HLIB says accumulate AirAsia shares

Asset disposal: Passengers wait to check in at AirAsia counters for their flights at Don Muang International Airport in Bangkok. Sources say AirAsia is looking to sell a majority stake in its leasing unit Asia Aviation Capital but is also open to a full sale.

PETALING JAYA: Hong Leong Investment Bank Research (HLIB), which has maintained its “buy” call on AirAsia with a target price of RM3.85, has advised investors to accumulate AirAsia Bhd shares amid the recent selldown.

“We view that recent sell down (mainly by foreign shareholders on ringgit depreciation impact to ringgit investment value) presents an attractive entry point for local investors to accumulate AirAsia shares and ride with the expected corporate restructuring exercises, earnings growth and higher dividend payout in 2017,” HLIB said in a report.

The research house said despite concerns of ringgit depreciation, AirAsia was expected to remain on a growth trajectory from the strong capacity expansion, high load factors and low jet fuel costs.

It added that AirAsia’s asset monetisation and joint venture/Associates initial public offering exercises in 2017 would enhance AirAsia’s valuation, with higher dividend payout.

AirAsia has updated its fleet plan for 2017 with an expected growth of 26 net additional aircrafts (+15.9% year-on-year).

HLIB said the fleet expansion was expected to continue until 2028, with an average of 19-20 aircrafts per annum. New deliveries of A320 Neo (15% fuel saving) has begun since September 2016, while the A321 Neo (20% fuel saving) will begin in 2019.

“The planned double digit capacity growth is in view of the market showing signs of strong demand growth (especially traffics on North Asia sector). Given a rational market condition in all countries, management does not expect competitive pressure on its yields in 2017. As a matter of fact, management has seen strong forward bookings in 4Q16 (load factor of 90%) and in early 2017,” it said.

The research house said management had guided that the impact from ringgit depreciation in 2017 would be more than offset by the earnings accretion from capacity expansion as well as higher average yields and ancillary incomes.