Thai unit's listing allows AirAsia to focus on other associates: OSK
Posted on 28 May 2012 - 05:36am
PETALING JAYA (May 28, 2012): OSK Research Sdn Bhd views the listing of AirAsia Bhd's Thai unit via holding company Asia Aviation Pcl as positive as it will recapitalise Thai AirAsia and allow AirAsia to de-gear when the former can raise its own aircraft financing.
OSK aviation analyst Ahmad Maghfur Usman said this will allow AirAsia to focus on its growth plans for its other associates. Thai AirAsia is 51% owned by Asia Aviation and 49% by AirAsia.
Ahmad also sees trading opportunity in AirAsia on Thai AirAsia's listing on the Stock Exchange of Thailand on May 31, given the valuation gap arising from the initial price offering (IPO) shares' forward price-to-earnings (P/E) multiple of 14.1 times 2012 earnings versus AirAsia's nine times.
"AirAsia is currently trading at an attractive nine times 2012 P/E versus its peers' 11-13 times. We remain bullish on the group's outlook as we do not see any yield pressure from Malaysia Airlines and Firefly. Furthermore, in view of the uncertain macro outlook in the immediate term, AirAsia stands to benefit from downtrading by travellers as well as the weaker oil price," he said in a report on Friday.
"It is understood that Thai AirAsia is allocating about 1.5 billion baht (RM150 million) for aircraft acquisitions in the immediate term. The remaining 2.8 billion (RM277.5 million) will be used for working capital and to pay off liabilities owed to AirAsia, which as at Q1FY12 stood at 45 million baht (RM4.5 million)," said Ahmad.
He sees the progressive transfer of aircraft currently leased by Thai AirAsia from AirAsia, which bodes well for AirAsia as this will help it free up some debt which it raised to buy Thai AirAsia's fleet.
"With AirAsia's outstanding debt totalling RM7.5 billion as of Q1 and noting that 27% (24 aircraft) of AirAsia's fleet is currently leased by Thai AirAsia, this could potentially free up as much as RM2.02 billion of AirAsia's debt should the group directly transfer them to Thai AirAsia," he added.
This will consequently reduce AirAsia's net gearing to 79% from 126%, cut interest expenses by RM90-100 million from RM380-400 million per year and about RM154 million in depreciation charges.
"We could see this de-gearing occurring progressively but the drawback is AirAsia would lose out in earning lease income as it operates like a typical franchise model. Note that AirAsia also earns income from branding rights and so on from its associates and sister companies," said Ahmad.
OSK forecast that Thai AirAsia could potentially rake in earnings of 2.3 billion and 2.4 billion baht over the next two years on the back of 19 billion and 22 billion baht in revenue on continued traffic growth for the low-cost carrier.
"Based on the subscription price of 3.70 baht apiece, Thai AirAsia's valuation is at a premium, pegged at 14 times and 13.6 times respectively for FY12 and FY13.
"However, given that it will be on a strong growth path over the next few years, we think the price of 3.70 baht apiece is fair in line with its peers average range of 11-13 times. This is at a premium to AirAsia, which is currently valued at 10 times FY12 earnings, excluding its Thai and Indonesia associates," said Ahmad.
OSK is maintaining its earnings estimate and "buy" call on AirAsia, with a fair value of RM4.57.
