Analysts remain bullish on AirAsia, 'buy'

- AFP

AIRASIA BHD

By RHB Research

Rating: Buy (maintained)

Target Price: RM3.60

Analysts have maintained its buy rating on AirAsia Bhd as the budget carrier remains on track to quadruple its profit in 2016.

In addition to strong increases in load factor and average fares, RHB said the rationalisation of fleet composition in Philippines, as well as positive feedback from Indonesian Government officials, have raised AirAsia’s confidence to turn around operations in both countries to post operating profits by end-2016.

It added that a back-of-envelope calculation suggests that AirAsia could realise RM2.4bil to RM2.8bil from the sale of its 60-70% stake in Asia Aviation Capital (AAC).

“While cash proceeds from the sale could be used to repay debt, we believe payment of a special dividend over financial years 2017 to 2018 seems more likely,” it said in a note yesterday.

It said AirAsia will have 20 aircraft in India by end-2018, which will enable it to add new routes and frequencies into South-East Asia.

The company believes India could be profitable with 10 aircraft in operation, and plans to have 17 aircraft in India by end-2017.

“This implies a likely profitable Indian operation by 2017. The group had equity accounted for a loss of RM30mil from India in 2015,” it said.

Given strong second quarter 2016 results, guidance for continued strong load factors into the second half this year, and earnings recovery at associates, RHB increased AirAsia’s financial years 2016 to 2018 forecasts by 17%-37%.

“Since we believe it will be unfair to value AirAsia purely on earnings alone, we employ multiple earnings valuation methodologies to value the group.

“We value AirAsia based on blended earnings contributions for 2016 and 2017, and have factored in the enlarged share capital base arising from the recently-announced share placements to its co-founders,” it noted.

Hong Leong Bank Bhd

By AmInvestment Research

Rating: Hold (maintained)

Target price: RM12.80

AmInvest Research has maintained its hold rating on Hong Leong Bank Bhd with a lower fair value of RM12.80 a share, from RM14.10 per share previously.

“Our revised fair value is based an unchanged return on equity (ROE) of 10.1% for financial year 2017, pegging the stock to a lower price-to-book value of 1.2 times which is line with our valuation for banking stocks with an ROE of 10% to 11%,” it said in a note yesterday.

The bank reported a first half year 2016 core net earnings of RM2.03bil after stripping the one-off mutual separation scheme expenses of RM172mil in the second quarter.

Earnings were in line with expectations accounting for 100.3% of AmInvestr and 103.9% of consensus for full year earnings for financial year 2016 earnings.

It said that Hong Leong’s loan growth moderated to 6.3% year-on-year (yoy) in line with the industry trend contributed by slower domestic and overseas loan momentum.

Net interest margin contracted 10 basis points yoy to 1.94% in financial year 2016 due to higher funding cost which is in line with AmInvest’s expectation.

The bank’s liquidity continued to healthy, it said, with net loan-to-deposit-ratio of 80.4% with liquidity coverage ratios above 100%.

Customer deposit growth continues to decelerate to 5.9% y-o-y in its fourth quarter compared to 7% y-o-y in the preceding quarter which follows the slower deposit growth trend in the industry.

It said that contribution from associate, Bank of Chengdu declined 11.7% quarter-on-quarter (q-o-q) and a full year basis, it was lower by 22.2% y-o-y.

This was due to consecutive interest rate cuts by Central Bank of China and higher provisions. Its gross impaired loans balance continued to decline 1.3% q-o-q in the fourth quarter contributed by lower impaired working capital loans and hire purchase loans.

This led to a lower gross impaired loans ratio of 0.79% in the fourth quarter from 0.82% in the third quarter.

A final dividend of 26 sen a share has been declared bringing the full year dividend to 41 sen a share, higher than the estimated of 30.9 sen per share.

CIMB Group Holdings Bhd

By Hong Leong Investment Research

Rating: Hold (maintained)

Target price: RM4.52

CIMB Group Holdings Bhd’s second quarter net profit of RM873mil and earnings for the first half this year of RM1.69bil came below Hong Leong Investment (HLIB) Research’s expectations, accounting for only 44.2% to 44.9% of consensus and its full-year forecasts.

The bank’s annualised return on equity of 8.1% fell short of 10%. Other key performance indicator (KPI) targets, namely dividend payout ratio, credit charge, met CIMB’s targets.

“While keeping its KPI targets unchanged, management highlighted that it would fall short of its loan growth target (6%-8%, vs 10%), hence missing its return on equity target by 1% point at 9%,” it said.

The recent overnight policy rate (OPR) adjustment will impact CIMB’s net interest margin (NIM) by a couple of basis points.

“In any case, management highlighted that the impact of OPR has already been reflected in its NIM guidance of 5-10 basis points earlier on,” it said.