AirAsia: BUY, target price RM2.00

AmResearch maintained recommendations on AirAsia Bhd (5099) after the company announced its second quarter operating statistics. 
 
During the announcement, AirAsia said passenger load factor improved over 5 per cent quarter-on-quarter to 73 per cent, led by 6 per cent quarter-on-quarter growth in revenue-passenger-kilometre (RPK). Year-on-year (YoY) basis, RPK was up by 15 per cent and loads were up by 5 per cent.

"AirAsia's first half 2010 passenger traffic (Malaysian operations) accounted for 46 per cent of our full year estimates. We consider the operating numbers in line with our expectation as historically, first half of the year accounts for 45-49 per cent of full year passenger traffic (measured in RPK terms).

"Meanwhile, both Thai AirAsia (TAA) and Indonesia AirAsia (IAA) staged strong 2Q10 performance. Traffic at TAA grew 27 per cent while IAA saw a 22 per cent increase YoY. Capacity outlay is well controlled - ASK is only up by 9 per cent YoY and flat QoQ. AirAsia has toned down aircraft deliveries and this should help with capacity management and support yield recovery. Additionally, we think AirAsia's yields will ride on uptrend seen at full service carrier peers' - as seen at Singapore Airlines (+15 per cent YoY as of 1QFY11)."

AmResearch maintained its full year forecast for the budget airline.
"We project AirAsia to register 12 per cent EPS growth to 22 sen. AirAsia is trading at a depressed 6x FY10F earnings, which is a deep 60 per cent, discount to historical average PE of 14x and some 50 per cent discount to Tiger Airways' valuation of 12x. Balance sheet de-risking initiatives, turnaround at associates and improving core operating performance should trigger a strong share price re-rating," it said.