AirAsia 1Q Operating Stats (AIRA MK, BUY, FV RM4.57. Last Price RM3.38)

AirAsia’s 1Q operating stats were in-line as both its ASK and RPK accounted for 24% of our full-year forecasts,  with  its  load factor sustaining well at 80%.  We reckon AirAsia has benefited strongly from the capacity cuts by MAS in 1Q and its yields will continue to be stronger y-o-y. Meanwhile, there are intense rumours that the AirAsia-MAS share swap will be scuttled. With or without the share swap, we  believe AirAsia  will still  benefit from the  capacity cuts by MAS  which is unlikely to boost its capacity anytime soon in view of its ailing financial condition.

Maintain BUY with an unchanged FV of RM4.57. AirAsia is trading at a discount of 20% to its average LCC peers on FY12 earnings. We expect  AirAsia  to report better 1Q earnings y-o-y at RM290m (which is lower on a q-o-q basis). 1Q stats in-line. AirAsia’s 1Q operating stats came in-line with our expectations as both its ASK and RPK accounted for 24% of our full-year forecasts. Similarly, Thai Indonesia and Thai AirAsia also reported passenger stats that were well within our estimates. The low cost carrier (LCC) reported that it carried 4.82m passengers from the Malaysia side, up by 12% y-o-y (down  -0.7% q-o-q due to seasonality), with its load factor sustaining well at 80% (y-o-y unchanged, q-o-q:  -2ppts). The encouraging numbers and sustainable load factors were driven by the introduction of new routes and increase in capacity.

MAS cuts, AirAsia gains  – higher yields likely. We reckon  AirAsia has benefited strongly from the capacity cuts by MAS in 1Q. Passenger traffic numbers reported by MAHB saw a decline of 4.2% in domestic travel from the Main terminal in KLIA, while domestic travel  on the LCCT side  reported strong growth of 15.1% y-o-y that is likely contributed by AirAsia. As such, we suspect yields will continue to be stronger y-o-y, easing concerns that the reduced ancillary fees would put pressure on overall yields.

Unraveling the share swap.  There are intense rumours that the AirAsia MAS share swap will be scrapped soon as  the  shareholders could back down due to the strong opposition by MAS’ powerful unionized workforce. Such  a decision could be politically motivated, though we believe  that the reversal of the share swap is unlikely from a business perspective. Even if a reversal of the share-swap deal happens, our sources indicate that the collaboration on maintenance and aircraft purchases will  nevertheless proceed as planned. We believe  the  collaboration on maintenance will work for both sides, but we do not see  likewise for aircraft purchases as this would purely benefit MAS.  With or without the share swap, we believe AirAsia will still benefit from the capacity cuts by MAS which is unlikely to boost its capacity anytime soon in view of its ailing financial condition. Furthermore, we think the share swap reversal could boost the sentiment  on AirAsia as foreign investors prefer the LCC as a standalone business without any link to the Malaysian Government.

Source: OSK188