An analyst said the stock likely came under selling pressure after being overbought by investors.
KUALA LUMPUR: AirAsia’s first half 2017 (1H17) group core net profit of RM441mil made up 48% of CIMB Equities Research's full-year forecast, which was in line with expectations, since the second half is seasonally stronger.
It said on Wednesday the Malaysian operations (MAA) outperformed expectations as its 1H core earnings made up 64% of its FY17F forecast, with higher yields and loads compensating for higher fuel and staff costs.
However, the associates were below expectations, but the research house maintained its Add as it expects at least RM1.16 in special dividends to be paid next year from three or more asset disposals.
“Maintain Add; target price (of RM3.51 vs last traded price of RM3.33) based on nine times CY18F P/E and adding special dividends,” it said in its research note.
AirAsia group core net profits rose 52% on-year in 2Q17. AirAsia currently consolidates the accounts for Malaysia, Indomnesia and Philippines - MAA, IAA and AAP (or MIP) – without a segmental breakdown.
“But we estimate that MAA’s 2Q17 core earnings rose 27% on-year as yields rose circa 10% on-year, while pax volume rose 8.5%, leading to a 3% pts rise in PLF to an all-time high of 89.8%.
“The combined IAA and AAP shrank losses 85% y on-year in 2Q17, with average fares up 15-20% on-year. This report card was excellent considering fuel and staff cost inflation, and RM weakness,” it said.
CIMB Research said during the analyst conference call, AirAsia noted that the strong yield trends at MIP are expected to continue into 2H17F, with demand and load factors also remaining strong.
In Malaysia, the research house notes that the competitive environment is only going to get better, as MAS will be joining Malindo in capacity reductions across the domestic network.
With oil prices in a tight band and the RM slowly appreciating, the near-term outlook for MAA is bright.
“After a stable capacity situation in 1H17, things may become tougher for AAP as Cebu Air is planning for a 12% and 23% yoy rise in domestic and regional seat capacity in 2H17F, respectively, as it redeploys A330s from the Middle East to short-haul routes.
“Meanwhile, TAA is still suffering from excessive competition on routes to China, as well as from excise duties on fuel uplifted for domestic flights, which it has struggled to pass through.
"Still, improvements at big-brother MAA will likely offset softness elsewhere,” it said .
CIMB Research said AirAsia recently disposed its 50% stake in AACOE for US$100mil, and it thinks the low-cost carrier can get a similar price for its 25% stake in AAE.
It is also close to the disposal of a 70% stake in AAC, and a sale of 50% interest in GTR is in the works.
“We believe all of the proceeds will be distributed as special dividends next year, with the first three disposals worth RM1.16/share, excluding GTR. Finally, a new holding company structure under AAGB will pave the way for MAA’s spin-off in two years’ time, worth 86 sen/share, in our view,.
“AirAsia Bhd has traditionally funded IAA and AAP using MAA’s cashflows, but the backdoor listing of IAA by 4Q17F and of AAP by FY18F will open new channels of equity funding for both associates, and reduce their disproportionate reliance on AAB, in our view. This can only be positive, and reduce the risks to AAB.
“The AirAsia group is planning to add 22 planes to its fleet in 2H17F, the fastest pace of expansion in years, after just adding six planes in 1H17.
MAA is adding 10 planes in 2H17F after adding none in the first six months. The strategy is to entrench itself strongly in view of very high load factors and yields in all countries, and to take advantage of capacity withdrawals by MAS and Malindo in Malaysia.
“This strategy has longer-term benefits, although by 1Q18F, we expect some near-term pressure on yields and loads,” it said.
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