The research house said on Friday it reviewed AirAsia’s very strong operating statistics last week and noted that the 1Q16 results, which will be released on May 27, are likely to exceed expectations.
“The airline may report a record 1Q group core profit of between RM350mil and RM450mil, versus a loss of RM53mil in last year’s 1Q and profit of RM285mil in 4Q15. As a result, we upgrade our FY16-17 core EPS estimates by 15%-16%, and lift the target price to RM3.13, still based on CY17 P/E of eight times (peer range six to 12 times).
“Stay Add as AirAsia is enjoying low fuel costs and benign competitive environment,” it said.
CIMB Research reviewed AirAsia’s excellent operating statistics and the in-depth market fundamentals in its May 11 report. In summary, the entire group registered strong growth in revenue per kilometre (RPK) demand leading to record load factors.
Improving competitive dynamics and industry capacity reductions are supportive of better yields in Malaysia, coinciding with very low oil prices, likely resulting in robust quarterly earnings.
It also pointed out Thai AirAsia, which reported results last week, is a harbinger of how Malaysia AirAsia (MAA) may report. TAA’s 1Q16 core earnings rose 59% on-year, and its 1Q16 yields were actually higher than in 4Q15, which is atypical. Higher load factors and lower oil prices did the rest.
The situation is not dissimilar for MAA, with loads higher in 1Q16 than even the super-peak 4Q15. It is a given that MAA will achieve yields higher than in 1Q15, which the crash of QZ8501 had affected, but can 1Q yields match the 4Q15 levels?
CIMB Research said if MAA delivers 1Q16 yields that are on par with the immediately preceding 4Q15 (implying +11% on-year), group core net profit can reach as high as RM450mil.
On a more conservative assumption of a 3% on-year increase in yields, RM350mil will be more likely.
“We strongly believe Indonesia and Philippines AirAsia and will deliver lower losses in the coming earnings release. For IAA, AirAsia’s 49% share of its loss amounted to RM143mil in 1Q15, but we think a much smaller RM20m share of loss is possible in 1Q16 (similar to the 4Q15 level).
"Meanwhile, Cebu Air delivered 1Q16 core net profit growth of 56% on-year, on the back of an 8 percentage point on-year rise in loads as domestic demand was strong in the run-up to the elections. AAP similarly saw a 9.9 percentage point rise in loads, and yields may also be up on-year.
“Coming from a low level, AirAsia has seen very strong price action lately, rising 71%over the past three months and 10% over the past one month. There could be more room to rise if it delivers the strong results we expect it to.
“AirAsia remains one of the cheapest low-cost carrier stocks from a price-to-earnings (P/E) perspective, trading at a core CY16 P/E of 6 times against the average sector P/E of 11 times. We expect the 2Q results to be good as well, as industry capacity is flattish while inbound Chinese tourist traffic is rising.
“We need to monitor Malindo’s capacity expansion in 2H16, as it has kept its fleet size unchanged so far this year despite earlier planning for a six to 10 aircraft addition in 2016,” it said.
“Coming from a low level, AirAsia has seen very strong price action lately, rising 71%over the past three months and 10% over the past one month. There could be more room to rise if it delivers the strong results we expect it to.
“AirAsia remains one of the cheapest low-cost carrier stocks from a price-to-earnings (P/E) perspective, trading at a core CY16 P/E of 6 times against the average sector P/E of 11 times. We expect the 2Q results to be good as well, as industry capacity is flattish while inbound Chinese tourist traffic is rising.
“We need to monitor Malindo’s capacity expansion in 2H16, as it has kept its fleet size unchanged so far this year despite earlier planning for a six to 10 aircraft addition in 2016,” it said.
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