HLG: AirAsia - Poor H108 results; Maintain SELL (29 August 2008)

AirAsia Berhad SELL



Price target RM0.86



Share price at 28 Aug RM1.10



Investment summary


H108 core net profit of RM54m was 40% below HLG forecast. The poor results re-affirm our SELL rating on AirAsia. We are negative on AirAsia: (1) in order to fill-up its new capacity, it will be difficult to pass-through higher jet fuel cost to end-customers; (2) major headwinds in Q308 from record-high jet fuel prices, a seasonally weak quarter and intense price competition from MAS. We are negative on the aviation sector: (1) record crude oil prices and our expectation of weak discretionary consumer spending could mitigate growth expectation (2) >850 new aircraft is expected to come into the Asia Pacific, India and Middle East market over the next two years despite the global economic uncertainties.



Consensus behind curve

Even after imputing non-operating gains (eg. deferred tax and forex), brokers’ EPS look likely to be downgraded by >40%. Share price has rebounded due to its perception as an anti-oil stock, but given deteriorating financials, we think MAS would be a safer bet.