AirAsia could be in focus after its founders denied news of privatisation.
KUALA LUMPUR: CIMB Research has maintained an “add” call on AirAsia Bhd with target price based on calender year 2017 price-earnings (P/E) ratio of six times as the ingredients are in place for a re-rating of AirAsia.
The research house said AirAsia’s financial year ended Dec 31, 2015 (FY15) group core net profit of RM653mil was much better than its estimate for a RM41mil loss, even if it strip out RM450mil in maintenance revenue accrual.
“AirAsia group’s eye-popping core net profit of RM653mil was boosted by RM450mil in maintenance reserves transferred from the balance sheet into the revenue line during fourth quarter, but even if we remove this, group profits did exceed expectations,” CIMB said, adding that AirAsia used the opportunity afforded by the RM450mil boost to revenue by kitchen-sinking various items, hence reported net profit was lower at RM554mil.
The kitchen sinking included an extra RM173mil and RM78mil of Indonesia AirAsia (IAA) and Philippines AirAsia (PAA) losses that were written off in fourth quarter against intercompany balances, which is a departure from usual practice of taking its share of losses only against its investment in the associates.
There was another RM100mil in forex translation losses from trade payables charged to fourth quarter FY15.
“The kitchen sinking means that the FY16 numbers will not be burdened by write-offs and provisions that have the effect of depressing investor sentiment on the stock,” CIMB said.
Malaysia AirAsia (MAA) reported full-year revenue per available seat kilometre (RASK) of 13.03 sen, better than its previous forecast of 12.69 sen, as fourth quarter RASK surged 7.8% year-on-year, against CIMB’s forecast of a 2% year-on-year decline.
CIMB said this was the key reason why MAA achieved fourth quarter core airline earnings of RM250mil against the research house’s RM166mil estimate.
During second half FY15, Malaysia Airlines carried 15% year-on-year fewer domestic passengers at KLIA, handing them over to AirAsia and Malindo at KLIA2, so AirAsia’s loads rose 5 percentage points year-on-year to a high of 84.3% in fourth quarter and its yields also followed.
“Both IAA and TAA missed our targets. IAA’s core loss of RM267mil in FY15 was more than our forecast of RM250mil loss, as ticket pricing coming in lower than expected.
“TAA’s core profit of RM172mil was 12% lower than forecast due to a sharp fall in fourth quarter yield due to intense competition and a slowdown in inbound tourism. But AAP’s core loss of RM200mil was 31% lower than forecast due to a continuing strong pickup in demand and loads,” CIMB said.
CIMB said the ongoing restructuring at IAA and AAP mean that both associates should see lower losses in FY16, while MAA will enjoy more rational competition.
“There is upside to our group profit forecasts, given that jet fuel is only US$40-45 per barrel currently against our US$60 assumption, and our US dollar average forecast of Rp14,500 and RM4.50 is very strong compared to the present rates of Rp13,380 and RM4.21, respectively,” it said.
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