Symbol & Code : AIRASIA (5099)
We re-affirm our BUY rating on AirAsia and raise our fair value to RM2.20/share from RM2.00/share previously. We have raised our earnings projections by 2%- 8% over FY10-12F to reflect stronger traffic growth and better load factor assumptions. Based on forward booking indications, passenger traffic is expected to grow by a robust 24% this year. Listing of Thai AirAsia (TAA) in 2Q11 and IAA in 2Q12 should crystallize the value of AirAsia’s investments in its associates, improve transparency and recapitalise the balance sheets of TAA and IAA. Ancillary income growth is expected to gain traction – introduction of Red Megastore last month will feed into existing region-wide courier service. Valuation wise, AirAsia remains the cheapest airline stock around, trading at just 7x FY11F earnings. This is at a 40% discount to Tiger Airways valuation of 12x and 50% discount to AirAsia’s historical average valuation of 14x. We think improving core underlying fundamentals, balance sheet de-risking initiatives and turnaround at associates should trigger a strong share price re-rating.
by AM Research Team
