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CIMB Research expects strong outlook for AirAsia in Q4FY17

The Star Online logo The Star Online 30/11/2017

KUALA LUMPUR: CIMB Equities Research believes AirAsia group will deliver strong earnings for 4Q17F. 

It said on Thursday Some investors were worried that the group’s plans to take delivery of 12 planes in 4Q17F alone is too fast a pace of expansion, but any negative yield impact will most probably be felt from 1Q18F onwards. 

Although oil prices have increased, AirAsia is 79% hedged for 4Q17F at US$61/bbl of jet fuel. 

CIMB Research said the US$ has depreciated against the ringgit in recent months, and will help offset most of the impact from more expensive fuel in 4Q17F. 

The research house expected AirAsia’s market share to rise in Malaysia, pointing out that Chinese inbound tourism growth has recovered strongly in 2H17F, from a slowdown seen during 1H17.

This would benefit Malaysia AirAsia (MAA), Thailand AirAsia (TAA) and AirAsia Philippines (AAP). 

In Malaysia, Malindo and MAS cut their domestic capacity in April and August, respectively, which should have a beneficial impact on MAA’s domestic yields and load factors in 4Q17F. 

Meanwhile, the impact on flights from the Bali volcanic eruption should be temporary. 

“In addition to the 12 plane deliveries in 4Q17F, AirAsia group is planning to grow by up to 36 new planes in FY18F, the most rapid growth in many years.

“With FY18F ASK growth forecasted to be in the mid-teens, we are consequently expecting base yields to decline c.7% on-year,” it said. 

CIMB Research expects spot jet fuel prices to average US$70/bbl next year, from US$65/bbl this year, while AirAsia’s fuel hedge cover is less than 8% for FY18F, from 77% this year. 

“Hence, we forecast FY18F core net profit to fall 17% on-year. However, with strong demand and loads in IAA and AAP, as well as rising average fares, AirAsia is making a strategic move to expand when times are good. 

a red and white plane sitting on a runway at an airport © Provided by The Star Online

In Malaysia, the partial withdrawal of Malindo and MAS from the domestic sector has handed MAA a golden opportunity to expand into the vacated space and secure long-term, sustainable dominance in the profitable domestic aviation market. 

“As such, we believe investors should look past an expected decline in FY18F profits, and over to FY19F, when AirAsia is expected to reap the fruits of its capacity investments in FY18F. 

“Over the next 12 months, an expected special dividend of up to RM1.14/share will keep investors interested in AirAsia,” it said. 

It raised AirAsia’s target price from RM3.67 to RM4.04. The last traded price was RM3.17.

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