AirAsia results likely to be modest

PHOTO: AirAsia results likely to be modest

PETALING JAYA - AirAsia Bhd's third-quarter results, expected to be announced tomorrow, are likely to be modest while long-haul arm AirAsia X Bhd is expected to turn in a small profit, said analysts.

Analysts tracking AirAsia have mixed views on how much the airline would turn in for the quarter ended Sept 30. They, however, concur that while its operating numbers are notably decent, yields are expected to be squeezed.

RHB Research said it was unlikely to be an exciting quarter for AirAsia, while Maybank Investment Bank Research expects its performance to be mixed, with the domestic operations under pressure due to intensified competition from Malaysia Airlines and Malindo Air.

"However, its Thai operations would be very strong, and its Indonesian operations would likely deliver its best third-quarter performance on record," Maybank analyst Mohshin Aziz said in a report.

"Furthermore, its Japanese associate has been discontinued in the second quarter and would no longer burden the group.

"Overall, we think the group's third-quarter core net profit would decrease by 3 per cent year-on-year (y-o-y) to RM160.8mil (S$62 million). The stock is a 'hold', given its limited upside to our target price of RM2.90 per share," he said.

Nevertheless, he said, AirAsia's operating performance across the group was good, with a flattish y-o-y load factor in Malaysia, while Thailand, Indonesia and the Philippines had recorded strong growth.

He added that yields in Malaysia were "likely to be weak, given the intensified competition". Both Thailand and Indonesia should record good yield growth due to strong demand.

Mohshin is confident AirAsia would emerge from the competitive aviation landscape unscathed. "However, its profit and profit margin would take a dip in the interim."

Early this month, AirAsia announced that co-founder Datuk Kamarudin Meranun had been redesignated as executive chairman of AirAsia, and Tan Sri Tony Fernandes as group chief executive officer and non-independent executive director.

On the other hand, RHB expects AirAsia to report third-quarter revenue of RM1.28bil, earnings before interest, tax, depreciation and amortisation of RM373mil, and core earnings of RM129mil.

"As yields would continue to be under pressure, its nine-month earnings are expected to decline by 12 per cent year-to-date, accounting for 58 per cent of financial year 2013 (FY13) forecasts. Yields in the third quarter are expected to pick up quarter-on-quarter, but would drop 8 per cent y-o-y on the challenging landscape," RHB analyst Ahmad Maghfur Usman said.

He expects AirAsia's FY14 would be better, as earnings from associates improve and the listing of Indonesia AirAsia crystallises valuations.

Meanwhile, Maybank expects AirAsia X to record a modest profit of RM3.5mil, which is admirable given that the third quarter is a seasonably weak period.

"AirAsia X is the least affected by the ongoing fare war because all its routes are international and we expect yields to hold up well. AirAsia X is our sole 'buy' for the sector, as we are optimistic on the company's growth strategies and the strong market demand for long-haul, low-cost travel," it said.

Maybank added that the airline was executing with great effect all the initiatives it had announced during its initial public offering roadshow.

It said AirAsia X was executing its growth plans well with new services to Busan and the Maldives. Its capacity grew 31.9 per cent y-o-y on the back of five additional aircraft deliveries during the year, bringing the group's total to 14.

Load factor, however, slipped a little by 1.1 percentage points to 82 per cent due to the robust capacity increase, and also the two new routes to Busan and the Maldives during the quarter.

"New routes tend to underperform during their initial start-up period and, therefore, we view the third-quarter load factor of 82 per cent as a positive performance," Maybank said.

AirAsia X's yields increased 15.4 per cent y-o-y due to the termination of loss-making routes, namely, to Europe and India.