Analysts confident in AirAsia’s future direction
KUCHING: Analysts were left feeling confident and positive in AirAsia Bhd’s (AirAsia) growth prospects following the group’s analysts briefing on AirAsia’s future direction.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), during the briefing led by AirAsia group chief executive officer (CEO) Tan Sri Dr Tony Fernandes, AirAsia chief executive officer Aireen Omar and other members of the company’s senior management team, various initiatives to grow earnings and address challenges faced by the group were highlighted.
These included the growing average fares, expanding average seat kilometres (ASK) by a compound annual growth rate (CAGR) of more than 10 per cent, the fact that cost per available seat kilometre (CASK) is expected to trend lower going forward and that associates Indonesia AirAsia (IAA) and Philippines AirAsia (PAA) also expected to perform better.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) pointed out that apart from growth areas, management is determined to streamline its business to focus solely in its bread and butter airline business, which targets passenger traffic growth, and also ancillary business.
“This means that management is looking to spin off most of its noncore businesses in the near-to-midterm starting with Asia Aviation Capital (AAC), its aircraft leasing company,” Kenanga Research said.
Kenanga Research was positive with the management’s intended move in divesting AAC as this would further lighten AirAsia’s balance sheet.
“While the quantum of the divestment is yet to be determined, AirAsia is still looking to hold a majority stake of 20 per cent- 30 per cent in AAC post divestment.
“In terms of timeline, they are targeting to complete the divestment to the interested party by year-end,” it added.
MIDF Research highlighted that AAC will be getting a new CEO and chief financial officer (CFO) as soon as the third quarter of financial year 2016 (3QFY16), providing a leap forward in the process of monetising circa 70-80 per cent stake.
The research arm noted that this could potentially translate into proceeds of RM2.9 billion to RM3.3 billion (RM1.04-RM1.19) which could be used to pare debts, fund future expansion and be paid out as special dividends.
Kenanga Research further highlighted that apart from passenger traffic growth and divestments of noncore assets, one of the key gist of the briefing is their ambition in growing their ancillary income.
“Management is looking to grow its ancillary income by another 20 per cent from RM50 per pax to RM60 per pax,” the research arm said.
“In order to achieve their target of RM60 per pax, management has been relentlessly improving its duty-free shopping experience by providing a cheaper alternative to airport duty-free.”
That said, they are also looking to introduce TPAAY, a FX wallet with 10 currencies changeable via app, and the research arm saw great potential in TPAAY for the convenience and flexibility it provides for travellers that are traveling within the Asean region.
On a side note, MIDF Research said management noted that setting up associates in China and Vietnam could complete AirAsia’s Asian ambitions due to the attractive demographics of these markets.
“Further inroads into China could be on the cards soon with a specialised team already set up,” it said.
In all, Fernandes and his team displayed confidence in the company’s prospects and this optimism resonated with MIDF Research, leading to the reaffirmation of the research arm’s ‘buy’ call with target price of RM3.34 per share.
As for Kenanga Research, the research arm remained positive going forward on Air Asia’ s outlook premised on low jet fuel cost, improving yields, passengers load factors and ancillary income.
As such, no changes were made to the research arm’s financial year 2016-2017 estimate (FY1617E) core earnings.
Kenanga Research reiterated its ‘outperform’ call on AirAsia based on an unchanged target price of RM3.41 per share of which it might look to upgrade further after the group’s coming second quarter of 2016 (2Q16) results, which is slated on August 29, 2016.
“We continue to like the stock for its growth potential, its competitive advantage in the aviation industry for its low operating costs and a potential special dividend from its divestment in AAC,” the research arm said.