PETALING JAYA – Two days after Deutsche Bank Group called a “sell” on AirAsia Bhd that led to a slight dip in its share price, two local brokerages have issued research reports maintaining a “buy” call on the airline.
The rationale for the sell call is essentially stiff competition that will push passenger yields down over the next 12-18 months, overcapacity, the weaker ringgit and higher jet fuel prices.
It also questioned how the US$1bil price tag was derived for its leasing unit, Asia Aviation Capital (AAC) that AirAsia plans to sell in the middle of this year.
Maybank IB Research senior analyst Mohshin Alias is more bullish about AirAsia’s fortunes.
He maintains a buy on the stock and predicts a special dividend of 40-50 sen a share from the sale of AAC to investors.
“Coupled with the customary 20% dividend payout which is roughly 7 sen in 2017, AirAsia could be your biggest dividend yield stock in 2017,’’ said Mohshin.
Kenanga Research has brushed off overcapacity and other issues and has a 12-month target price of RM3.82 a share.
Its rationale was based on higher ancillary income with a target of RM60 per passenger in the long-term, healthy loads of about 85% led by strong travel demand coupled with fleet expansion.
It says even though fuel cost was rising, but it will be mitigated as AirAsia has hedged 74% of its fuel requirements for 2017 at US$59 per barrel.
Mohshin expects unit costs to improve on the entry of new Airbus A320 NEOs and believes the fourth quarter 2016 financial results to be “spectacular and says “don’t be surprised if they churn out RM400-500mil of net profit.’’
He adds that “apart from that, it is trading at only 7x 2017 PER with stellar 15% ROEs.’’
His 12 month target price is RM3.17 a share. AirAsia closed 6 sen lower in yesterday’s trading at RM2.17 a share.
Deutsche in its report said “weaker ringgit will filter through to higher costs, and higher fuel prices will also hurt. We have cut our core net profit forecast for 2017-2018 estimates by 1.3% and 16.2% over 2017-2018 estimate respectively.
As at third quarter 2016, associates in the Philippines, India and Japan were still losing money. In Indonesia, AirAsia is converting its debt into perpetual capital securities to comply with local regulations,’’ Deutsche said.
It adds that as the market becomes aware of the earnings decline that AirAsia is expected to see over 2017-2018E, we expect the stock to de-rate to the lower end of its historical valuation range.
Our target price (12 month – RM1.75 a share) is based on an adjusted EV/EBITDAR of 5 times for the Malaysian operations, which is similar to other full service carriers (Cathay Pacific and Singapore Airlines) in the region who are battling similar yield pressures.
But Deutsche also expects a lift if there is less intense competition in the market, pushing up yields to levels higher than expected, the sale of AAC resulting in a higher-than expected exceptional profit and this results in a positive sentiment lift for the stock, currencies in South-East Asia appreciating against the US dollar, especially the ringgit, and a significant decline in jet fuel prices.