AirAsia - HOLD - 29 Aug 2008

AirAsia - Hurt by forex loss (Results Note)



Price: RM1.10

Target Price: RM0.95

Recommendation: HOLD



· 6MJune08 revenue of RM1.15b was in line but core net profit of RM52.7m was above our expectation. Included in the core net profit was an undisclosed write-back amount which was the credit given by MAHB (Not Rated) to AirAsia for the settlement of airport charges that ranges between RM60m to RM110m based on various news reports.

· QoQ, revenue and EBITDA improved 13.7% and 19.8% respectively on the back of higher passenger volume (+8.1%), higher average ticket price (+4.8%), increased ancillary income (+23.0%) and write-back of payment to MAHB. Cost/ASK was up by 8.5% to 11.5sen/ASK mainly on higher fuel cost. A forex loss of RM76.9m was also registered due to the weakening of RM, leading to a 2Q pre-tax loss of RM46.9m.

· YoY, 6MJune08 revenue rose 36.4%, underpinned by growth in passengers volume (+20.2%), yield (+6.4%) and ancillary income (+59.1%). Normalised pre-tax profit however was still lower at RM54m (-20.8%) on higher interest expense to finance plane acquisitions.

· 6MJune08 load factor was lower at 74.3% vs 78.7% for the preceding period. The lower load factor was a result of significant capacity expansion of 34.2% and normal gestation period for new routes. Group has launched 20 new routes from the beginning of 2008 and has recently established new footprint in Indonesia by connecting Sulawesi Island to Makassar and Manado to Kuala Lumpur respectively.

· Though AirAsia has some short term fuel hedges, group is largely unhedged as management considers oil price still high at current level. Current unhedged position is in line with management's belief that group will benefit from further oil price correction.

· AirAsia has discontinued the reporting of detail breakdown for operating expenses for competitive reason. We are disappointed on the practice as this would make analysis and forecasting of AirAsia's future performance extremely challenging.