aviation: turbulence still -...

Sector Update 4 April 2012

SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

Maybank IB Research PP16832/01/2013 (031128)

Aviation: Turbulence still

4Q11 in a Snapshot

Airlines (Underweight) bad as expected. All the airlines we track

reported significant profit declines of 33-65% YoY. The main culprit was

higher fuel prices (+50% YoY), along with weak passenger yields and

an atrocious cargo market. Most airlines experienced lower load factors

YoY and QoQ, which supports our industry overcapacity theory. It was

a very challenging quarter and management was adamant that it was a

good performance relative to the challenges faced.

Airports (Overweight) still having a good time. The financial and

operational performance metrics for listed airports were good,

underpinned by strong traffic growth and higher tariffs. Some cost items

have soared (staff, raw food) to our surprise, but it was generally at

manageable levels. It was a good quarter overall and management of

the various airports were generally very pleased with the outcome.

Aircraft engineering (Neutral) – indifferent. Notwithstanding the

headwinds in the broader industry, aircraft engineering put up a

creditable performance. SIA Engineering continued to capitalise on its

work with SIA, and its earnings through JVs with the component majors

reflect the buoyant growth of Asian fleets. ST Engineering however

faces the most risk with its US exposure; its current base load of work

has kept that ship steady for now.

1Q12 is more challenging

“Cautious about 2012” was the most repeated forward outlook

statement by aviation executives. The current high fuel prices and

fragile global economy are clearly everyone‟s fear factors. There were

also consistent warnings of a challenging yield outlook for the

upcoming months and talk of scaling down original growth plans. The

airports and engineering companies are more upbeat about 2012

prospects, but remain concerned about the possible spillover effects

from the airlines.

We think risk aversion is key. Airlines may see earnings collapsing

by 17-64% QoQ as we head into the seasonally weak demand period

and with fuel prices having inched up by 6% QoQ. The only way for

airlines to mitigate this situation, in our view, is to manage capacity

diligently to ensure high load factors. This may require mothballing or

disposing some aircraft from the fleet. Deferring aircraft orders or

cancelling them outright is another option, but it may be difficult to

implement due to contractual obligations. Airports and aircraft

engineering companies should not see any additional risks or

challenges beyond what was experienced in 4Q11.

Wong Chew Hann, CA [email protected] (603) 2297 8692 Rohan Suppiah [email protected] (65) 6432 1455 Jaroonpan Wattanawong [email protected] (662) 658 6300 ext. 1404 Kenneth Nerecina [email protected] (632) 849 8839

mailto:[email protected]

mailto:[email protected]

Regional Aviation

4 April 2012 of 14

Summary of Recommendations

Sectors Country of

domicile

Recommendation

Price (local $) PE (x) 4Q11 performance (in line/ below consensus)

3-Apr TP 2012F 2013F

AIRLINES

Full service carriers

Malaysian Airlines Malaysia Hold 1.34 1.55 995 5.6 Net loss of USD490m due to provisions (below)

Singapore Airlines Singapore Buy 10.78 14.40 24.7 12.1 Net income SGD135m (below)

Cathay Pacific Hong Kong Sell 13.82 12.00 18.0 7.0 Core net income HKD2,182m in 2H11 (below)

Thai Airways Thailand Buy 25.75 31.50 13.7 10.3 Net loss of THB5.4b due to Thai floods (below)

Garuda Airways Indonesia N.R 620 N.R 9.5 6.9 Net income IDR570b (in-line)

Low cost carriers

Tiger Airways Singapore N.R 0.77 N.R n.a 76.0 Net loss SGD17.4m (below)

Cebu Pacific Philippines Hold 66.80 77.5 10.7 8.0 Net income PHP1.4b (below)

AIRPORTS & TERMINAL SERVICES

Malaysia Airports Malaysia Buy 5.89 7.10 14.4 13.2 Core net income RM121m (in-line)

Airports of Thailand Thailand Buy 57.50 62.00 10.1 8.9 Core net income THB1.2b (in line)

SATS Singapore Buy 2.54 2.70 17.5 16.4 Net income SGD43.7m (below)

AIRCRAFT ENGINEERING

SIA Engineering Singapore Hold 4.01 3.60 16.4 15.4 Net income SGD63.5m (in-line)

Singapore Technologies Singapore Hold 3.22 2.88 17.3 16.7 Net income SGD527.5m (in-line)

Note: Share price updated as of market close 3 April 2012

For non-rated stocks (N.R), we have used consensus’ estimates

Sources: Bloomberg, Maybank IB

Regional Aviation

4 April 2012 of 14

4Q11 Results

Airlines

MY: Malaysian Airlines System (MAS MK) Wong Chew Hann

Provisions spoilt the smooth landing | Hold

- Core net loss of RM231m in 4Q11 brought 2011 core loss to RM1,263m

(+301% YoY). This is in line with our and consensus forecasts.

- In addition, there were massive provisions and writedowns of assets

totalling RM1,258m in 4Q11 for the disposal of aircraft and early

termination of leases.

- Target price maintained at RM1.55 based on 6.0x 2012 EV/EBITDAR

which is the low end for the airline sector.

Action taken by company: Reduced capacity by 9% beginning Feb 2012

SG: Singapore Airlines (SIA SP) Rohan Suppiah

A creditable performance | Buy

- Net income of SGD135m in 3QFY11 (-53% YoY), lower than our and

consensus expectations.

- Costs were up mostly due to fuel and it was difficult to achieve unit

revenue gains as the yield environment was weak. Cargo posted huge

losses and management indicated that they will scale back capacity.

- Trimmed FY12 forecast by 3.5% but maintain target price of SGD14.40,

based on 1.2x P/BV – consistent with its long-term mean.

Action taken by company: Mothballed 20% of cargo fleet

SG: Tiger Airways (TGR SP) Rohan Suppiah

Still a sick cat | Non-rated

- Net loss of SGD17.4m in 3QFY12 was a slight improvement from the

quarter before but lower than market expectations.

- The interim CEO (Chin Yau Seng) has done a great job to stabilise and

improve operational reliability, but now is heading back to SIA Group.

- No official recommendation for this stock.

TH: Thai Airways International (THAI TB) Jaroonpan Wattanawong

The worst has passed | (Speculative) Buy

- Net loss of THB5.4b in 4Q11 from profits of THB2.4b in 3Q11 and

THB2.5b in 4Q10 bringing 2011 reported loss to a huge THB10.2b

versus a profit of THB14.7b in 2010. This was much weaker than market

expectations of a THB7.0b net loss for 2011.

- Operating performance was poor as expected due to low fuel hedging

during 2011. There were also surprising deferred tax adjustments of

THB2.0b in the last quarter and a provision of around THB600m for its

staff during the Thai flood crisis

- Target price maintained at THB31.50, based on target P/BV 1.0x

Action taken by company: Increase oil hedging level to +70% of usage

IN: Garuda (GIAA IJ) Wong Chew Hann

Showing the world how business turnaround is done | Non-rated

- Net income of IDR570.2b (+265% YoY) in 4Q11 lifted 2011 net income

to IDR858.8b (+285% YoY). This is generally within consensus

expectations.

- New aircraft are helping to reduce unit cost and expand profit margins.

- We have no recommendation for this stock, but we are generally

positive on the company’s prospects.

Action taken by company: Focusing new capacity on domestic routes which

are more profitable and less competitive

Regional Aviation

4 April 2012 of 14

PH: Cebu Pacific (CEB PM) Kenneth Nerecina

48% drop in 2011 profit | Hold

- Net income of PHP1.4b in 4Q11 (-33% YoY) brought 2011 net profit to

PHP3.6b (-48% YoY) despite total revenue growth of 17% YoY to

PHP33.9b.

- Passenger traffic was 11.9m, up 14% with load factors reaching its

highest since 2007 at 86.3%.

- Target price is PHP77.5/share based on a 6.5x 2012 EV/EBITDAR

Action taken by company: Fleet expansion to 33 by end of 2012 from 29 as

of end 2011

HK: Cathay Pacific (293 HK) Wong Chew Hann

Still flying into the eye of the storm | Sell

- Core net income of HKD2,182m in 2H11 (-64.6% YoY, -29.0% HoH)

brought 2011 core net income to HKD5,254m (-52% YoY), well below

consensus.

- Costs were up mostly due to fuel. Yields were higher, but at the expense

of load factors. A respectable performance by the management.

- Target price maintained at HKD12.00 based on 7.2x 2012 EV/EBITDAR

which is 10% premium to regional peers.

Action taken by company: Reduced 2012 capacity growth target to 6%-7%

from 11.3% previously

Airports and terminal services

MY: Malaysia Airports Holdings (MAHB MK) Wong Chew Hann

A good ending to 2011 | Buy

- Core net income of RM121m in 4Q11 (-0.5% YoY, -4.7% QoQ) brought

2011 net income to RM458m (+12.9% YoY). This is slightly lower than

expectations.

- All operating performance metrics were as per expectations, but there

was a surprising RM22m salary adjustment which was more than double

our wage inflation assumption.

- Target price maintained at RM7.10, DCF based with WACC of 7.9% and

0% terminal value.

SG: Singapore Airport Terminal Services (SATS SP) Rohan Suppiah

Slightly below, but still robust | Buy

- Net income of SGD43.7m in 3QFY12 (-8.6% YoY) was slightly below our

forecasts.

- Operating performance was good, but bogged down by slower than

expected TFK recovery and costs have not come off significantly as yet.

- Target price maintained at SGD2.70. Basic dividend yield is attractive at

5%, and a ‘possible’ special dividend following the sale of Daniels.

TH: Airports of Thailand (AOT TB) Jaroonpan Wattanawong

Bright outlook ahead | Buy

- Core net income of THB1.2b in 1Q11/12 (+84% YoY, +688% QoQ) was

better than expected.

- All operating performance metrics were great on strong recovery of

passengers especially in the travel sector and high asset utilisation of

Suvarnabhumi airport with much lower depreciation from big

equipment.

- AOT’s board proposed raising PSCs in mid-2012, which requires DCA

approval. As a result, our target price was revised up 20% to THB62.00,

DCF based with WACC of 12.3% and 2% terminal value.

Regional Aviation

4 April 2012 of 14

Aircraft engineering

SG: SIA Engineering (SIE SP) Rohan Suppiah

Results in-line | Hold

- Net income of SGD63.5m in 3QFY12 (+5.3 YoY), was in line.

- The parent suffered margin erosion due to higher sub-contract cost, but

associates more than offset the shortfall with strong growth of 21% YoY.

Associates now make up 56% of earnings.

- Target price maintained at SGD3.66, based on SIE’s mid-cycle P/BV of 3x.

SG: SE Engineering (STE SP) Rohan Suppiah

Yields attractive, but not much else | Hold

- Following its expected 7% growth in net earnings for FY11, STE declared

dividends totalling 12.5 cts per share for a full year yield of 4.9%.

- Specifically for Aerospace, STE is pursuing more niche opportunities in

engine leasing, VIP interiors business and new passenger-to freight

conversion programs to supplement a staid MRO environment.

- However, a lack of clear catalysts also limits upside. Our target price of

$2.88 remains pegged at 15x forward earnings. Hold.

1Q12 Outlook

Airlines continue to face headwinds (Underweight)

Weak yield indicators. The table below shows forward ticket sales as

a percentage of trailing 12-month revenue. This analysis is a good

indicator of forward yield trends. As shown below, if we exclude MAS,

the percentage of forward sales is lower YoY. This suggests that

forward bookings are weak and yields are likely to be weak as well.

More concerning, we notice that Cathay‟s and SIA‟s forward sales have

been trending downward since 4Q11 and are close to the levels last

seen in the past crisis of 2008-09. The recent higher fuel surcharge

imposed by the bulk of the airline industry does not seem to be able to

counter the declining yield trend.

Sales in advance of carriage as % 12-month rolling revenue

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

1Q 2009

2Q 3Q 4Q 1Q 2010

2Q 3Q 4Q 1Q 2011

2Q 3Q 4Q

MAS SIA Thai Cathay

Sources: Respective companies, Bloomberg

Regional Aviation

4 April 2012 of 14

Higher fuel bill. The graph below shows the price of Singapore jet

kerosene, which is the fuel price benchmark in the region. In 4Q11, the

average fuel price was USD124.7/bbl; it has risen by USD7.5/bbl

(+6.0% QoQ) in 1Q12 to USD132.2/bbl. This means that airlines will

incur higher costs in 1Q12 which will crimp profits and profit margins.

Singapore Jet Kerosene

90

100

110

120

130

140

150

Jan/2011 Apr/2011 Jul/2011 Oct/2011 Jan/2012

USD / bbl

Source: Bloomberg

The table below lists the net profit and fuel bill incurred by Asia Pacific

airlines in 4Q11. We forecast the fuel bill for 1Q12 based on the

USD7.5/bbl higher unit fuel cost and assume everything else remains

equal. Based on this cost analysis, we think many airlines may record

losses (Malaysian Airlines, Tiger Airways) and some will barely

breakeven (Singapore Airlines) in 1Q12. The ones that will perform well

relative to the peer group are Garuda and Cebu Pacific.

1Q12’s indicative net profit based on 4Q11’s cost structure and yields

Company Name 4Q11’s profit 4Q11’s fuel bill Fuel bill in 1Q12

assuming +USD7.5/bbl

Indicative 1Q12

profit assuming ceteris paribus

Quarter on Quarter

Performance

Full service carriers

Malaysian Airlines (MYR231m) MYR1,501m MYR1,587m (MYR317m) (37%)

Singapore Airlines SGD135m SGD1,505m SGD1,592m SGD48m (64%)

Thai Airways (THB5.4b) THB20.0b THB20.7b (THB6.1b) (12%)

Garuda Airways IDR570b IDR3,192b IDR3,377b IDR385b (32%)

Cathay Pacific * HKD2,182m HKD20,485m HKD21,673m HKD994m (54%)

Low cost carriers

Tiger Airways (SGD17.4m) SGD75.7m SGD80.1m (SGD21.8m) (25%)

Cebu Pacific PHP1,403m PHP4,135m PHP4,375m PHP1,163m (17%)

* Cathay Pacific assume first six months of 2012, () indicates losses


However, we caution that this is an overly simplistic analysis that does

not take into account the fact that 1Q is a seasonally weak quarter

relative to 4Q which is the peak quarter. If we take into account the

seasonality effect of lower yields and load factors, the actual financial

performances are likely to be weaker than the above table suggests.

Maintain Underweight. Overall, things are looking grim for the airline

industry due to cost pressures and weak yields. We advocate an

Underweight stance as we think share prices will retract to reflect the

challenging outlook soon. Stay out for bottom pickings later.

Regional Aviation

4 April 2012 of 14

Airports remain upbeat (Overweight)

Passenger traffic up, cargo down. The tables below show the

passenger traffic and freight trends for Asia Pacific as a whole as well

as for Malaysia, Singapore and Thailand. The passenger market is

registering a healthy growth rate in the high single digits. The freight

market on the other hand is struggling. Malaysia, Thailand and

Singapore outperformed the Asia Pacific passenger and freight market

thanks to their resilient domestic economies. This is a positive indicator

for MAHB, SATS and AOT.

Asia Pacific passenger traffic Asia Pacific freight

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12

Malaysia Singapore Thailand Asia Pacific

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12

Malaysia Singapore Thailand Asia Pacific

Sources: ACI, MAHB, SATS, AOT Sources: ACI, MAHB, SATS, AOT

Maintain Overweight. Airports are impervious to the challenges faced

by the airline industry. As long as airlines continue to deploy capacity

growth – which they are – airports will continue to enjoy traffic growth,

boosting utilisation rates and profits. We are Overweight on airports;

our top picks are Malaysia Airports (MAHB MK) and Singapore Airport

Terminal Services (SATS SP) due to their high utilisation rates and

strong cashflows.

Aircraft engineering: Steady as she goes (Neutral)

We had advocated in our sector piece in January that aircraft

engineering companies usually put in a decent performance even

during a downturn. The latest set of numbers has proven this point, as

earnings have held up well, versus the precipitous fall in earnings of the

carriers. However, one point we do note is that most airlines in Asia

have not yet reduced capacity as drastically as we had initially

anticipated, and maintenance has therefore held up relatively well.

On a longer term view, we still maintain that the real payoff for Asian

MRO operators will come from the maintenance requirements of the

significant fleet additions planned over the coming years.

Thailand had riots in May-2010 which makes the YoY

comparison high

Regional Aviation

4 April 2012 of 14

Valuations

Valuation (Airports)

Moving up towards the upper end of valuation band. Asia Pacific

airlines are currently trading at an average PER of 12.5x and adjusted

EV/EBITDAR of 7.0x. These are in the middle of its typical valuation

band of 8-15x PER and adjusted EV/EBITDAR of 5-11x. However, with

the prospect of industry profits plunging by half in 2012 (IATA‟s

forecast), valuations may quickly revert to the high end of the valuation

band as the apparent „discount‟ disappears. We caution investors that

valuations for the airline industry are deceivingly cheap.

Asia Pacific airlines’ PER Asia Pacific airlines’ adjusted EV / EBITDAR

0

10

20

30

40

50

2006 2007 2008 2009 2010 2011 2012

PER (x)

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012

EV/EBITDAR

Source: Bloomberg Asia Pacific Airlines Index Source: Bloomberg Asia Pacific Airlines Index

Asia Pacific full service airline valuation comparison

PE Ratio Adjusted EV / EBITDAR Ratio

Current 2012F 2013F Current 2012F 2013F Asia Pacific

Cathay Pacific 10.3 18.0 7.0 6.5 7.7 5.0

Singapore Airlines 24.9 24.7 12.1 3.8 4.7 3.9

Korean Airlines n.a 8.3 7.7 9.3 8.7 7.8

Asiana n.a 6.4 5.2 6.6 6.6 5.6

ANA 18.1 28.3 15.9 7.1 5.6 5.0

China Air n.a 12.5 9.7 16.6 9.5 8.7

EVA Air n.a 16.8 12.8 9.9 8.4 7.5

Garuda Airways 17.3 9.5 6.9 5.5 6.2 4.2

Thai Airways n.a 13.7 10.3 5.9 4.6 4.3

MAS n.a n.a 5.5 n.a 5.6 5.0

Asia Pacific Average 17.7 15.4 9.3 7.9 6.8 5.7

Chinese Airlines

Air China 7.4 8.3 7.3 8.3 7.3 6.7

China Eastern 5.1 6.1 5.1 6.5 6.9 6.0

China Southern 5.6 7.7 7.0 7.3 6.8 6.0

Hainan Airlines 6.8 7.2 6.2 n.a n.a n.a

China Average 6.2 7.3 6.4 7.4 7.0 6.2

GRAND AVERAGE 11.9 12.9 8.5 7.8 6.8 5.8



Definition of adjusted EV / EBITDAR

Airlines often lease aircraft from third party operating lessors. This artificially lowers the indebtedness ratio because it is not reflected in

the balance sheet. In order to normalise this, the aircraft lease rental is capitalised by multiplying lease costs by 7.0, for a 7 year lease, this is the

normal industry practice.

12.5

7.0

Typical valuation band = 8-15x

Typical valuation band = 6-10x

Regional Aviation

4 April 2012 of 14

Valuation (Airports) Mixed bag. The valuation range for listed airports varies tremendously

according to its domicile. The Asian listed airports appear to trade at

attractive levels, with the lowest 1-year forward P/CFO and EV/EBITDA

multiples globally, and relatively low net gearing ratios.

Valuation comparison of global listed airports

Company Name MCAP EV / EBITDA Price / Cash flow Dividend yield

Net gearing

ratio (%) USD million Current +1 year Current +1 year Current +1 year

Asia (ex China)

MAHB 2,336 10.5 10.7 12.9 10.5 3.0 3.0 53.7

Airports of Thailand 2,666 6.4 6.7 6.2 7.6 1.4 2.6 89.0

SATS 2,250 8.1 9.4 18.4 12.3 6.7 4.7 12.1

Japan Airport Terminal 1,085 9.4 8.0 14.0 6.8 0.7 0.7 69.9

Other Asia average 2,084 8.6 8.7 12.9 9.3 2.9 2.7 56.2

China

Beijing 2,683 n.a 7.6 6.6 5.0 0.5 2.7 138.9

Shanghai 3,920 8.5 7.6 10.0 10.8 0.8 2.0 16.2

Guangzhou 1,217 4.0 3.7 18.1 5.2 4.5 5.3 1.6

Shenzhen 1,148 6.7 6.1 9.5 8.8 1.0 0.0 23.3

Xiamen 602 5.7 5.1 18.5 6.7 0.7 0.9 0.0

Hainan 329 9.7 n.a 6.6 8.8 6.0 3.7 0.4

China Average 1,650 6.9 6.0 11.5 7.6 2.2 2.5 30.1

Australasia

Sydney Airports 5,377 14.9 12.6 15.2 6.1 7.6 7.6 301.3

Auckland 2,635 15.2 12.5 20.8 16.0 5.3 3.8 44.0

Australasia average 4,006 15.1 12.6 18.0 11.1 6.4 5.7 172.6

Europe

Fraport 5,912 8.5 7.9 7.2 7.3 2.6 2.6 150.8

Zurich 2,370 6.5 6.3 41.9 5.5 2.0 2.7 67.5

Vienna 840 6.6 6.6 3.5 4.2 6.7 3.8 110.0

Aeroports de Paris 8,201 7.8 7.7 n.a 8.2 2.4 2.9 96.9

Venice 472 6.4 4.9 14.2 n.a 5.3 6.5 31.8

Tuscany 114 7.5 n.a n.a n.a 1.5 n.a 25.7

Florence 106 8.7 n.a 8.8 n.a 0.9 n.a 27.8

Gemina 1,248 10.0 5.7 10.7 5.9 n.a n.a 86.9

Copenhagen 2,953 9.8 10.5 11.3 13.1 4.6 4.8 134.1

TAV 1,829 8.9 8.0 4.3 4.7 n.a 3.3 257.6

Europe average 2,405 8.1 7.2 12.7 7.0 3.3 3.3 98.9

Mexico

North Mexico 803 9.0 8.1 15.9 17.6 3.9 4.1 25.7

East Mexico 2,120 9.2 8.9 19.1 14.7 3.3 3.9 4.5

West and central Mexico 2,091 10.1 8.8 20.1 18.2 4.0 5.0 7.7

Mexico average 1,671 9.4 8.6 18.4 16.8 3.8 4.3 12.6

Grand Average 2,212 8.7 7.9 13.6 9.3 3.3 3.3 71.1



Regional Aviation

4 April 2012 of 14

Valuation (Aircraft engineering)

Given the non-uniformity of listed companies in the aircraft engineering

space (component makers versus service providers, in-house MRO

versus third party providers etc.), a suitable basis for comparison is

hard to derive in order to construct a peer list. However, what is

consistent is that most companies are seeing steady earnings despite

the turbulent times facing the airlines themselves. The key difference,

of course, is that they face very little exposure to jet fuel prices.

One noteworthy datapoint from the comparison below is that both SIA

Engineering and ST Engineering stand out as they pay good dividends

on steady earnings derived from their established customer bases.

Coupled with their low gearing and net cash position, these provide a

defensive alternative to the airlines, while are still exposed to the

potential upside of a sector recovery.

Valuation comparison of global listed aerospace engineering companies

Company Name

MCAP EV / EBITDA Price / Cash

flow

Dividend yield

Gearing

ratio (%)

Price to book

USD million Current +1 year Current Current Current

Japan

Japan Aviation Electronics Industry 802.9 3.4 3.0 150.6 1.1 1.4 22.7

Sumitomo Precision Products Co Ltd 314.5 na na 4.1 0.8 1.9 127.4

Japan average 3.4 3.0 77.3 1.0 1.7 75.1

Asia (ex Japan)

Xi' An Aero-Engine PLC 2,624.0 29.9 24.3 na 4.2 na 61.5

National Aerospace Fasteners Corp 83.8 na na 50.5 4.5 na 188.0

Hong Kong Aircraft Engineering Co 2,417.3 17.9 15.4 21.2 3.1 2.3 24.3

Asia average 23.9 19.8 35.8 3.9 2.3 91.3

Europe

Safran SA 8,485.2 6.4 5.6 12.2 2.2 na 49.2

BAE Systems PLC 6,226.4 4.6 4.6 40.9 2.3 6.2 75.5

Thales SA 4,290.5 4.1 3.7 18.0 1.4 na 46.9

Zodiac Aerospace 3,274.9 9.2 8.1 15.8 2.8 na 50.9

Europe average 5,569.3 6.0 5.5 21.7 2.2 6.2 55.6

North America

United Technologies Corp 74,345.0 8.0 6.9 13.0 3.4 2.3 46.9

Honeywell International Inc 46,645.9 7.9 7.3 23.0 5.3 2.3 69.9

Goodrich Corp 15,718.9 9.7 8.8 18.1 4.2 0.9 64.9

Northrop Grumman Corp 15,301.9 4.9 5.0 9.7 1.5 3.3 38.2

Bombardier Inc 7,509.2 5.8 5.0 na 2.0 2.5 0.0

BE Aerospace Inc 4,876.2 9.6 8.3 19.7 2.6 0.0 66.5

HEICO Corp 1,881.3 11.6 10.1 24.7 4.0 0.2 7.6

Wesco Aircraft Holdings Inc 1,338.6 9.3 8.1 4.6 2.1 0.0 88.9

AAR Corp 761.8 5.4 4.6 na 0.9 1.2 53.1

NA average 8.0 7.1 16.1 2.9 1.4 54.5

Grand Average 9.3 8.1 28.8 2.5 1.8 63.3

SIA Engineering 3,559.5 23.7 22.8 42.7 3.4 5.1 0.0

ST Engineering 7,470.7 10.6 10.5 7.1 5.4 4.9 0.0



Regional Aviation

4 April 2012 of 14

Industry Updates

More airlines announced bankruptcies. Five airlines have declared

bankruptcy in the past six months. It appears that the smaller and mid-

sized airlines are particularly vulnerable. We believe there will be more

bankruptcies going forward, mostly from Europe, and USA with

perhaps a few in Asia. In the previous crisis of 2008-09, a total of 43

airlines globally went bankrupt.

Recently-announced airline bankruptcies

Airline name Date announced Note

American Airline 29 Nov 2011 USA‟s third largest airline

Spanair 30 Jan 2012 Spain‟s fourth largest airline

Malev Air 3 Feb 2012 Hungarian national carrier

Air Australia 17 Feb 2012 Australia‟s fourth largest airline

Kingfisher Airline Still holding on India‟s third largest airline

Pinnacle Airlines 2 April 2012 Smallish USA feeder airline

Source: Maybank IB

Singapore Airshow was a bore. On the face of it, the Singapore

Airshow was a success with record USD30b of orders announced. But

this includes Lion Air‟s USD22.4b order for 240 Boeing 737s which had

already been publicised months earlier. Excluding this order, the total

“new” orders amounted to USD7.4b, 26% lower than last year‟s

USD10.0b. Overall, there was less buzz and optimism at this year‟s

airshow compared to previous ones.

Key highlights of the 2012 Singapore Airshow:

- Airbus sells USD3.5b worth of A320s to various customers

- Lion Air orders 27 ATR turboprops worth USD610m

- Embraer secures deals worth USD450m with Srivijaya Airways

- Bambardier sold 18 CRJ to Garuda for USD1.3b

China face-off with EU. The recent carbon tax on airlines imposed by

the European Union (EU) for flights in and out of European skies has

raised China‟s ire. China claimed that this charge is illegal and has

forbidden its airlines from paying this tax. This puts all the Chinese

airlines in a quandary, as they are breaking the law each way.

The actual carbon tax is small, €12-16/passenger, but many countries

oppose it on principle. Should the EU reverses its stance on this tax, it

will be marginally positive for airlines that have flights in and out of the

EU. SIA, Cathay and MAS (to a lesser extent) should benefit.

Singapore Budget Terminal to make way for Terminal 4. Changi

Airport Group has announced that the Budget Terminal will cease

operations on 25 Sep 2012. The terminal will be demolished to cater for

the construction of Terminal 4 with a capacity of 16 million, specifically

catering to the low cost carriers. Details are sketchy for now, but the

preliminary indication is that it will be ready in 2017. The existing

customers of the Budget Terminal (Tiger Airways, Cebu Pacific, South

East Asian Airlines, Firefly and Berjaya Air) will be relocated to

Terminal 2.

Regional Aviation

4 April 2012 of 14

ANALYSTS’ COVERAGE / RESEARCH OFFICES

MALAYSIA WONG Chew Hann, CA Head of Research (603) 2297 8686 [email protected] Strategy Construction & Infrastructure Desmond CH’NG, ACA (603) 2297 8680 [email protected] Banking - Regional LIAW Thong Jung

(603) 2297 8688 [email protected] Oil & Gas Automotive Shipping ONG Chee Ting (603) 2297 8678 [email protected] Plantations Mohshin AZIZ

(603) 2297 8692 [email protected] Aviation Petrochem Power YIN Shao Yang, CPA (603) 2297 8916 [email protected] Gaming – Regional

Media Power WONG Wei Sum, CFA

(603) 2297 8679 [email protected] Property & REITs LEE Yen Ling (603) 2297 8691 [email protected] Building Materials Manufacturing Technology LEE Cheng Hooi Head of Retail

[email protected] Technicals

HONG KONG / CHINA Edward FUNG Head of Research

(852) 2268 0632 [email protected] Construction Ivan CHEUNG (852) 2268 0634 [email protected] Property Industrial Ivan LI

(852) 2268 0641 [email protected] Banking & Finance Jacqueline KO (852) 2268 0633 [email protected] Consumer Staples Andy POON

(852) 2268 0645 [email protected] Telecom & equipment Samantha KWONG

(852) 2268 0640 [email protected] Consumer Discretionaries Alex YEUNG

(852) 2268 0636 [email protected] Industrial Catherine CHAN (852) 2268 0631 [email protected] Cement

INDIA Jigar SHAH Head of Research

(91) 22 6623 2601 [email protected] Oil & Gas Automobile Cement Anubhav GUPTA (91) 22 6623 2605 [email protected] Metal & Mining Capital goods Property Haripreet BATRA

(91) 226623 2606 [email protected] Software Media Ganesh RAM

(91) 226623 2607 [email protected] Telecom Contractor Gagan KWATRA

(91 )226623 2612 [email protected]

Small Cap

SINGAPORE Stephanie WONG Head of Research (65) 6432 1451 [email protected] Strategy Small & Mid Caps Gregory YAP (65) 6432 1450 [email protected] Technology & Manufacturing Telcos - Regional Rohan SUPPIAH (65) 6432 1455 [email protected] Airlines Marine & Offshore Wilson LIEW (65) 6432 1454 [email protected] Hotel & Resort Property & Construction Anni KUM (65) 6432 1470 [email protected] Conglomerates REITs James KOH (65) 6432 1431 [email protected] Logistics Resources Small/ Mid cap Eric ONG

(65) 6432 1857 [email protected] Marine & Offshore Transportation Energy OOI Yi Tung

(65) 6433 5712 [email protected] Property & Construction YEAK Chee Keong, CFA

(65) 6433 5730 [email protected] Retail & Consumer Engineering Infrastructure Alison FOK

(65) 6433 5745 [email protected] Services Bernard CHIN

(65) 6433 5726 [email protected] Conglomerates Industrials

INDONESIA Katarina SETIAWAN Head of Research

(62) 21 2557 1125 [email protected] Consumer Strategy Telcos Lucky ARIESANDI, CFA

(62) 21 2557 1127 [email protected] Base metals Coal Heavy Equipment Oil & Gas Rahmi MARINA (62) 21 2557 1128 [email protected] Banking Multifinance Pandu ANUGRAH (62) 21 2557 1137 [email protected] Auto Heavy equipment Plantation Toll road Adi N. WICAKSONO

(62) 21 2557 1130 [email protected] Generalist Anthony YUNUS

(62) 21 2557 1134 [email protected] Cement Infrastructure Property Arwani PRANADJAYA

(62) 21 2557 1129 [email protected] Technicals

REGIONAL

WONG Chew Hann, CA Regional Head of Research

(603) 2297 8686 [email protected] THAM Mun Hon

(852) 2268 0630 [email protected] Regional Strategist ONG Seng Yeow

(852) 2268 0644 [email protected] Regional Products & Planning

THAILAND Mayuree CHOWVIKRAN Head of Research

(66)-2658-6300 ext 1440 [email protected] Strategy Maria BRENDA SANCHEZ LAPIZ Co-Head of Research

Dir (66)-2257-0250 | (66)-2658-6300 ext 1399 [email protected] PEERASUB (66)-2658-6300 ext 1430 [email protected] Media Commerce Sutthichai KUMWORACHAI (66)-2658-6300 ext 1400 [email protected] Energy Petrochem Termporn TANTIVIVAT (66)-2658-6300 ext 1520 [email protected] Property Woraphon WIROONSRI

(66)-2658-6300 ext 1560 [email protected] Banking & Finance Jaroonpan WATTANAWONG

(66)-2658-6300 ext 1404 [email protected] Transportation Small cap. Suchot THIRAWANNARAT

(66)-2658-6300 ext 1550 [email protected] Automotive Construction Materials Soft commodity

PHILIPPINES Luz LORENZO Head of Research +63 2 849 8836 [email protected] Strategy Laura DY-LIACCO

(63) 2 849 8840 [email protected] Utilities Conglomerates Telcos Lovell SARREAL (63) 2 849 8841 [email protected] Consumer Media Cement Mining Kenneth NERECINA

(63) 2 849 8839 [email protected] Conglomerates Property Ports/ Logistics Katherine TAN

(63) 2 849 8843 [email protected] Banks Construction

VIETNAM Michael KOKALARI, CFA Head of Research

+84 838 38 66 47 [email protected] Strategy Nguyen Thi Ngan Tuyen

+84 844 55 58 88 x 8081 [email protected] Food and Beverage Oil and Gas Ngo Bich Van

+84 844 55 58 88 x 8084 [email protected] Banking Nguyen Quang Duy

+84 844 55 58 88 x 8082 [email protected] Rubber Dang Thi Kim Thoa

+84 844 55 58 88 x 8083 [email protected] Consumer Nguyen Trung Hoa +84 844 55 58 88 x 8088 [email protected] Steel Sugar Macro

ECONOMICS Suhaimi ILIAS Chief Economist

(603) 2297 8682 [email protected] Singapore | Malaysia Luz LORENZO Economist

(63) 2 849 8836 [email protected] Philippines | Indonesia

Regional Aviation

4 April 2012 of 14

APPENDIX 1

Definition of Ratings

Maybank Investment Bank Research uses the following rating system:

BUY Total return is expected to be above 15% in the next 12 months

HOLD Total return is expected to be between -15% to 15% in the next 12 months

SELL Total return is expected to be below -15% in the next 12 months

Applicability of Ratings

The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are

only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not

carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear):

Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings

BV = Book Value FV = Fair Value PEG = PE Ratio To Growth

CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio

Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter

CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset

DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share

NTA = Net Tangible Asset ROSF = Return On Shareholders‟ Funds

EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital

EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year

EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date

EV = Enterprise Value PBT = Profit Before Tax

Disclaimer

This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation

of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each

security‟s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental

ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on

price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.Accordingly, investors may

receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to

provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the

particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding

the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.

The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently

verified by Maybank Investment Bank Berhad and consequently no representation is made as to the accuracy or completeness of this report

by Maybank Investment Bank Berhad and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct,

indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank Berhad, its

affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have

positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an

underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and

other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at

any time, without prior notice.

This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”,

“believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”,

“should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions

made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ

materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on thes e forward-

looking statements. Maybank Investment Bank Berhad expressly disclaims any obligation to update or revise any such forward looking

statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrenc e of unanticipated

events.

This report is prepared for the use of Maybank Investment Bank Berhad's clients and may not be reproduced, altered in any way, transmitted

to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank

Investment Bank Berhad and Maybank Investment Bank Berhad accepts no liability whatsoever for the actions of third parties in this respect.

This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any

locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Regional Aviation

4 April 2012 of 14

Malaysia

Maybank Investment Bank Berhad (A Participating Organisation of Bursa Malaysia Securities Berhad)

33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194

Singapore

Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Research Pte Ltd 9 Temasek Boulevard

#39-00 Suntec Tower 2 Singapore 038989 Tel: (65) 6336 9090 Fax: (65) 6339 6003

London

Maybank Kim Eng Securities (London) Ltd 6/F, 20 St. Dunstan’s Hill

London EC3R 8HY, UK Tel: (44) 20 7621 9298 Dealers’ Tel: (44) 20 7626 2828 Fax: (44) 20 7283 6674

New York

Maybank Kim Eng Securities USA Inc 777 Third Avenue, 21st Floor

New York, NY 10017, U.S.A. Tel: (212) 688 8886 Fax: (212) 688 3500

Stockbroking Business:

Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888

Fax: (603) 2282 5136

Hong Kong

Kim Eng Securities (HK) Ltd

Level 30, Three Pacific Place, 1 Queen’s Road East, Hong Kong

Tel: (852) 2268 0800 Fax: (852) 2877 0104

Indonesia

PT Kim Eng Securities

Plaza Bapindo Citibank Tower 17th Floor Jl Jend. Sudirman Kav. 54-55 Jakarta 12190, Indonesia

Tel: (62) 21 2557 1188 Fax: (62) 21 2557 1189

India

Kim Eng Securities India Pvt

Ltd 2nd Floor, The International 16, Maharishi Karve Road, Churchgate Station,

Mumbai City - 400 020, India Tel: (91).22.6623.2600 Fax: (91).22.6623.2604

Philippines

Maybank ATR Kim Eng Securities

Inc. 17/F, Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue Makati City, Philippines 1200

Tel: (63) 2 849 8888 Fax: (63) 2 848 5738

Thailand

Maybank Kim Eng Securities

(Thailand) Public Company Limited 999/9 The Offices at Central World, 20th - 21st Floor,

Rama 1 Road Pathumwan, Bangkok 10330, Thailand Tel: (66) 2 658 6817 (sales)

Tel: (66) 2 658 6801 (research)

Vietnam

In association with

Kim Eng Vietnam Securities Company

1st Floor, 255 Tran Hung Dao St. District 1 Ho Chi Minh City, Vietnam

Tel : (84) 838 38 66 36 Fax : (84) 838 38 66 39

Saudi Arabia

In association with

Anfaal Capital Villa 47, Tujjar Jeddah

Prince Mohammed bin Abdulaziz Street P.O. Box 126575 Jeddah 21352

Tel: (966) 2 6068686 Fax: (966) 26068787

South Asia Sales Trading

Connie TAN [email protected] Tel: (65) 6333 5775

US Toll Free: 1 866 406 7447

North Asia Sales Trading

Eddie LAU [email protected] Tel: (852) 2268 0800

US Toll Free: 1 866 598 2267

www.maybank-ke.com | www.kimengresearch.com

APPENDIX 1

Additional Disclaimer (for purpose of distribution in Singapore) This report has been produced as of the date hereof and the information herein maybe subject to change. Maybank Kim Eng Research Pte Ltd ("Maybank KERPL ") in Singapore has no obligation to update such information for any recipient. Recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. As of 4 April 2012, Maybank KERPL does not have an interest in the said company/companies.

Additional Disclaimer (for purpose of distribution in the United States) This research report prepared by Maybank Investment Bank Berhad is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA, a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank Kim Eng Securities USA in the US shall be borne by Maybank Kim Eng. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. This report is not directed at you if Maybank Kim Eng Securities is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank Kim Eng Securities is permitted to provide research material concerning investments to you under relevant legislation and regulations. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply if the reader is receiving or accessing this report in or from other than Malaysia. As of 4 April 2012, Maybank Investment Bank Berhad and the covering analyst does not have any interest in in any companies recommended in this Market themes report. Analyst Certification:

The views expressed in this research report accurately reflect the analyst's personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Additional Disclaimer (for purpose of distribution in the United Kingdom) This document is being distributed by Maybank Kim Eng Securities Limited, which is authorised and regulated by the Financial Services Authority and is for Informational Purposes only.This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as consti tuting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.

Published / Printed by

Maybank Investment Bank Berhad (15938-H)

(A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur

Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business:

Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136

http://www.maybank-ib.com

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