AIRASIA – Fundamental Analysis (2 Dec 2015)

2015-12-04 Uncategorized AIRASIA, AIRASIA BERHAD, FBMKLCI, Fundamental Analysis,KLSE

Excel – http://1drv.ms/1HJWlzA

Latest Financial – Q3 2015 Financial Report (27 Nov 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4935773

FY15 Q3 Results Highlight:

• AIRASIA reported 9M15 normalised earnings of RM595.7m, an increase of +29.5%.
  • I am still in the middle of working out a more structural way to normalise AIRASIA earnings.
• MAA’s operating profit rose +84%yoy in 3Q15 as capacity growth (+12%yoy) was well absorbed, resulting in load factor of 82% which is the highest in 7 quarters (since 4Q13). The higher loads was partially at the expense of average fares which was down slightly (-7%yoy) mainly due to the removal of fuel surcharges. Meanwhile, both revenue per unit and cost per unit improved due to more rational competition and lower jet fuel expenses respectively. (MIDF 27 Nov 2015)
• TAA’s net income came in at US$5m (+146%yoy), rising on-year but dropping sequentially due to the bombing incident in Aug 2015. Both IAA and PAA remain loss-making with IAA affected by negative publicity surrounding its negative equity position while the latter dragged by high maintenance costs of old fleet inherited from Zest which are being phased out. (MIDF 27 Nov 2015)
• AirAsia has fully hedged the interest rate risk of its borrowings thus will not be impacted from any fluctuation in interest rates with possible US rate hikes on the horizon. Besides, 71% of its USD borrowings are hedged by a combination of derivatives and natural hedges. (MIDF 27 Nov 2015)

Valuation:

• Absolute EY%:
  • EY% (Absolute P/E)
    • Trailing:
      • FY14 (EPS: 0.114) – 0.754 (Uncertainty Risk: EXTREME)
      • R4Q (EPS: 0.366) – 2.413 (Uncertainty Risk: LOW)
    • Forward:
      • FY16 (EPS: 0.23 ± 5%) – From 1.444 to 1.595 (Uncertainty Risk: HIGH)
      • FY17 (EPS: 0.279 ± 5%) – From 1.748 to 1.932 (Uncertainty Risk: MEDIUM)
    • EPS applied to reach the current stock price (1.39): 0.211
• In my opinion, fair value of AIRASIA range from 1.6 to 1.9. Uncertainty risk of fair value is from MEDIUM to HIGH.

Going Forward:

• Higher risk that IAA’s convertible bonds (CB) may not be successfully issued, as the CBs are now being marketed to foreigners rather than the initial target of local Indonesian investors
• The continued weakening of the Ringgit against the US$ which is on average 12.7% lower compared to FY14. ~70% of operating expenses and 80% of debt are US$ denominated. AirAsia’s US$ debt hedges are at 73% utilising a combination of natural and derivative hedging. Meanwhile, ~8% of operating costs are hedged to reduce the impact from USD/MYR volatility.
• Positives:
  • A more rational market with further yield recovery
  • Capacity management to reduce costs
  • Better ancillary income.
• I am still worry about AIRASIA, but I believe AIRASIA will be able to go through these issues.

At the time of writing, I owned shares of AIRASIA.