Quick take: AirAsia falls 7.5% as analysts downgrade stock


  • Business
  • Thursday, 28 Feb 2019

KUALA LUMPUR: Shares of AirAsia Group Bhd dives on Thursday, as analysts downgraded the stock after reporting its first quarterly loss since 2015.


The budget carrier, one of the top losers on Bursa Malaysia fell 7.24%, or 22 sen to RM2.82 with 26.5 million shares done.


AirAsia flipped to a net loss in the fourth quarter, its first quarterly loss in more than three years as higher fuel prices and operating lease costs dented income.


The carrier posted a loss of RM395mil for the three months to Dec 31, 2018 versus a RM372.6mil net profit a year prior. Its revenue grew 6.2% to RM2.82bil.


Full-year net profit rose 21.5% to RM1.98bil from RM1.63bil in FY17. Revenue rose 9.2% to RM10.6bil from RM9.71bil.


Kenanga Research has downgraded AirAsia to underperform with a lower target price of RM1.95 (previously, outperform; target price RM3.25) pegged to an unchanged 9.0x FY19E PER (4-year average) on its core earnings.


“We deem our 9.0x FY18E PER on their core business (pegged at 4-year average) fair given; (i) AirAsia’s much healthier net gearing post AAC disposal coupled with further asset monetisation plans from Santan/Red Cargo/Expedia to honor their intention for special dividends every two years, and (ii) earnings volatility may cap further valuation re-rating beyond its mean valuation,” it said.


Kenanga said AirAsia’s FY18 CNP of RM587.2mil came in sharply below expectations, making up 45%/44% of the house/consensus full-year estimates.


MIDF Research said AirAsia’s results of FY18 came in below expectations accounted for 86% and 71% of the house and consensus’ estimates respectively.


It said the deviation was caused by the 38.5%year-on-year increase in fuel price expense to RM3.9bil and higher operating lease expenses due to the completion of AAGB’s sale and leaseback transaction with BBAM.


“Maintain ‘buy’ BUY with adjusted target price of RM3.40 per share, (previously RM3.48 per share) pegging its FY19 EPS to PER of 10x, post-earnings revision,” it said.


It is notable that AAGB is trailing at a PER of 5x, while it’s Asian peers are approximately trading at a PER above 10x which we opine is unwarranted given the group’s position as the leading ASEAN low cost carrier.


MIDF said it continued to like Air Asia as the company continued to enhance its cost structure, along with its efforts of rationalising revenue and cost via digitalisation efforts.


“We also believe that the headwind from oil prices to be moderated by AAGB hedging policies.


“Overall, we believe the prospect of AirAsia remains sanguine predicated on: 1) stable demand growth with average ASK expansion of 14% in FY18; and 2) resilient load factor despite volatile fuel price,” it said.


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