In its positive outlook report for the aviation industry issued on Friday, it also reduced its airline yield erosion assumption to 2% on-year from 4% previously.
“As such, we raise our earnings forecast and target prices respectively for both MAHB and AirAsia. Both companies remain a Buy based on attractive valuation relative to peers,” it said.
Maybank Research said it turned more positive on stronger-than-expected traffic growth which allay fears for yield erosion. Overall, it expects 1Q17 to deliver profit growth with relatively stable margins.
Airlines are maintaining good capacity discipline and pushing load factors to new heights. Input costs are mixed due to the floundering ringgit against the US dollar, but jet fuel is lower than forecast and will help push for stable margins in 1Q17.
“We remain positive on MAHB, followed by AirAsia. We keep our Hold call on AirAsia X as we think the risk-reward is fairly reflected in its price,” it said.
Maybank Research said in 1Q17, industry demand grew by 9.6% on-year whilst supply grew by only 6.3% on-year. This has pushed industry load factor up by 2.3 percentage points on-year to 74.9%.
“We believe this is the best 1Q industry load factor performance in history, which underpins that the industry is in the pink of health.
“We believe the airlines will achieve modest on-year yield growth or flat yields at worst, based on the strong industry fundamentals,” it said.
The research house pointed out the ringgit has depreciated against the US dollar in 1Q17 (-6.1% on-year, -2.9% on-quarter) which is negative for airlines as majority of costs are US$ denominated.
Fortunately, 1Q17 jet fuel averaged at US$64.1 a barrel (+48% on-year, +6.8% on-quarter), which is 1.4% lower than its base forecast of US$65.
This will help to offset some of the impact of the weaker ringgit against other regional currencies and ensures a flattish unit cost on-year.
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