Stock Name: AIRASIA
Company Name: AIRASIA BHD
AirAsia Bhd
(Aug 10, RM3.54)
Maintain outperform with target price of RM4.80: Tune Air'' Bhd and Khazanah Nasional Bhd are proposing a share swap, giving Tune Air a 20.5% stake in MAS, and Khazanah a 10% stake in AirAsia. This deal establishes a five-year comprehensive collaboration framework (CCF), with an option to renew for a further five years, between MAS and AirAsia to 'enhance the national aviation eco-system', reinforce core competencies and exploit potential synergies. A joint collaboration committee (JCC) will be established to coordinate activities and resolve any potential deadlocks. We do not rule out this tie-up as a prelude to an eventual merger between MAS and AirAsia.
To sweeten the deal, one MAS warrant will be issued per 10 AirAsia shares. These 2.5-year warrants, with a RM2 strike price, is subject to shareholder approval at a Nov 11 EGM.
AirAsia CEO Tan Sri Tony Fernandes and deputy CEO Datuk Kamaruddin Meranun will be appointed to the board of MAS. In turn, Khazanah director and member of the MAS board Datuk Mohamed Azman Yahya will join the AirAsia board on Aug 11, with Khazanah executive director (investments) and MAS board member Mohammed Rashdan Mohd Yusof as his alternate. These four men will sit on the JCC.
AirAsia's management said one of the key attractions of the tie-up with Khaznah/MAS is that it aligns the common interest of shareholders, thus allowing for issues such as landing rights, predatory pricing and the use of aerobridges to be settled more quickly and amicably. This will allow the management to focus more on pressing operational matters.
(From left) Malaysian Airline System chairman Tan Sri Md Nor Yusof, CIMB Group Holdings Bhd group CEO Datuk Seri Nazri Razak and Fernandes at the signing of the collaboration and shareholders agreement between Khazanah Nasional Bhd and Tune Air Bhd on Tuesday. Perhaps the most immediate benefit of the collaboration is Firefly's exit from the low-cost market, to become a regional full-service airline. We expect this move, which will take effect by early 2012, will reduce the general level of price competition and raise both yields and fares. Under this deal, AirAsia will selectively be looking into acting as a feeder for MAS' long-haul network. This form of 'pseudo interlining' will leverage AirAsia's 'Fly-Thru' service, which allows passengers to connect to their next flight without the need to clear immigration, for a fee. A RM1 increase in total fares would increase our FY12/FY13 net profit forecasts by 1.4% to 2.1%.
One of the areas of interest could be engineering (maintenenace, repair and overhaul). AirAsia currently outsources much of its engineering needs; this provides an opportunity for MAS to be its outsourcing agent. Cargo could be another area for synergy, if MAS can leverage AirAsia's regional network, and its Red Box courier service, to act as a feeder for its long-haul cargo operations.
In our view, the MAS-AirAsia tie-up will have a negative impact on Malaysia Airports (MAHB). First, any route rationalisation programme between the two carriers could reduce the total number of flights and potentially lower traffic volumes. Second, and more importantly, MAHB will now have to deal with a large single client. The relative loss of negotiating power, coupled with its previously stormy relationship with AirAsia, in our view, could put MAHB at a distinct disadvantage.
We were previously concerned that the suspension of stock would be for a takeover of MAS by AirAsia. Over the next 12 months, AirAsia is planning three IPOs and starting operations in three new overseas joint ventures (the Philippines, Vietnam and Japan). We were concerned that a takeover of MAS would have simply been too much for an already busy management team. We are pleased that under this collaborative partnership, each party will focus on its core competencies. With its business model intact, coupled with the potential synergies with MAS (MRO, cargo and so on), we reiterate our 'outperform' rating on AirAsia. ' Credit Suisse, Aug 10
This article appeared in The Edge Financial Daily, August 11, 2011.
Company Name: AIRASIA BHD
| Research House: CREDIT SUISSE | Price Call: BUY | Target Price: 4.80 |
AirAsia Bhd
(Aug 10, RM3.54)
Maintain outperform with target price of RM4.80: Tune Air'' Bhd and Khazanah Nasional Bhd are proposing a share swap, giving Tune Air a 20.5% stake in MAS, and Khazanah a 10% stake in AirAsia. This deal establishes a five-year comprehensive collaboration framework (CCF), with an option to renew for a further five years, between MAS and AirAsia to 'enhance the national aviation eco-system', reinforce core competencies and exploit potential synergies. A joint collaboration committee (JCC) will be established to coordinate activities and resolve any potential deadlocks. We do not rule out this tie-up as a prelude to an eventual merger between MAS and AirAsia.
To sweeten the deal, one MAS warrant will be issued per 10 AirAsia shares. These 2.5-year warrants, with a RM2 strike price, is subject to shareholder approval at a Nov 11 EGM.
AirAsia CEO Tan Sri Tony Fernandes and deputy CEO Datuk Kamaruddin Meranun will be appointed to the board of MAS. In turn, Khazanah director and member of the MAS board Datuk Mohamed Azman Yahya will join the AirAsia board on Aug 11, with Khazanah executive director (investments) and MAS board member Mohammed Rashdan Mohd Yusof as his alternate. These four men will sit on the JCC.
AirAsia's management said one of the key attractions of the tie-up with Khaznah/MAS is that it aligns the common interest of shareholders, thus allowing for issues such as landing rights, predatory pricing and the use of aerobridges to be settled more quickly and amicably. This will allow the management to focus more on pressing operational matters.
(From left) Malaysian Airline System chairman Tan Sri Md Nor Yusof, CIMB Group Holdings Bhd group CEO Datuk Seri Nazri Razak and Fernandes at the signing of the collaboration and shareholders agreement between Khazanah Nasional Bhd and Tune Air Bhd on Tuesday. Perhaps the most immediate benefit of the collaboration is Firefly's exit from the low-cost market, to become a regional full-service airline. We expect this move, which will take effect by early 2012, will reduce the general level of price competition and raise both yields and fares. Under this deal, AirAsia will selectively be looking into acting as a feeder for MAS' long-haul network. This form of 'pseudo interlining' will leverage AirAsia's 'Fly-Thru' service, which allows passengers to connect to their next flight without the need to clear immigration, for a fee. A RM1 increase in total fares would increase our FY12/FY13 net profit forecasts by 1.4% to 2.1%.
One of the areas of interest could be engineering (maintenenace, repair and overhaul). AirAsia currently outsources much of its engineering needs; this provides an opportunity for MAS to be its outsourcing agent. Cargo could be another area for synergy, if MAS can leverage AirAsia's regional network, and its Red Box courier service, to act as a feeder for its long-haul cargo operations.
In our view, the MAS-AirAsia tie-up will have a negative impact on Malaysia Airports (MAHB). First, any route rationalisation programme between the two carriers could reduce the total number of flights and potentially lower traffic volumes. Second, and more importantly, MAHB will now have to deal with a large single client. The relative loss of negotiating power, coupled with its previously stormy relationship with AirAsia, in our view, could put MAHB at a distinct disadvantage.
We were previously concerned that the suspension of stock would be for a takeover of MAS by AirAsia. Over the next 12 months, AirAsia is planning three IPOs and starting operations in three new overseas joint ventures (the Philippines, Vietnam and Japan). We were concerned that a takeover of MAS would have simply been too much for an already busy management team. We are pleased that under this collaborative partnership, each party will focus on its core competencies. With its business model intact, coupled with the potential synergies with MAS (MRO, cargo and so on), we reiterate our 'outperform' rating on AirAsia. ' Credit Suisse, Aug 10
This article appeared in The Edge Financial Daily, August 11, 2011.
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