airasia berhad - wordpress.com · · 2013-08-22airasia berhad is based in sepang, malaysia....

AIRASIA BERHAD Analysis Date:

(AIRASIA) Prepared by: L. C. Chong

All figures in thousands of Ringgit Malaysia except per share values and ratios

Financial Year: 2012 31/12/2012 Latest Quarter: 31/12/2012

Price: Stock Category: Fast Grower

Overview

Board: Main Board FBMKLCI: NO

Industry: TRADING SERVICES

Sub‐Sector: AIRLINE / AIRPORT SVCES AND AVIATION EQPMT

Ownership: Corporate Owned (Local)

Investment Strategy

Portfolio Strategy: Lump Sum + Top Up Averaging Down Method:

Portfolio Execution: Basis for Buying & Selling: Absolute P/E

EY % OSCILLATOR

Institutional Sponsorship

Market Direction

22/08/2013

2.98

AirAsia Berhad engages in the provision of air transportation services primarily in Malaysia and rest of Asia. The company

operates scheduled passenger flights and chartered flights; and offers air cargo and courier transportation services. It also

operates inbound and outbound tours; provides travel agency services; and leases aircraft. The company operates a fleet

of 122 aircraft. AirAsia Berhad is based in Sepang, Malaysia.

Dollar Cost/Value Averaging

Buy and Monitor

Momentum

L. C. Chong of 14 http://lcchong.wordpress.com

Financial PerformanceRating: Average

Measure 3‐Y Avg. 5‐Y Avg. 3‐Y % 5‐Y % Consistency

ROE ≥ 15% 25.28% 21.69% 0.09% 1.15% 7%

ROIC ≥ 15% 7.19% 6.66% ‐0.09% 0.20% 21%

Rating: Very Good

Result YoY % 3‐Y % 5‐Y % 10‐Y % Consistency

Revenue 10.03% 11.27% 16.21% 28.28% 96%

EPS 32.53% 7.95% 12.48% 1.07% 4%

AIRASIA’s high ROE is actually contributed by high borrowing. Stiff competition and

sky high price of fuel suppress margin of the airline business. 5‐Y ROIC (exclude

2008) of AIRASIA is 7.8%. Compare to other airlines, this rate is above average.

Besides, AIRASIA is still in rapid growing stage, and AIRASIA requires a lot of capital

to for expansion.

Revenue of AIRASIA increase consistently for the past 9 years even if facing tough

competition. However, EPS is not so consistent, but increasing since 2009. Few

reasons:

1.Capital changes – increase of NOSH

2.High fuel cost and expansion cost – Net income reduced

2004 2005 2006 2007 2008 2009 2010 2011 2012

ROE 5% 12% 8% 50% ‐31% 19% 29% 14% 31%

ROIC 28% 16% 1% 9% ‐3% 7% 8% 9% 6%

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

Sustainable Profitability

6.43

0.53 0.38

3.93

‐2.11

2.06

3.84

2

6.59

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

‐3

‐2

‐1

0

1

2

3

4

5

6

7

8

Earnings ‐ Growth Quality

PAR‐Adjusted EPS Revenue Linear (PAR‐Adjusted EPS) Linear (Revenue)


Rating: Poor


CROIC ≥ 15% 1.24% ‐2.22% ‐0.02% 0.92% 10%

CCC — — — — —

Rating: Average

Result YoY 3‐Y 5‐Y 10‐Y Consistency

Ops. Cash ‐2.69% ‐6.95% 245.86% 10.61% 63%

Owner

Earnings

‐4.72% 17.17% 261.00% ‐3.94% 7%

Even if CROIC is not up to my benchmark, but it has been increasing since 2007. This

is positive side. Low CROIC proves high capex in business expansion, such as

purchase new planes.

Net Operating Cash Flow and Owner Earnings increase since 2009. However, I

believe that the growth of cash flow will be slow due to the need of cash in

expansion.

2004 2005 2006 2007 2008 2009 2010 2011 2012

CROIC 11% ‐17% ‐50% ‐64% ‐40% ‐11% ‐3% 11% ‐3%

CCC 0 0 0 0 0 0 0 0 0

0

0

0

0

0

1

1

1

1

1

1

‐70%

‐60%

‐50%

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

Healthy Cash Flow

‐3,000,000

‐2,500,000

‐2,000,000

‐1,500,000

‐1,000,000

‐500,000

0

500,000

1,000,000

1,500,000

2,000,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

Cash Flow ‐ Growth Quality

Net Ops. Cash Owner Earnings

Linear (Net Ops. Cash ) Linear ( Owner Earnings)


Rating: Average


NPM ≥ 10% 27.41% 23.79% 0.48% 1.05% 3%

FCF/Sales ≥

5%

2.07% ‐7.70% ‐0.05% 2.52% 6%

Rating: Poor


DCR ≥ 150% 1.25% ‐2.76% ‐0.06% 1.04% 10%

Debt/Eqty. <

100%

217.70% 253.63% ‐18.06% ‐28.90% 0%

Quick R. ≥

100%

147.30% 142.03% ‐9.17% 11.36% 18%

AIRASIA is highly leveraged, and has no sufficient cash and assets to repay its debts.

However, it has sufficient assets to cover its short term debts.

AIRASIA still enjoy good net profit margin, and this is surprisingly good. As explained

before, I don’t expect good FCF/Sales.

2004 2005 2006 2007 2008 2009 2010 2011 2012

NPM 12% 17% 10% 70% ‐19% 16% 27% 12% 37%

FCF/Sales 4% ‐16% ‐81% ‐196% ‐114% ‐33% ‐7% 24% ‐8%

‐250%

‐200%

‐150%

‐100%

‐50%

0%

50%

100%

Sustainable Competitive Advantage

2004 2005 2006 2007 2008 2009 2010 2011 2012

DCR 18% 0% ‐66% ‐85% ‐45% ‐14% ‐4% 14% ‐5%

Debt/Equity 613.13% 17.85% 129.20% 394.75% 665.92% 334.88% 263.65% 244.51% 183.71%

Quick R. 122% 557% 203% 336% 84% 129% 155% 172% 129%

‐200%

‐100%

0%

100%

200%

300%

400%

500%

600%

700%

800%

Conservative Debt


Economic Moats

Reference: http://lcchong.files.wordpress.com/2013/07/cp‐v30‐n2‐9.pdf

Not available or no moat found

AIRASIA has maintained substantial gross margins, suggesting that they have been able to set prices without consideration of the cost of goods sold. This potentially leaves flexibility in inflationary environments to raise prices on consumers and maintain profitability.

‐ Consumers enjoy low cost air fare. The load factor is still above 80% and the volume in LCCT is much higher than KLIA.

‐ Consumers enjoy low cost air fare. However, this moat got expiration. This moat may not sustainable when the competitors (such as Malinda) start price war with AIRASIA.

Cost Advantage

Switching Costs

Network Effect

Intangible Assets

Efficient Scale

Not available or no moat found


Market Timing

Discounted Cash Flows Valuation

Good 8% Base 4% Bad 0% Ugly ‐4% Good 8% Base 4% Bad 0% Ugly ‐4% Good 8% Base 4% Bad 0% Ugly ‐4%

Fair Value 3.08 2.81 2.56 2.32 3.16 2.79 2.47 2.18 3.25 2.74 2.31 1.96

Buy Under 2.01 1.83 1.67 1.51 2.06 1.82 1.61 1.42 2.12 1.78 1.51 1.28

Actual M.O.S. 3.39% ‐5.98% ‐16.49% ‐28.29% 5.76% ‐6.69% ‐20.87% ‐36.98% 8.40% ‐8.93% ‐28.94% ‐51.79%Refer Appendix 1

Growth rate applied in Reverse DCF to reach the current stock price (2.98): 6% Refer Appendix 2

EY% Valuation EPS QoQ Growth

EY% High EY% Low Buffer R4Q‐EPS FY13‐EPS* FY14‐EPS* Jun‐12 Sep‐12 Dec‐12 Mar‐13 Jun‐13 QoQ %

16.40% 8.99% 10% 0.24 0.31 0.34 0.430 0.057 0.126 0.038 0.021 ‐95.12%

2.70 3.40 3.83

1.55 1.95 2.20

2.49 3.15 3.54

Refer Appendix 3

Comments

Insider TradingRefer Appendix 5

Refer Appendix 4

Disposed

# Securities Price

07/08/2013 4,919,900 0.00

05/06/2013 50,000 3.50

Grand Total 4,969,900 1.17

I won’t use DCF for AIRASIA as AIRASIA is very cash hungry. Based on EY%, looking at 2 years

horizon, fair value of AIRASIA is 3.8. This looks quite a rac ve.

I will may use TA to accumulate AIRASIA. Besides, I may also get cheaper as market sentiment is

bearish.

3‐Y 5‐Y 10‐Y

Buy Under

Sell Above

Fair Value


Notes

Created Date Details Type Source Type

22/08/2013 AirAsia CEO Aireen Omar said in a statement yesterday that the decline in RASK (revenue per available seat per kilometre)

in 2Q was due to low‐peak season, GE13 and the nega ve impact of the Lahad Datu intrusion in Sabah in April.

Despite that, said Aireen, the airline still managed to record a strong load factor of 80% which was in line with its strategy

of pushing passenger growth via low fares.

During the quarter under review, AirAsia recorded a 23.5% increase in operating profit year‐on‐year (y‐o‐y) to RM243.94

million, due to the increase in revenue and decline in opera ng cost.

"We have seen a good improvement from our cost reduction exercise, particularly in reducing our overall spend on

advertising and sponsorship as the company builds its brand awareness via the web. Cost per available seat per kilometre

[CASK] was reported at 12.83 sen (down 7% from 13.86 sen y‐o‐y), backed by the lower average fuel price which is down

8% y‐o‐y. CASK ex‐fuel also decreased at 6.53 sen (down 7% from 7.02 sen y‐o‐y)."

http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=251094&Itemid=79

Analysis;Announcement Newspaper

12/07/2013 AirAsia: 51.92pc shares held by foreigners

http://valueinvestorresearchklse.blogspot.com/2013/07/airasia‐5192pc‐shares‐held‐by‐foreigners.html

Note Newspaper

20/06/2013 AirAsia: Signs RM27.5bn engine deal. As part of its expansion programme, low cost carrier AirAsia signed a purchase

agreement with commercial aircraft supplier CFM International for the purchase of 100 sets of airplane engine. The CFM

LEAP‐1A and CFM56‐5B engines were purchased in a USD8.6bn (RM27.5bn) deal to power the 100 Airbus A320 aircraft it

ordered last year. (StarBiz)

Announcement Newspaper

13/06/2013 http://www.investmalaysiaconference.com/media/pdf/2013Slides/Corporate%20Presentation/AirAsia%20Berhad.pdf Growth Driver ‐

11/06/2013 AirAsia says may dissolve Japan venture over management conflict

http://www.theedgemalaysia.com/index.php?Itemid=79&id=241592&option=com_content&task=view

Announcement;Growth Driver Newspaper

06/06/2013 h p://www.theedgemalaysia.com/index.php?Itemid=77&id=241055&op on=com_content&task=view

AirAsia squeezed at home by perky new budget carrier

Announcement;Risk Newspaper


Created Date Details Type Source Type

27/05/2013 h p://klse.i3investor.com/blogs/cimbresearchklse/30350.jsp

Improved outlook for MAL

Malindo Air seems to be spreading itself too thin across too many routes and may not have a strong market presence in

the immediate term to compete with AirAsia. We suspect that Lion Air's impending new LCC in Thailand will draw some

aircraft allocation away from Malindo in the future years while AirAsia itself has become more rational and reduced fleet

growth in Malaysia. As a result, we think AirAsia's yield deterioration in the years ahead could be lower than previously

forecast. We reduce our 2013 yield decline assump on from 3% to 2% and for 2014 from 6% to 4%.

Lower jet fuel prices?

Jet fuel is currently trading at just US$116/barrel and will average US$120 for 2013 if this level is maintained, well below

our US$130 assumption and suggesting a potential 20% upgrade in our EPS estimates for 2013‐14.

Analysis;Outlook Analyst Report

23/05/2013 h p://klse.i3investor.com/blogs/amresearch/30267.jsp

‐ It seems as if AA is sacrificing yields to maintain traffic growth – early signs of impact of new compe on.

‐ Loads slipped despite the sharp contrac on in core yields.

‐ Management intends to maintain fuel surcharge, though we believe this will likely be dictated by compe tors’ moves.

‐ AA is shrugging off competition from Malindo as Malindo is combining and cancelling certain flights. Our channel check

suggests that Malindo is experimenting with the different time slots to maximise loads currently. The massive core yield

contraction over the past 2 quarters is not fully reflective of competition yet (Malindo only started flight in end‐March)

and is largely the dilution impact of AA flooding additional capacity into key domestic routes to East Malaysia ahead of

actual competition.

Analysis;Outlook;Risk Analyst Report

21/05/2013 Cash flow growth of AIRASIA is not consistent as it needs cash for expansion. So, I won't use DCF valuation. Note ‐


Appendix 1 ‐ Discounted Cash Flows Valuation

Discount Rate Margin of Safety

Average risk

premium

Average Risk

free rate

Unadjusted

Discount %

Business Risk

Factor

Financial Risk

Factor

Discount % Initial RRR Dividend Yield Est. EPS

Growth

Unadjusted

MOS

Risk‐Based

MOS

1.18 1.18 12.75% 35% 8% 35%

6%

Growth Estimation Financial Figures

7 61 75 21 57Owner

Earnings GR.

Terminal % Decay Rate

(Yr4E‐Yr7E)

Extra Decay

(Yr8E‐Yr10E)

Shares Out. FCF Type 2012 Owner

Earnings

Excess Cash Intangibles

Assets

Intangibles%

add to DCF

8% 3% 15% 20% 2780.51 637.29 907.42 0%

4%

Projection of Future Free Cash Flow (Base Line 4%)

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

FV 662.79 689.30 716.87 728.49 753.26 778.87 805.35 789.91 811.40 833.47

DPV 6,207.36 5,725.44 5,280.94 4,759.51 4,364.67 4,002.59 3,670.54 3,192.98 2,908.84 2,649.99

PV 7,702.60 7,762.86 7,818.45 7,747.73 7,766.21 7,783.16 7,798.71 7,623.50 7,614.82 7,606.92

3‐Y 5‐Y 10‐Y

2.81 2.79 2.74

1.83 1.82 1.78

‐6% ‐7% ‐9%

7.19% 3.44% 10.63% 25%2%

M.O.S. on Cur. Price (2.98)

7.33

Buy Under (M.O.S. 35%)

Fair Value

Owner

Earnings


Projection of Future Free Cash Flow (Good Scenario 8%) 8%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

FV 688.28 743.34 802.81 829.13 885.52 945.73 1,010.04 973.61 1,026.57 1,082.42

DPV 6,446.10 6,174.33 5,914.01 5,417.08 5,131.04 4,860.10 4,603.47 3,935.49 3,680.21 3,441.50

PV 7,963.95 8,276.87 8,576.59 8,592.63 8,792.49 8,981.79 9,161.09 8,865.79 8,959.02 9,046.20

3‐Y 5‐Y 10‐Y

3.08 3.16 3.25

2.01 2.06 2.12

3% 6% 8%

Projection of Future Free Cash Flow (Bad Scenario 0%) 0%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

FV 637.29 637.29 637.29 637.29 637.29 637.29 637.29 637.29 637.29 637.29

DPV 5,968.61 5,293.49 4,694.74 4,163.71 3,692.74 3,275.05 2,904.60 2,576.06 2,284.68 2,026.25

PV 7,441.24 7,267.40 7,113.22 6,976.48 6,855.21 6,747.65 6,652.26 6,567.66 6,492.63 6,426.09

3‐Y 5‐Y 10‐Y

2.56 2.47 2.31

1.67 1.61 1.51

‐16% ‐21% ‐29%

Projection of Future Free Cash Flow (Ugly Scenario ‐4%) ‐4%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

FV 611.80 587.33 563.84 554.94 536.08 517.85 500.24 511.13 497.22 483.70

DPV 5,729.87 4,878.48 4,153.60 3,625.67 3,106.24 2,661.22 2,279.96 2,066.07 1,782.53 1,537.90

PV 7,179.89 6,790.48 6,458.94 6,274.35 6,049.06 5,856.05 5,690.70 5,672.45 5,557.72 5,458.73

3‐Y 5‐Y 10‐Y

2.32 2.18 1.96

1.51 1.42 1.28

‐28% ‐37% ‐52%M.O.S. on Cur. Price (2.98)

Fair Value




Fair Value



Fair Value


Appendix 2 ‐ Reverse Discounted Cash Flows

Discount Rate Margin of Safety

Average risk

premium

Average Risk

free rate

Unadjusted

Discount %

Business Risk

Factor

Financial Risk

Factor

Discount % Initial RRR Dividend Yield Est. EPS

Growth

Unadjusted

MOS

Risk‐Based

MOS

7.19% 3.44% 10.63% 1.18 1.18 12.75% 35% 2% 6% 25% 35%

Growth Estimation Financial Figures

7 61 75 21 57Owner

Earnings GR.

Terminal % Decay Rate

(Yr4E‐Yr7E)

Extra Decay

(Yr8E‐Yr10E)

Shares Out. FCF Type 2012 Owner

Earnings

Excess Cash Intangibles

Assets

Intangibles%

add to DCF

8% 637.29

6%

Projection of Future Free Cash Flow (GR. 6%)

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Yearly GR.

FV 675.53 716.06 759.03 777.59 817.25 858.93 902.73 877.56 913.37 950.63

DPV 6,326.73 5,947.77 5,591.51 5,080.32 4,735.46 4,414.02 4,114.39 3,547.27 3,274.39 3,022.50

PV 7,833.27 8,017.55 8,190.78 8,160.69 8,264.27 8,360.81 8,450.81 8,219.60 8,256.79 8,291.13

3‐Y 5‐Y 10‐Y

Shares Outstanding

2.95 2.97 2.98

1.92 1.94 1.94

‐1% 0% 0%

2780.51 0%

Buy Under

Current Price 2.98

Actual M.O.S.

7.33

2780.51

Fair Value

Desired M.O.S. 35%

Owner

Earnings

907.423% 15% 20%


Appenfix 3 ‐ EY% Valuation

EY% High EY% Low Buffer R4Q‐EPS FY13‐EPS* FY14‐EPS*

16.40% 8.99% 10% 0.24 0.31 0.34

2.70 3.40 3.83

1.55 1.95 2.20

2.49 3.15 3.54

* Estimations from Reuters or local analysts' reports

High Low

R4Q FY13 FY14

Green Zone Price($) 1.48 1.87 2.10

15.65% Buy Under 1.55 1.95 2.20 10%

7.41%

9.73% Sell Above 2.49 3.15 3.54 10%

Red Zone Price($) 2.70 3.40 3.83

Low High

Fair Value

Green Zone EY% 16.40%

Trading Range

Red Zone EY% 8.99%

Buy Under

Sell Above

EY% Price


Appendix 4 ‐ Insider Trading

Last 3 months or last 30 insider transactions

Transaction Date Securities Holder Type of transaction No of securities Price Transacted

07/08/2013 Dato' Kamarudin Bin Meranun Disposed 2,292,900 0.00

07/08/2013 Tan Sri Dr. Anthony Francis Fernandes Disposed 2,627,000 0.00

05/06/2013 Dato' Abdel Aziz @ Abdul Aziz Bin Abu Bakar Disposed 50,000 3.50


Appendix 5 ‐ Market Timing

Buy Signal

No. Method Description

1 EPS QoQ Growth The current quarter's EPS is up more than 15% from the same quarter the year

before.

2 DCF Intrinsic Value Price is below Intrinsic Value

3 EY % Oscillator Price is below or around the price derived from EY% High

4 Market Direction Stock price breaks out of consolidation/dip on an uptrend.

5 Institutional sponsorship Company owner/directors, EPF, Khazanah, PNB and major fund institutions heavily

buying

Sell Signal

No. Method Description

1 EPS QoQ Growth Quarterly EPS drop for 3 consecutive months.

2 DCF Intrinsic Value Has the stock risen too far from its intrinsic value?

3 Market Direction Long term trend changed from bullish to bearish

4 Institutional sponsorship Company owner, EPF, Khazanah and PNB heavily selling.

5 EY % Oscillator Price is above or around the price derived from EY% Low

6 Fundamental Analysis Fundamental of business turns unattractive or bad

‐ Declining cash flow

‐ Serial charges

‐ Serial acquirers

‐ The CFO or Auditors leave the company

‐ The bills aren’t being paid

‐ Changes in credit terms and account receivable

‐ Found a better opportunity to replace this stock


airasia berhad - wordpress.com · · 2013-08-22airasia berhad is based in sepang, malaysia....

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