft in order to fully capitalise on the tax incentive.
As we have been valuing AirAsia based on profit before tax (PBT) to exclude the implications of deferred tax recognition and our original estimates already incorporated a positive tax of RM20 million for FY10, we are keeping our projection. Together with this piece of good news, we also excited with the potential announcement of some corporate exercises pertaining to its plans for AirAsia X and Indonesia AirAsia soon. The board is also in talks with new investors to buy out the majority stake in its Indonesia associate, which was put up for sale by the original investors.
With the corporate exercises in the pipeline and as the share price offers some upside after the recent weakness, we maintain our trading buy recommendation with an unchanged fair value of RM1.48, derived from nine times FY10 EPS (earnings per share core- PBT level). ' OSK Research, June 2
This article appeared in The Edge Financial Daily, June 3, 2010.
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