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Analysts upbeat on AirAsia

Publication Date : 22-08-2014


Analysts are mostly positive on the prospects of AirAsia Bhd following the low-cost airline’s second-quarter results that saw it post a spectacular overall profit but a core net loss stemming from its overseas associates.

On Wednesday, AirAsia reported a net profit of 367.16 million ringgit (US$116.12 million) for its second quarter ended June 30, which was more than a five-fold rise from 58.35 million ringgit ($18.45 million) it achieved in the previous corresponding quarter.

However most of those profits were due to foreign exchange gains on borrowings and deferment of taxes while the carrier’s operating profit recorded a 17 per cent year-on-year decline to 174.19 million ringgit($55.09 million) from 210.1 million ringgit ($66.45 million) previously. This was due to losses stemming from its overseas associates.

RHB Research thinks that the worst is over for AirAsia, as the outlook will improve in the second half of this year.

The research house also noted that AirAsia’s management had indicated that ancillary income was expected to increase in the second half following the launch of several new products, which could give the carrier an additional 5 ringgit ($1.58) per passenger.

“AirAsia has also submitted an application to set up an offshore entity specialising in the sublease of all its aircraft to its affiliates. With this entity, the airline ought to be able to progressively dispose of aircraft operated by its affiliates, some of which are parked in its balance sheet.

“Management is optimistic on the potential reduction in capacity, which could give significant room for improvements in yields going forward,” RHB Research wrote in a report.

AllianceDBS Research said it remained convinced that AirAsia “will be able to weather the cut-throat competition and emerge as the final victor”.

AllianceDBS also pointed out that a more “benign” competitive landscape was around the corner, with Malaysia Airlines expected to cut back capacity next year.

“If there is an airline stock to own ahead of the coming upcycle, AirAsia is the one,” the research house said.

MIDF Research said it expected the second half of financial year 2014 (FY14) to be better as losses from Indonesia and Philippines would bottom out then.

“We believe AirAsia would benefit from MAS’ restructuring should the latter trim down common routes which AirAsia also operates,” MIDF said in their report.

Kenanga Research downgraded AirAsia to a “market perform” call and lowered its estimate earnings for FY14 and FY15 on concerns of higher operational costs.

Its analyst Adrian Ng said travel sentiment had been badly affected by various incidents, notably MH370, MH17, the political unrest in Thailand and the Ebola outbreak.

Ng added while he was hopeful to see recovery in AirAsia’s yields, he opined that it would take at least another six months before airfare stabilised.


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