AmWatch - AirAsia : Standing firm BUY, 18 Mar 2015

STOCK FOCUS OF THE DAY

AirAsia  : Standing firm   BUY

We maintain BUY on AirAsia with an unchanged fair value of RM3.30/share. At the LIMA event yesterday, it was announced that a new airline called Flymojo will be launched. Mixed reports are indicating that Flymojo will either be a “value” airline or a “full service” airline, targeting the intra ASEAN market. Flymojo signed an LOI with Bombardier to purchase 20 CS100 aircraft with an option for another 20. No timeline for the firming up of orders or delivery schedule was revealed. It is understood that Flymojo is expected to be launched in Oct 2015 and commence flights in 1Q16.

The CS100 aircraft is a slightly smaller aircraft compared to the A320 that Airasia, and B738s that Malindo and MAS are operating. Maximum seating on a single class configuration goes up to 125 seats vs. the A320’s 180 seats, while flight range is a bit shorter at 2,950NM vs. the A320’s 3,300NM. Unlike Malindo Air, which is based in KLIA/Subang, Flymojo is using Senai (which entails much smaller connectivity and feeder traffic from long-haul) as its main hub and Kota Kinabalu as a secondary hub (which gives access to North East Asian traffic).

As such, we do not see Flymojo being in direct competition with Airasia which operates mainly out of KLIA, except perhaps for the highly profitable KUL-BKI route. After complete delivery of all 20 aircraft (likely to be spread over 3 to 4 years), we estimate Flymojo to account for just 19% of Airasia Malaysia’s current capacity. Separately, foreign shareholding at Airasia has retreated from the previous high of 60% (in Dec 2014) to 58% (at end-Feb 2015). After a sharp sell down post-weak 4Q14 earnings, Airasia is now trading at just 8x FY15F earnings on the back of a 42% three-year earnings CAGR and 14% FY15F ROE.

Others :

CIMB Group : DRS price set at RM5.51    BUY

QUICK TAKE

Construction Sector  : China companies eyeing a slice of KL-Singapore HSR                                            OVERWEIGHT

NEWS HIGHLIGHTS

CIMB Group Holdings : Named best bank in Asia-Pacific

Malaysia Airports Holdings : Nadi to develop Subang airport for MRO

Airline Sector : flymojo to take to Malaysian skies in 3Q

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