AirAsia X to gain from lower fuel prices, better capacity management


PUBLICINVEST Research said among the key takeaways from its recent meeting with AirAsia X Bhd (AAX), the group chief executive officer Datuk Kamarudin Meranun(file pic) is expecting operating profit by end-2015

AirAsia X Bhd

By PublicInvest Research

Neutral

Target price: RM0.54

PUBLICINVEST Research said among the key takeaways from its recent meeting with AirAsia X Bhd (AAX), the group chief executive officer Datuk Kamarudin Meranun is expecting operating profit by end-2015, building on ancillary income to boost revenue, improving integration within AIRASIA Group to achieve better economies of scale and exploring new routes to drive new sales.

The research house said that AAX had taken initiative to strengthen its charter and wet leases businesses to help improve its revenue.

In the financial year 2014 (FY14), the group’s charters and wet leases income was three times higher than in FY13, which mitigated lower income from scheduled flights.

PublicInvest said that AAX was currently in the midst of streamlining its costs by merging group operations and engineering within the AirAsia Group, terminating loss-making routes, namely Adelaide and Nagoya.

It has maintained a “neutral” call on AAX with a lower target price of 54 sen from 69 sen previously as it roll over discounted cashflow valuation and adjust the fleet size accordingly for FY15 and FY16 as most aircraft deliveries would be deployed to its associates – Thai AirAsia X and Indonesia AirAsia X.

PublicInvest said it expected AAX to benefit from lower fuel prices, better capacity management and gradual improvement in yields.

On AAX proposed rights issue to raise up RM395mil, PublicInvest said that at the current low share price level, shareholders were likely to subscribe to the rights issue to avoid any dilution of shareholding percentage.

EVERGREEN FIBREBOARD BHD

By Hong Leong Investment Bank

Buy (new)

Target price: RM1.47

ACCORDING to Hong Leong Investment Bank (HLIB), Evergreen Fibreboard Bhd is one of the top five producers of engineered wood-based products in Asia, which main products consisting medium density fibreboard (MDF) and particleboard, with combined annual production capacity of more than 1.3 million cu m.

Evergreen’s earnings have been deteriorating since 2012, recording seven consecutive quarters of net losses.

HLIB said Evergreen had undergone a series of internal restructuring activities, including writing off concession cost, broadening of customer base, and plant enhancements, as well as favourable external factors (in particularly lower log and adhesive prices, and a stronger US dollar), which has seen Evergreen’s performance improving and turning profitable since the third quarter of last year.

HLIB believes that the strong share price performance has yet to fully reflect its true fundamentals. It expects Evergreen’s earnings prospects to remain bright in the near to medium term, underpinned by several factors, including management’s ongoing efforts to improve operational efficiencies. Financial performance will only be gradually reflected in the next one to two years.

It added that strong US dollar was beneficial to Evergreen’s bottomline as it derived 65% to 70% of its revenue from export sales.

HLIB estimates Evergreen’s net profit in 2015 to multiply from RM200,000 in 2014, to RM64.3mil and RM86.3mil in 2015 and 2016 respectively, underpinned by higher selling prices, higher sales mix of value added products, which yield better profit margins and management’s ongoing efforts in streamlining its operations.

It has initiated coverage on Evergreen with a “buy” call with target price of RM1.47, based on 10 times average 2015 and 2016 earnings per share of 14.7 sen. This provides an upside of 30%.

Petronas Dagangan Bhd

By MIDF Research

Neutral

Target price: RM17.47

MIDF Research has initiated coverage on Petronas Dagangan Bhd (PetDag) with a “neutral recommendation and do not expect the current share price to maintain at its current level.

It added that PetDag share prices would be “more comfortable” with a target valuation in the range of RM17.47 per share.

It said the target price is derived from target price-earning ratio (PER) 2016 of 24 times pegged to 2016 earnings per share of 72.8 sen. The target PER is based on PetDag’s average four-quarter rolling PER from the first quarter of the financial year 2009 (FY09) to the first quarter of FY15, reflecting the recovery in global crude oil prices post-2008 slump.

Notably, PetDag is the largest retail and commercial fuel supplier in Malaysia with more than 1,000 stations nationwide.

It has four core business segments – retail, commercial (diesel and aviation fuel), lubricants and liquefied petroleum gas.

MIDF said PetDag’s business and profitability was closely tied to movements in global crude oil prices. Hence, fluctuations in the prices of global crude oil will affect PetDag’s share price.

MIDF said among the key attributes to PetDag were the company’s largest number of petrol stations nationwide and a neutral outlook with a positive bias on automotive and aviation sector. It is also a dividend-play stock.


   

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