AmWatch - AirAsia : Past bottom, V-shaped recovery looks likely BUY, 20 Nov 2014

STOCK FOCUS OF THE DAY

AirAsia : Past bottom, V-shaped recovery looks likely      BUY

We reaffirm BUY on Airasia and maintain our FV at RM3.10/share. Airasia reported 3Q14 core net profit of RM86mil, which brought 9M14 core earnings to RM244mil. This is broadly within expectations. Core earnings almost tripled QoQ (despite the 3Q14 being a seasonally weak quarter) as Airasia is starting to benefit from lower jet fuel price. CASK was down 11% QoQ and ex-fuel, was down 6% QoQ driven mainly by lower fuel and maintenance cost. YoY, earnings contraction narrowed to -48% from -78% in 2Q14. Fleet size is still inflated as Airasia Malaysia still had six idle aircraft during the period. But these are expected to be reactivated in 4Q14.

Yields saw its maiden quarter of sequential growth this year, growing by 6% QoQ, while the YoY yield contraction narrowed to only -1.5% (from -2.2% in 2Q14) – this underpins the YoY yield recovery trend seen over the past three quarters. Judging by more rational capacity deployment in the industry, we think yields are on track towards positive YoY growth in the next two quarters. That said, RASK has already shown two consecutive quarters of positive growth, up by 2% YoY this quarter. Despite flattish pax and yield growth, expansion in ancillary income per pax drove revenues higher (+3% YoY, +0.5% QoQ). 

Idle aircraft (for Malaysia) reduced to six from eight in 2Q14, and the majority is on track to be reactivated in 4Q14.  Fuel cost trends are improving with even lower spot jet fuel price in 4Q14 and as Airasia works off its remaining fuel hedges by year end. For FY15, only 12% of requirement is hedged, which means the full benefit of cheaper jet fuel should trickle in more significantly in 1Q15. 2Q14 earnings were the bottom and 3Q14 is already showing sequential earnings recovery.

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Others :

MRCB : To the fore with second win        BUY

Kuala Lumpur Kepong : Oleochemical hit by lower crude oil prices             HOLD

MSM Malaysia : More LTC raw sugar used in 3QFY14       HOLD

Star Publications : Weaker 3Q as MH17 incident takes its toll on adex       HOLD

Press Metal : Signs term sheet for Phase 3 expansion     HOLD

TH Plantations : Lower FFB yield resulting from dry weather        SELL

Ammb Holdings : Normalisation in 2QFY15            NON-RATED

QUICK TAKE

Bintulu Port : More cargo from PMetal for Samalaju Port               HOLD

NEWS HIGHLIGHTS

MBM Resources : On track to pare losses

Pos Malaysia : Postal rates likely to go up post-GST

Oil and Gas Sector : Shell, Petronas to develop new field