AAGB
KUALA LUMPUR: CIMB Equities Research has downgraded AirAsia Group Bhd (AAGB) from Hold to reduce with a lower target price of RM2.12 based on sector average CY20F P/E of 10 times and adding special dividend per share (DPS) of 70 sen.
It said on Friday AAGB’s 9M18 core net profit of RM563mil was only 60% of our previous full-year forecast.
“Despite seasonal 4Q strength, the results were 25% below forecast. This was due to excessive capacity expansion in Malaysia, the Philippines and India, causing loads to fall, while oil prices and the US$ were strong,” it said.
CIMB Research said AAGB reported a core net profit of only RM25.7m in 3Q18, down 93% year-on-year (yoy) due to high oil prices, the depreciation of its revenue currencies against the US$ and too much capacity expansion, which caused load factors to drop.
MAA’s core net profit fell 38% yoy, losses at PAA, AAI and AAJ widened, while TAA and IAA turned loss-making. AAGB’s core net profit was the lowest in almost three years, signalling the start of tough times ahead.
Jet fuel prices have remained stubbornly above US$80/bbl despite the recent collapse in Brent crude prices, lifting the crack spread to almost US$23/bbl.
“We are bullish on oil prices in 2019-20F as we believe Saudi Arabia will cut production and due to the impact of IMO 2020. From mid-2019F, higher airport taxes and the new aviation levy may force MAA to lower base fares to prevent demand destruction.
“AAGB’s 24 plane deliveries in FY19F (FY18F: 27 planes) may add to the prevailing regional overcapacity,” it said.
AAGB declared a dividend of 12 sen/share on May 24, 2018 from the proceeds of the sale of 50% interest in GTR, which was paid on July 13.
“We had expected AAGB to declare a further special DPS of 91 sen, with 84 sen from the sale of aircraft to BBAM and another seven sen from the sale of 25% interest in AAE Travel.
“However, yesterday, AAGB declared special DPS of only 40 sen (ex-date Dec 12) despite the completion of the AAE Travel sale and the significant completion of the BBAM transaction.
The latte involved the sale of 84 planes and 14 engines by AAGB, of which all have been sold as at Nov 7, 2018 barring the last five planes.
“We think AAGB may be spreading out the special DPS payments in order to encourage investors to remain in the stock.
“We expect AAGB to declare another special DPS of 30 sen at the release of the 4Q18F results in Feb 2019, bringing the total special DPS to 70 sen, which is reduced from our earlier expectation of 91 sen as we think AAGB may need to conserve cash in a tough operating environment.
“Beyond this, AAGB is looking to dispose of the remaining 35 aircraft in MAA’s balance sheet sometime during FY19-20F, with the proceeds to be also declared as special dividends.
“Once completed, MAA will be an asset-light airline with its entire fleet on operating leases. We have not included any of the latter extra special dividends into our target price until we have more clarity on if and when it will take place,” it said.
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