Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: HWANGDBS
AirAsia Bhd
(March 15, RM2.47)
Downgrade to fully valued at RM2.48 with reduced target price of RM2 (from RM3.75): We see a repeat of 2008, when higher fares and fuel surcharges imposed by full-service carriers shifted demand to cheaper, short-haul flights. In this case, AirAsia could benefit as the largest low-cost carrier in the region, meaning its load factor may be sustainable.
But fuel recovery rate (per barrel) could drop if the group decides to absorb higher fuel costs to keep fares low to retain demand. Hence, while passenger volume may increase this year, earnings could be hit by higher jet fuel costs as higher yields and a weakening US dollar may not be sufficient to offset the impact. Note, fuel accounts for 50% to 60% of AirAsia's total costs.
We slash FY11F/12F earnings by 46% to 49% after raising jet fuel cost assumptions by 17% to 20% to US$125 (RM382.50) and US$131 for the respective years, based on DBS's latest forecasts.
We expect FY11F earnings to fall 39% year-on-year due to circa 40% rise in jet fuel prices and only 6% increase in yield (ticket sales), while load factor (revenue passenger kilometers [RPK] divided by available seat kilometers [ASK]) will remain flat at 75% (but RPK will grow 4%). Note, AirAsia has hedged 21% of its fuel requirement up to 2Q11, but this may be insufficient to support earnings.
We also cut ancillary income per pax assumption to RM40 on lower spending as fares rise. AirAsia derives 90% of its ancillary revenue from flight'related services.
We downgrade the stock to 'fully valued' and cut our target price'' to RM2 (from RM3.75) based on 11 times FY11F earnings per share (EPS). The share price has fallen by 17% since its peak in January.
We expect it to retreat further in the near term, given the current high oil prices (based on historical trend). AirAsia's foreign shareholding level stands at 51% (as at Jan 11).
The stock is currently trading at high 14 times FY11F EPS and nine times FY11F earned value/earnings before interest, taxes, depreciation and amortisation against peers' 12 times and 7 times, respectively. ' HwangDBS Vickers Research, March 15
This article appeared in The Edge Financial Daily, March 16, 2011.
Company Name: AIRASIA BHD
Research House: HWANGDBS
AirAsia Bhd
(March 15, RM2.47)
Downgrade to fully valued at RM2.48 with reduced target price of RM2 (from RM3.75): We see a repeat of 2008, when higher fares and fuel surcharges imposed by full-service carriers shifted demand to cheaper, short-haul flights. In this case, AirAsia could benefit as the largest low-cost carrier in the region, meaning its load factor may be sustainable.
But fuel recovery rate (per barrel) could drop if the group decides to absorb higher fuel costs to keep fares low to retain demand. Hence, while passenger volume may increase this year, earnings could be hit by higher jet fuel costs as higher yields and a weakening US dollar may not be sufficient to offset the impact. Note, fuel accounts for 50% to 60% of AirAsia's total costs.
We slash FY11F/12F earnings by 46% to 49% after raising jet fuel cost assumptions by 17% to 20% to US$125 (RM382.50) and US$131 for the respective years, based on DBS's latest forecasts.
We expect FY11F earnings to fall 39% year-on-year due to circa 40% rise in jet fuel prices and only 6% increase in yield (ticket sales), while load factor (revenue passenger kilometers [RPK] divided by available seat kilometers [ASK]) will remain flat at 75% (but RPK will grow 4%). Note, AirAsia has hedged 21% of its fuel requirement up to 2Q11, but this may be insufficient to support earnings.
We also cut ancillary income per pax assumption to RM40 on lower spending as fares rise. AirAsia derives 90% of its ancillary revenue from flight'related services.
We downgrade the stock to 'fully valued' and cut our target price'' to RM2 (from RM3.75) based on 11 times FY11F earnings per share (EPS). The share price has fallen by 17% since its peak in January.
We expect it to retreat further in the near term, given the current high oil prices (based on historical trend). AirAsia's foreign shareholding level stands at 51% (as at Jan 11).
The stock is currently trading at high 14 times FY11F EPS and nine times FY11F earned value/earnings before interest, taxes, depreciation and amortisation against peers' 12 times and 7 times, respectively. ' HwangDBS Vickers Research, March 15
This article appeared in The Edge Financial Daily, March 16, 2011.
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