News Media
news reported that PT Lion Mentari Airlines had entered into a JV (49:51) with
Nadi Sdn Bhd (a unit of the National Aerospace & Defense Industries or
formerly known as Aerospace Industries Malaysia Sdn Bhd) to set up a new
low-cost carrier in Malaysia called Malindo Airways (Malindo). Malindo plans to
offer ticket prices lower than AirAsia. It will start operation from KL to
Indonesia in May 2013 and will use KLIA as the base.
Comments We are
neutral on this news as we do not see Malindo as a threat for AirAsia in the
near term. In a longer term, for AirAsia to take a beating, it will depend on
the sustainability of Malindo to offer such lower ticket prices than AirAsia,
which eventually will affect Malindo’s profit margin. On top of that, AirAsia’s
extensive marketing platform (website), high utilisation (load factor), strong
brand and ancillary income contribution will be the other sets of barrier for
Malindo to fight against.
We understand that
Malindo has ordered 230 737 aircrafts with the delivery to span over the next
10 years. With the uncertainties in the global economic front, we are less
optimistic on the financing of the aircrafts despite its strong relationship
with the supplier i.e. Boeing or Airbus.
The immediate impact
to AirAsia will be the contraction of its profit margin due to a potential price
war. We are unable to gauge the impact at this juncture, but we opine that
AirAsia will be able to make up for any pricing cuts with its ancillary income and
wide connectivity within the AirAsia group.
To recap, Lion
Airlines holds almost 40% of the Indonesian domestic market. Based on our visit
to Indonesia, we gather that Lion Airlines is also known for its price-throwing
exercise and cancelling flights due to low loads close to the departure time,
which is jeopardising its profitability.
Outlook AirAsia will be able to leverage on Batavia’s
existing domestic customer to penetrate the local market faster while Indonesia
AirAsia (“IAA”) will feed Batavia with its international passengers.
Forecast No changes in our forecasts for FY12E and
FY13E.
Rating Maintain
OUTPERFORM
We are maintaining
our OUTPERFORM recommendation for AirAsia. As the share price corrected (-10%)
since its 2Q12 results, we see this as an opportunity for investors to
accumulate.
Valuation No
changes in our Target Price of RM4.06, which is based on 13x PER of FY13
earnings.
Risks A spike in fuel price above
USD130/barrel.
Source: Kenanga
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