Analysts expect more special dividends from AirAsia

AIRASIA Group Bhd may have kept its word on paying a special dividend after its asset sale, but it falls short of what analysts had expected.

Based on the assets sold this year, they had hoped for 60 sen to 90 sen dividend per share (DPS) but AirAsia announced a 40 sen special dividend on Thursday.

With the 12 sen DPS declared in May, the total payout thus far is 52 sen a share.

But analysts are hopeful and speculating a 20 sen-30 sen special DPS when the airline announces its fourth quarter results in February 2019. They may speculate but it really depends on the airline if it wants to conserve the cash or pay out more.

“We think AirAsia Group may be spreading out the special DPS payments in order to encourage investors to remain in the stock,’’ writes CGSCIMB Research its note.

AirAsia share price has been rising in anticipation of the special dividend for sometime now. Yesterday, it closed 10 sen higher to RM3.08.

CGSCIMB expects another special DPS of 30 sen in February, though it had expected special dividend of 91 sen in total.

It says AirAsia Group was looking to dispose of the remaining 35 aircraft in its Malaysia AirAsia’s balance sheet sometime during financial years 2019 to 2020 and some of those proceeds could also be declared as special dividends.

“Once completed, Malaysia AirAsia will be an asset-light airline with its entire fleet on operating leases. We have not included any of the latter extra special dividends into our target price until (there is more clarity),’’ it says.

The research house has downgraded the stock from a “hold” to “reduce” with a lower target price of RM2.12 a share based on sector average calender year 2020 (forecast) price-earnings of 10 times and adding special DPS of 70 sen.

AirAsia announced a special dividend of 40 sen per share yesterday amounting to a payout of about RM1.34bil that is payable on Dec 28 when it released its third-quarter financial results.

AirAsia Group’s operating profit halved for the third quarter ended September 2018 to RM252.7mil from RM494.3mil a year earlier mainly because of higher fuel expenses.

Affin Hwang Capital says core net profit for the period fell 83% year-on-year to RM68.7mil on higher fuel cost of US$95 per barrel versus US$63 per barrel earlier. Load factor was also lower at 82% from 87% earlier and it encountered larger losses from associations.

Despite that, it reported strong net profit of RM916mil led by forex and disposal gains and it recognised RM515mil in deferred tax assets following the completion of the sale and leaseback transaction. For nine months to end-September, its core net profit slipped 8% to RM787mil.

Affin Hwang Capital says it has cut its estimated financial year 2018-2020 EPS by 19%22%, imputing the weak nine-month 2018 results as well as higher fuel price assumptions for 2019. It expects Brent crude oil to hover between US$75 and US$80 per barrel .

The brokerage has lowered its target price to RM3.20 a share based on an unchanged estimated 10 times 2019 price-earning ratio (PER). It still maintains a “buy” on the stock.

Going forward, the key risks cited by ana- lysts are higher fuel cost and weaker tourism growth, although Midf Research says that in the first two months of fourth-quarter FY18, Brent crude oil price has dropped by about 24% to hover around US$60 to US$65 per barrel in contrast to the 7.4% rise in third-quarter FY18.

“We believe that jet fuel price will follow suit and AirAsia will be able to reap benefits by hedging more in the near future. In addition, yields could see further improvement, driven by the group’s digitalisation strategy, coupled with capacity expansion that utilises fuel-saving aircraft,’’ the brokerage says.

Maybank Investment IB has upgraded the stock to a “buy” from a “hold” but reduced the target price from RM3.40 to RM2.72 a share as it peg it 8 times 2019 PER.

“AirAsia’s share price has retracted by 20% in the past month and the stock is now trading at deep discount relative to global peers and also against its own history.

“Plus, there is the lure of special dividends that is slated to be announced in the fourth quarter results. AirAsia’s potential reward justifies the risk, buy,’’ says Maybank.