KUALA LUMPUR: CIMB Equities Research is maintaining its target price of RM2.88 for AirAsia Bhd, which is 15.7% above the last traded price of RM2.49.
It said on Tuesday the low-cost carrier’s top officials had presented their vision of how the team intends to push regional expansion to India and Japan in the quarters ahead.
At the Invest Malaysia 2014 on Monday, the officials said the priority was to turnaround the Philippine and Indonesia businesses.
“We keep our forecasts intact, but highlight that a potential MAS capacity retrenchment could make an important difference to yields and earnings estimates. This underpins our unchanged Add call, with a target price of RM2.88 (20% premium to its liquidation value),” it said.
CIMB Research said yields in Malaysia are inching up, but there are no big upward moves yet.
“The Malaysian business is still the key and improvements here will make a big difference to group profits. Our view is that the MAS losses are unsustainable and a restructuring will ultimately entail lower industry capacity and higher yields, which will be very positive for AirAsia’s share price,” it pointed out.
CIMB Research said AirAsia has cut capacity from Kuala Lumpur to Kota Kinabalu, Kuching and Singapore to align supply with demand, but redeployed capacity to Kota Bahru and Senai, to build new growth opportunities.
Thai AirAsia (TAA) has cut fleet growth from eight to six planes this year, and will focus on growing capacity from Chiangmai and Phuket at the expense of conflict-ridden Bangkok.
Indonesia AirAsia (IAA) has reduced aircraft daily utilisation by cutting marginal routes, partially offset by frequency additions on six to seven trunk domestic routes, in order to reduce the losses caused by rupiah depreciation, with breakeven targeted for 3Q14. AirAsia Philippines (AAP) and Zest Air is also working to reverse losses by 4Q14.
“Separately, AirAsia India will launch on June 12 with just one plane, and the new AirAsia Japan may be announced next month for potential launch in 2015.
“AirAsia has been experiencing tough conditions in all of its markets for different reasons, particularly since mid-2013. There are no immediate solutions, but AirAsia is clearly taking action to address the challenges.
“In our view, AAP and Zest Air is the least important of all of AirAsia’s associates, and we would not be surprised if they are ultimately sold or closed down.
“IAA’s losses should narrow with the capacity measures taken, though investors will have to live with start-up losses in India and Japan for a few years,” it said.