AirAsia - HOLD - 28 Feb 2008

AirAsia - Within expectations (Results Note)
Price: RM1.54
Target Price: RM1.67
Recommendation: HOLD

· 6MDec07 revenue of RM1.1b was in line with our expectations and market's. Core net profit of RM140.8m excluding forex gain however was 2.2% and 5.9% ahead of our forecast and street's consensus. Stronger performance was driven by a 23.2% growth in passenger volume and improved yields on higher average fare.

· QoQ, revenue and EBITDA shot up 37.1% and 52.6% respectively, lifted by higher average ticket price (2Q: RM214 vs 1Q:RM174) and stronger sales coincide with festive season. Cost/ASK however increased 10.8% sequentially to 11.5 sen as oil prices soared.

· YoY, 6MDec07 revenue soared 39% on the back of: a) 23.2% growth in passenger volumes to 5.2m passengers; b) 5.4% growth in yield (2H07: 16.4 sen against 2H06: 15.5 sen) supported by higher average fare (+14% yoy); and c) strong growth of ancillary income by 51.2% to RM78.3m. Though pre-tax profit of RM276.7m was boosted by a RM134.4m forex gain, normalised growth was still commendable at 57.2%. Notwithstanding the positive operation growth, load factor slipped 2.9 percentage points yoy to 78.4% owning to underperformance of new international long distance routes and aggressive capacity expansion (+37.2%).

· New routes including KL-Singapore and flights to China have been well received, registering average load factor of 85%. Upcoming routes include KL-Hong Kong and KL-Ho Chi Minh to be launched within 2 months should complete AirAsia's link to the whole of Asean.

· Maintain HOLD and target price of RM1.67 based on FY08 PER of 15x as continuing high oil prices couple with the global economic uncertainty should pressure near term performance.

KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department