AirAsia shines, up 12.9% for the week

Since reporting their outstanding 4th quarter results announced last Friday, the share price of AirAsia has been on a strong rally, gaining 5.8% on Monday and a further 6.8% yesterday. Macquarie Equities Research (MER)’s released a report looking at AirAsia’s earnings, excerpts can be found below…

Event

• AirAsia reported an adjusted profit of RM311mn for 4Q15, bringing FY15 adjusted profit to RM697mn (+70% YoY), which is 32% and 16% ahead of MER’s and consensus estimates. MER believes the following key highlights from the results will be received positively by the market: 1) ability to sustain passenger yields whilst delivering 10% passenger growth and improved load factors in 4Q15, 2) reduction in receivables from associates and 3) strong cashflow generation (OCF yield of 57%).

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Impact
4Q15 highlights

• Revenue grew 16%, mainly on the back of 10% passenger growth and flat passenger yields.
• Interestingly, passenger yields excluding fuel surcharge increased 17% YoY.
• Its Malaysian and Philippines entity reported earnings before interest, taxes, depreciation, amortization and rent (EBITDAR) growth while the Indonesian entity continues to disappoint with a reduction in EBITDAR. Its Thai entity reported a slight reduction in EBITDAR.

 

• FY15 highlights
  • The beat to MER’s FY15 estimates was top line-driven. Revenue, which grew 8% YoY, was 7% and 6% ahead of MER’s and consensus estimates.
  • Unit cost dropped 4.1%, mainly driven by lower fuel expenses. Reduction in fuel cost, however, was offset by increases in maintenance, overhaul and user charges, a common theme among the three AirAsia entities that have reported their results.

 

• Balance sheet & cashflow
  • Receivables from Indonesia AirAsia and Philippines AirAsia fell to RM618mn (end-FY14: RM1,411mn) and RM840mn (end-FY14: RM948mn), respectively. The reduction of Indonesia AirAsia's receivables was mainly driven by the conversion of receivables into a perpetual bond (IDR2,058bn =~RM610mn).
  • Cash balance increased to RM2.4bn (from RM1.3bn as end Dec 2014).
  • Net gearing fell slightly to 2.3x from 2.5x in Dec 2014.

 

• The negative

Indonesia AirAsia and Philippines AirAsia remain loss-making in 4Q15 despite earlier projections by management that both will be profitable in 4Q15. Net adjusted losses for both entities were, however, narrowed.

 

 

• Outlook
  • Group CEO mentioned that in Malaysia the company is benefiting from the weaker currency environment that has led to local consumers trading down for travel.
  • Also, the CEO commented that demand from Chinese travelers has remained resilient, and he expects the visa waiver initiative to boost arrivals in the coming quarters. MER highlighted that AirAsia is most poised to benefit from the rising number of Chinese tourists into the country given it has the largest market share on Malaysia-China routes.
  • Indonesia AirAsia will continue to rationalise its network with a reduction in fleet size "to minimise operational losses."
  • The company expects Philippines AirAsia to break even "in the coming months," aided by the retirement of two remaining inefficient aircraft and capacity rationalisation.
  • The launch of AirAsia Japan has been pushed back slightly from "early 2016" to "first half of 2016."‌

Action and recommendation
Reiterate Outperform.
Source: Macquarie Research - 2 Mar 2016