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HLIB ResearchPP 9484/12/2012 (031413) 

AirAsia (HOLD, EPS ) NEWSBREAK

SECTOR: NEUTRAL 

8 April 2013

Price Target: RM2.84 ()

Share price: RM2.87 

India AirAsia is COMING

News 

AirAsia has received the formal approval from Indian ForeignInvestment Promotion Board (FIPB) for its 49% J Vinvestment with Tata Sons Limited (30%) and Mr. ArunBhatia (21%) into India AirAsia.

With this approval, India AirAsia is formally set up withShareholders Agreement and Brand Licensing Agreement(with AirAsia) to be signed within April. However, the J V stillneeds to apply for the aviation license (to fly aircrafts) withthe Indian Directorate General of Civil Aviation.

The J V is aiming to commence operation as early asDeepavali (end 2012), to take advantage of the India largestfestivals.

Financial

impact 

Financial impact is expected to be minimal, as AirAsia is

likely to recognize losses from the new J V up to its capitalinvestments of RM22.5m. The initial startup investment forIndia AirAsia is expected to be US$14.5m (RM45m).

Pros / Cons We continue to be positive with AirAsia penetrating into Indiamarket given its huge population of 1.2bn and fastdeveloping economy (one of the BRICs). The new hub willexpand AirAsia Group’s connectivity further into the westsuch as Pakistan and Middle East countries.

India market is well known for its competitiveness due to themany number of domestic airlines, complex regulations, highcost structures and low domestic income level. Indian airlineshave been making losses over the past years with someairlines even in the brink of bankruptcy.

We believe the new India AirAsia will face tough competitionsand incur losses in the early years of operation (similar to allthe previous J Vs i.e. Thailand, Indonesia, J apan andPhilippines).

However, India AirAsia is likely to survive the competition,banking on strong brand name, disciplined cost structures,vast networks connectivity and experienced management.

Risks World crisis (ie. war, terrorism and epidemic outbreak), delayin KLIA2 completion, high jet fuel price and development of high speed train between Singapore and Pulau Pinang.

Forecasts Unchanged.

Rating HOLD 

Positives –

Beneficiary of strong air traffic into Malaysia, in line withgovernment initiatives to boost tourism sectors.

Largest and lowest cost LCC in Asia with strong brandname.

Strong ancillary income.

Negatives –

High jet fuel cost. 

Entry of Malindo Airways enforcing price competition.

Proposed construction of high speed railway for KL-SG.

Valuation Maintained Hold on AirAsia with unchanged TP of RM2.84. 

Daniel Wong

kkwong@hlib.hongleong.com.my (603) 2168 1077 KLCI 1689Expected share price return -1.0%Expected dividend return 1.9%

Expected total return 0.9%

Share price 

Information

Bloomberg Ticker AIRA MBursa Code 5099Issued Shares (m) 2,781Market cap (RMm) 7,9803-mth avg daily vol (‘000) 8,344

Price Performance 1M 3M 12M

 Absolute 1.8 4.2 -10.2Relative  -0.3 4.2 -15.0

Major shareholders 

Tune Air 23.0%Wellington 9.0%EPF 7.9%

Summary Earnings Table 

FYE Dec (RM m) 2012A 2013E 2014E 2015ETurnover 4,996 5,894 6,902 7,483EBITD 1,695 1,812 2,105 2,310Pre-tax Profit 2,051 843 989 1,052Rpt. net profit 1,876 826 976 1,039Norm. net profit 815 826 976 1,039

Norm. EPS (sen) 29 30 35 37P/E (x) 9.8 9.7 8.2 7.7Book Value (RM) 1.9 2.0 2.3 2.6P/B (x) 1.5 1.4 1.3 1.1EV/EBITDAR (x) 7.7 7.6 6.9 6.4Net Dvd Yield (%) 8.4% 2.1% 2.4% 2.6%Net Gearing (%) 116.2 136.2 141.3 127.7ROE (%) 17.3 16.0 16.5 15.4ROA (%) 5.4 5.0 5.0 4.8

HLIB

1500

1550

1600

1650

1700

2.5

3.0

3.5

4.0

 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13

(KLCI)(RM)

 AIRA (LHS) KLCI (RHS)

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Financial Projections 

Income statement Cashflow

FYE 31 Dec (RMm) 2011A 2012A 2013E 2014E 2015E FYE 31 Dec (RMm) 2011A 2012A 2013E 2014E 2015E

Revenue 4,489 4,996 5,894 6,902 7,483 EBITDA 1,637 1,700 1,812 2,105 2,310

Operating cost -2,765 -3,141 -3,862 -4,459 -4,796 Net interest received -312 -299 -360 -437 -480

EBITDAR 1,724 1,855 2,033 2,443 2,687 Working capital changes 350 -359 314 73 -63

Lease -81 -160 -221 -338 -377 Taxation -49 -25 -18 -13 -13

EBITDA 1,643 1,695 1,812 2,105 2,310 Others -283 290 0 0 0Depreciation -588 -562 -679 -805 -917 Operat ing cashf low 1,344 1,306 1,748 1,727 1,754

Net Interest -312 -299 -360 -437 -480 Capex & acquisitions -1,030 -1,896 -2,440 -3,050 -1,830

 Associates 6 -4 70 126 139 Free cashf low 314 -590 -692 -1,323 -76

Exceptionals 51 1,218 0 0 0 Other inv cashflow 537 -39 0 0 0

Pretax profit 794 2,051 843 989 1,052 New borrowings -264 887 1,062 1,423 379

Taxation (Inc Def Tax) -230 -176 -18 -13 -13 Share issuance 5 2 2 2 2

Minorities 0 0 0 0 0 Dividends paid -77 -77 -667 -165 -195

Net profit 564 1,876 826 976 1,039 Other fin cashflow 16 16 67 57 48

Core profit (Ex Def Tax) 725 815 826 976 1,039 Net cashf low 532 199 -228 -6 157

No of shares (m) 2,773 2,778 2,780 2,782 2,784 Forex translation 0 0 0 0 0

Rep. EPS (sen) 20.3 67.5 29.7 35.1 37.3 Beginn ing cashf low 1,476 2,008 2,207 1,979 1,972

Core EPS (sen) 26.1 29.3 29.7 35.1 37.3 Ending cashf low 2,008 2,207 1,979 1,972 2,130

Balance sheet Valuation Ratios

FYE 31 Dec (RMm) 2011A 2012A 2013E 2014E 2015E FYE 31 Dec (RMm) 2011A 2012A 2013E 2014E 2015E

Fixed assets 8,586 9,786 11,547 13,792 14,705 Reported basic EPS (sen) 20.3 67.5 29.7 35.1 37.3

Other long-term assets 1,407 2,916 2,919 2,989 3,080 Core basic EPS (sen) 26.1 29.3 29.7 35.1 37.3

Other short-term assets 1,730 1,689 1,794 2,046 2,191 Core FD EPS (sen) - - - - -

Working capital 99 -509 -823 -896 -833 PER (x) 11.0 9.8 9.7 8.2 7.7

Receivables 1077 1363 1467 1719 1864 FD PER (x) - - - - -

Payables -998 -1,896 -2,318 -2,648 -2,733 Net DPS (sen) 5.0 24.0 5.9 7.0 7.5

Inventory 20 24 28 33 36 Net DY (%) 1.7 8.4 2.1 2.4 2.6

Net cash -5,761 -6,219 -7,509 -8,939 -9,160 BV/ share (RM) 1.5 1.9 2.0 2.3 2.6

Cash 2,020 2,226 1,998 1,991 2,149 PB (x) 1.8 1.4 1.3 1.2 1.0

ST debt -615 -726 -726 -726 -726 FCF/ share (sen) 113 -212 -249 -475 -27

LT debt -7,166 -7,718 -8,781 -10,204 -10,583 FCF yield (%) NA NA NA NA NA

Shareho lders' funds 4,045 5,353 5,513 6,326 7,171 Market capit alizat ion 7,973 7,978 7,984 7,989 7,994

Share capital 278 278 278 278 279 Net cash -5,761 -6,219 -7,509 -8,939 -9,160

Reserves 3,767 5,075 5,235 6,048 6,893 Enterprise value 13,734 14,197 15,493 16,928 17,154

Minorities 0 0 0 0 0 EV/ EBITDAR (x) 8.0 7.7 7.6 6.9 6.4

Other liabilities 2,015 2,310 2,414 2,666 2,812 ROE (%) 18.9 17.3 16.0 16.5 15.4

Assumption Metrics Other Ratios

FYE 31 Dec 2011A 2012A 2013E 2014E 2015E FYE 31 Dec (RMm) 2011A 2012A 2013E 2014E 2015E

 ASK (m) 26,075 28,379 33,786 37,667 39,819 Growth (%)

RPK (m) 21,036 22,731 27,029 30,133 31,855 Sales Growth 13.0 11.3 18.0 17.1 8.4

Load factor (%) 80.7% 80.1% 80.0% 80.0% 80.0% EBITDAR Growth -1.0 7.6 9.6 20.2 10.0

EBITDA Growth -1.9 3.2 6.9 16.2 9.8

Passenger Carried ('000) 17,987 19,679 23,771 26,775 28,458 EBIT Growth -8.4 7.3 0.0 14.7 7.2

PBT Growth -11.6 12.1 1.2 17.3 6.4

Passenger Yield - Rev/RPK (sen) 14.5 14.5 14.2 14.2 14.3 Net Profit Growth -13.4 12.3 1.3 18.2 6.4

Passenger Yield Growth (%) -5.2 0.1 -2.5 0.3 0.5 Margins (%)

 Ancillary Income/Pax (RM) 47.3 39.5 40.7 41.9 43.1 EBITDAR Margin 38.4 37.1 34.5 35.4 35.9

 Ancillary Income/Pax Growth (%) 7.1 -16.5 3.0 3.0 3.0 EBITDA Margin 36.6 33.9 30.7 30.5 30.9

EBIT Margin 23.5 22.7 19.2 18.8 18.6

Fuel price/barrel (USD) 133 135 130 135 138 PBT Margin 16.6 16.7 14.3 14.3 14.1

MYR/USD 3.08 3.08 3.05 3.05 3.05 Net Profit Margin 16.2 16.3 14.0 14.1 13.9

Net Debt/Equity (%) 142.4 116.2 136.2 141.3 127.7

Bloomberg, HLIB 

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Disclaimer 

 The information contained in this report is based on data obtained from sources believed to bereliable. However, the data and/or sources have not been independently verified and as such,no representation, express or implied, is made as to the accuracy, adequacy, completeness orreliability of the info or opinions in the report.

Accordingly, neither Hong Leong Investment Bank Berhad nor any of its related companies andassociates nor person connected to it accept any liability whatsoever for any direct, indirect orconsequential losses (including loss of profits) or damages that may arise from the use or

reliance on the info or opinions in this publication.Any information, opinions or recommendations contained herein are subject to change at anytime without prior notice. Hong Leong Investment Bank Berhad has no obligation to update itsopinion or the information in this report.

Investors are advised to make their own independent evaluation of the info contained in thisreport and seek independent financial, legal or other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.Nothing in this report constitutes investment, legal, accounting or tax advice or a representationthat any investment or strategy is suitable or appropriate to your individual circumstances orotherwise represent a personal recommendation to you.

Under no circumstances should this report be considered as an offer to sell or a solicitation of any offer to buy any securities referred to herein.

Hong Leong Investment Bank Berhad and its related companies, their associates, directors,connected parties and/or employees may, from time to time, own, have positions or be

materially interested in any securities mentioned herein or any securities related thereto, andmay further act as market maker or have assumed underwriting commitment or deal with suchsecurities and provide advisory, investment or other services for or do business with anycompanies or entities mentioned in this report. In reviewing the report, investors should beaware that any or all of the foregoing among other things, may give rise to real or potentialconflict of interests.  This research report is being supplied to you on a strictly confidential basis solely for yourinformation and is made strictly on the basis that it will remain confidential. All materialspresented in this report, unless specifically indicated otherwise, is under copyright to HongLeong Investment Bank Berhad. This research report and its contents may not be reproduced,stored in a retrieval system, redistributed, transmitted or passed on, directly or indirectly, to anyperson or published in whole or in part, or altered in any way, for any purpose.

 This report may provide the addresses of, or contain hyperlinks to, websites. Hong LeongInvestment Bank Berhad takes no responsibility for the content contained therein. Suchaddresses or hyperlinks (including addresses or hyperlinks to Hong Leong Investment BankBerhad own website material) are provided solely for your convenience. The information andthe content of the linked site do not in any way form part of this report. Accessing such websiteor following such link through the report or Hong Leong Investment Bank Berhad website shallbe at your own risk.

1. As of 08 April 2013, Hong Leong Investment Bank Berhad has proprietary interest in thefollowing securities covered in this report:(a) -.

2. As of 08 April 2013, the analyst, Daniel Wong, who prepared this report, has interest in thefollowing securities covered in this report:(a) -. 

Published & Printed by

Hong Leong Investment BankBerhad (10209-W)

(Formerly known as MIMB InvestmentBank Berhad)Level 8, Menara HLANo. 3, J alan Kia Peng50450 Kuala Lumpur

 Tel 603 2168 1168 / 603 2710 1168Fax 603 2161 3880

Equity rating definitions

BUY Positive recommendation of stock under coverage. Expected absolute return of more than +10% over 12-months, with low risk of sustained downside.TRADING BUY Positive recommendation of stock not under coverage. Expected absolute return of more than +10% over 6-months. Situational or arbitrage trading opportunity.

HOLD Neutral recommendation of stock under coverage. Expected absolute return between -10% and +10% over 12-months, with low risk of sustained downside.TRADING SEL L Negative recommendation of stock not under coverage. Expected absolute return of less than -10% over 6-months. Situational or arbitrage trading opportunity.SELL Negative recommendation of stock under coverage. High risk of negative absolute return of more than -10% over 12-months.NOT RATED No research coverage, and report is intended purely for informational purposes.

Industry rating definitionsOVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% over 12-months.

NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return between –5% and +5% over 12-months.UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than 5% over 12-months.