AirAsia’s to end 2016 on a high note — CIMB Research
KUCHING: AirAsia Bhd’s (AirAsia) financial performance in financial year 2016 forecast (FY16F) is expected by the research arm of CIMB Investment Bank Bhd (CIMB Research) to be robust.
According to CIMB Research, AirAsia delivered a first nine months of 2016 (9M16) core net profit which was in line with expectations, as it comprised 70 per cent of the research arm’s full-year forecast.
The research arm noted that for the fourth quarter of 2016 forecast (4Q16F), AirAsia is expected to deliver solid results on strong demand, having guided for passenger load factor (PLF) of 89 per cent versus the 84 per cent in 4Q15.
For the full year, the research arm forecasted AirAsia to register a record group net profit of RM1.6 billion, which may exceed the previous record of RM1 billion during FY10.
CIMB Research highlighted that the strong financial performance in FY16 was due to the combined effect of Malaysia Airlines Bhd (MAB) capacity cuts, a pause in the expansion of Malindo, and low oil prices.
However, conditions are changing, and the research arm expected a 24 per cent year on year (y-o-y) fall in AirAsia’s group net profits in FY17F.
It noted that MAB has started to aggressively market the group’s tickets from July, and this had hurt AirAsia’s yields in 3Q16, which declined 3.2 per cent y-o-y.
“Meanwhile, Malindo has resumed expansion, having added nine B737 jets since mid- 2016, increasing its fleet by more than 50 per cent, from 16 to 25, in just six months.
“Its fleet of ATR turboprops had also increased from 11 to 16 during the same time period,” CIMB Research said.
The research arm expected Malindo to launch more routes in the coming months. Malindo is currently running a sale of one million seats on its existing network.
On other headwinds, CIMB Research pointed out that Malaysia AirAsia is also planning to add at least seven planes in 2017F, which could limit further gains in load factors and/or necessitate more aggressive pricing.
The research arm noted that on the macro front, the accelerated ringgit depreciation since November and the action by Organization of the Petroleum Exporting Countries (OPEC) to curtail oil production is expected to increase AirAsia’s all-in jet fuel price from US$59 per barrel (bbl) in FY16F to US$65 per bbl next year.
“The impact to AirAsia is mitigated by hedges covering 74 per cent of its FY17F requirements at US$60 per bbl.
“Every 10 sen appreciation of the US dollar will reduce FY17F group core net profit by two per cent,” CIMB Research said.
The research arm added that the planned increase in passenger service charge ( PSC) rates at klia2 may impact AirAsia’s competitive position against the group’s rivals at KLIA main terminal building ( MTB), and may require AirAsia to subsidise the increase for an interim period to mitigate the impact of a hike on passengers.
On another note, CIMB Research said that Thailand AirAsia (TAA), which is the star performer in the group outside of Malaysia, guided for 4QF PLF of ‘ just’ 80 per cent (versus 82 per cent last year) as Chinese tourists into Thailand may decline two per cent y- o-y due to the termination of zero-fare tour packages.
It added that conversely, Indonesia AirAsia ( IAA) and AirAsia Philippines (AAP) may perform better y- o-y after restructuring their operations.
As for the potential sale of its stake in Asia Aviation Capital (AAC), CIMB Research noted that AirAsia will likely announce nonbinding bids for AAC soon, upon which the due diligence process will begin.
The sale of at least 80 per cent of AirAsia’s leasing arm, AAC, is expected to be completed by 2Q17.
“The entire stake is valued at approximately US$ 1 billion or higher, and the entire proceeds from the sale are expected to be declared as special dividends of more than RM1 per share,” it said.
Overall, CIMB Research maintained ‘add’ on AirAsia as the group is likely to pay a special dividend if it succeeds in disposing a majority stake in AAC by 2Q17F.