AirAsia Bhd
(Nov 23, RM2.48)
Maintain buy at RM2.48 with revised target price of RM2.94 (from RM2.38): AirAsia will release its 3Q10 results tomorrow. Its 3Q10 is expected to be highly profitable, buoyed by strong passenger growth, high load factors, and positive outlook on yields. We raise our earnings forecasts to account for higher yields, off-setting higher fuel costs. Maintain “buy”, with a raised target price of RM2.94 (+23% from previous) based on 10.1 times 2011 PER — 10% discount to peers.
Load factor for the Malaysian operations jumped to 78.3% (+2.9 percentage points [ppts] year-on-year) in 3Q10 with 12.4% y-o-y passenger growth. The Thai and Indonesian associates also recorded strong performances with load factors of 76% and 80.8% respectively. Collectively, the group produced a load factor of 78.2% (+2.2 ppts y-o-y) — perhaps the highest for 3Q since inception.
We estimate the group’s 3Q10 core net income to be RM146.8 million, a growth of 508% y-o-y after adjusting for FRS 139 derivative mark-to-market (MTM) and deferred taxation assets which are non-cash. The drivers are higher yields, reversal from losses at the Thai operations, lower operational cost stemming from new aircraft deployed into the fleet and the market fuel price being 9% lower than our initial forecast.
AirAsia is a stock trader’s darling; share price has surged by 77% since January making it the top performing LCC stock in the world. In addition, volatility (ß) has risen from 1.02 in January to 1.37 currently — an increase of 34%. Based on these risk factors, we have imputed a 10% discount to global peers in our valuation.
We have upgraded our earnings forecast by 29% for 2010, 21% for 2011 and 1% for 2012 to account for higher yields, higher fuel price (average US$100/bbl, previously US$95/bbl) and higher contribution from associates. AirAsia remains the cheapest LCC globally with superior earnings growth prospects. — Maybank IB, Nov 23
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