AirAsia - 3Q12 results below expectations

Period    3Q12/9M12

Actual vs.  Expectations  The 9M12 core net profit of RM464m came in below ours and the consensus’ full year estimates at 53% and 48% respectively. The unexpected higher maintenance costs, a slower start of Japan AirAsia and the lower than expected ancillary income (per pax) were the main key points.

Dividends  No dividend was declared during the quarter.

Key Result Highlights   YTD YoY, the 9M12 core net profit lowered by 12% to RM464m due to a higher maintenance cost (+16%) and also a higher user fee expenses, in the absence of airline incentives from MAHB. The revenue increased by 12% due to the growth in passengers (+7%) and also higher fuel and fee surcharges. 

 YoY, the revenue was up by 15% on the back of the increase in ASK (+9%) and average ticket prices (+9%). However, the core net profit slid by 9% due to the high operation cost and one-off maintenance cost. AirAsia also recorded RM33m gains on hedging contract, RM58m net FOREX gains and RM96m in deferred tax during the quarter. Nonetheless, we do not account for these items in our core earnings calculation. 

 QoQ, despite the lower load factor (-3 ppts), the core net profit was higher by 20% due to an upward revision of the ancillary income charges. 

Outlook   We expect next year to be a more challenging year for AirAsia as Malindo will start its operation in May 2013. The competition will erode AirAsia’s margin in the short term, however, AirAsia will be able to withstand the competition as the market for LCC is relatively saturated to absorb new players.  

Change to Forecasts

 We have reduced our FY12-13E earnings by 13% and 16% respectively as we rolled over Japan AirAsia contribution to FY13 instead of FY12 and trim down our ancillary income assumption from RM43 to RM40 per pax for FY12-13E.  

Rating  Downgrade MARKET PERFOPRM

 We are downgrading our recommendation to MARKET PERFORM due to the limited capital upside (+8%) to our new TP (see below).

Valuation    We are revising our TP lower to RM3.07 as we revised our FY13 earnings lower by 16%. Our TP is based on an unchanged 10.5x PER of FY13E. 

Risks   Jet fuel prices above USD130/barrel and a higher than expected margin contraction.

Source: Kenanga