AirAsia posted an FY12 core net profit of RM803m on revenue of RM4.99bn, in line with our and consensus estimates. The numbers were weaker y-o-y owing to higher costs as well as start-up losses from its associates. 4Q yields did not pick up as much as we had anticipated but this was compensated by higher ancillary revenue. We keep our BUY call on AirAsia, with an unchanged RM3.39 FV, based on 11x FY13 earnings. We see a strong comeback in investor interest after management announced a bumper dividend and a payout policy. This may translate into a yield of 9% in FY12, if the board approves the proposals.
Weaker year on rising costs. AirAsia reported a FY12 core net profit of RM803m (-26% y-o-y; Q4: +111% q-o-q, +39% y-o-y) on the back of RM4.99bn in revenue, both of which were in line with our and consensus estimates. Despite revenue jumping 11% y-o-y, full-year earnings were weaker by 26% y-o-y owing to higher costs, notably those relating to staff, maintenance and fuel, which rose 20%, 35% and 11% y-o-y respectively. In addition, start-up losses totaling RM47.2m from AirAsia Japan, AirAsia Inc (Philippines) and AirAsia Expedia dragged down overall profitability.
Yields not picking up as anticipated. AirAsia saw its overall yields (revenue / RPK) in 4QFY12 inching up by 2% y-o-y against our earlier expectation for 4%-5% y-o-y. For the full year, its yields picked up by 4%. FY12’s ancillary revenue was higher by 28% y-o-y owing to higher luggage charges (up by 8.3% y-o-y on a per pax basis), suggesting that the upside to airfares was less than 1.8% y-o-y. With Malindo due to launch its operations sometime in March after having received its air operator’s certificate (AOC) recently, we see some pressure on AirAsia’s yields, although the downside would not be too painful given Malindo’s small scale of operation. As for FY13, we are conservatively estimating overall yields to come in flat as the drop in yields from airfares would be offset by higher ancillary revenue given that management is looking at introducing duty-free shopping on board, along with the provision of wifi and online content sometime in the middle of the year.
Weaker year on rising costs. AirAsia reported a FY12 core net profit of RM803m (-26% y-o-y; Q4: +111% q-o-q, +39% y-o-y) on the back of RM4.99bn in revenue, both of which were in line with our and consensus estimates. Despite revenue jumping 11% y-o-y, full-year earnings were weaker by 26% y-o-y owing to higher costs, notably those relating to staff, maintenance and fuel, which rose 20%, 35% and 11% y-o-y respectively. In addition, start-up losses totaling RM47.2m from AirAsia Japan, AirAsia Inc (Philippines) and AirAsia Expedia dragged down overall profitability.
Yields not picking up as anticipated. AirAsia saw its overall yields (revenue / RPK) in 4QFY12 inching up by 2% y-o-y against our earlier expectation for 4%-5% y-o-y. For the full year, its yields picked up by 4%. FY12’s ancillary revenue was higher by 28% y-o-y owing to higher luggage charges (up by 8.3% y-o-y on a per pax basis), suggesting that the upside to airfares was less than 1.8% y-o-y. With Malindo due to launch its operations sometime in March after having received its air operator’s certificate (AOC) recently, we see some pressure on AirAsia’s yields, although the downside would not be too painful given Malindo’s small scale of operation. As for FY13, we are conservatively estimating overall yields to come in flat as the drop in yields from airfares would be offset by higher ancillary revenue given that management is looking at introducing duty-free shopping on board, along with the provision of wifi and online content sometime in the middle of the year.
Fleet growth to defend home turf. The expansion of its fleet by 10 aircraft as announced earlier is maintained. The additional capacity will focus on domestic routes, increasing the frequencies of some routes in an attempt to stave off competition from Malindo.
Indian JV. If approved, the Indian JV could commence operations as early as 4Q. Its setup will be similar to the Indonesia AirAsia (IAA) model, relying on both online booking and distribution points. While India has a much more favourable population demographics, its high fuel tax could make it a challenging place to operate in. We give AirAsia the merit of succeeding in India due to its tight cost discipline. The Indian JV will hub in Chennai and ride on the existing network of both Malaysia and Thai AirAsia.
Dividends galore. Subject to capex and cash needs, AirAsia is introducing an annual dividend policy with a payout of 20% of its net operating profit. It had announced a bumper FY12 dividend totaling 24sen (18sen interim + 6 sen final which have yet to be approved), translating to a yield of 9%. As these would amount to RM660m, it suggests a total payout of 60% of its operating profit. Despite the surprise payout for FY12, we have not projected any potential dividend for FY13/14 as we prefer to be cautious on the company’s outlook
for this year in view of the entry of Malindo.
Maintain BUY. We maintain our BUY call on AirAsia and our RM3.39 FV, premised on 11x FY13 EPS. We leave our earnings estimates unchanged for now until we get a clearer picture on Malindo’s promotion offerings. The stock is currently trading at an 8.6x FY13 PE, representing a 27% discount to its peer average multiple. Taking into account the market caps of Asia Aviation and its insurance arm, AirAsia is trading at a cheap 7.3x PE versus its historical and peer averages of 10x and 12x respectively. Elsewhere, we expect the group’s upcoming IPOs (AirAsia X and IAA) to crystallize its valuations. That being said, we feel that in view of the budget carrier’s strong network and fleet as well as low cost structure, investor concerns over the potential threat from new entrant Malindo pressuring AirAsia’s yields and market share may have been exaggerated.
Indian JV. If approved, the Indian JV could commence operations as early as 4Q. Its setup will be similar to the Indonesia AirAsia (IAA) model, relying on both online booking and distribution points. While India has a much more favourable population demographics, its high fuel tax could make it a challenging place to operate in. We give AirAsia the merit of succeeding in India due to its tight cost discipline. The Indian JV will hub in Chennai and ride on the existing network of both Malaysia and Thai AirAsia.
Dividends galore. Subject to capex and cash needs, AirAsia is introducing an annual dividend policy with a payout of 20% of its net operating profit. It had announced a bumper FY12 dividend totaling 24sen (18sen interim + 6 sen final which have yet to be approved), translating to a yield of 9%. As these would amount to RM660m, it suggests a total payout of 60% of its operating profit. Despite the surprise payout for FY12, we have not projected any potential dividend for FY13/14 as we prefer to be cautious on the company’s outlook
for this year in view of the entry of Malindo.
Maintain BUY. We maintain our BUY call on AirAsia and our RM3.39 FV, premised on 11x FY13 EPS. We leave our earnings estimates unchanged for now until we get a clearer picture on Malindo’s promotion offerings. The stock is currently trading at an 8.6x FY13 PE, representing a 27% discount to its peer average multiple. Taking into account the market caps of Asia Aviation and its insurance arm, AirAsia is trading at a cheap 7.3x PE versus its historical and peer averages of 10x and 12x respectively. Elsewhere, we expect the group’s upcoming IPOs (AirAsia X and IAA) to crystallize its valuations. That being said, we feel that in view of the budget carrier’s strong network and fleet as well as low cost structure, investor concerns over the potential threat from new entrant Malindo pressuring AirAsia’s yields and market share may have been exaggerated.
Source: OSK
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