AirAsia’s PBT may exceed RHB Research’s forecast

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KUCHING: AirAsia Bhd’s  (AirAsia) first quarter financial year ending December 2011 (FY12/11) results, due out this May 24, should trail market expectations slightly.

Moreover, these results were expected to surpass the forecast by RHB Research Institute Sdn Bhd (RHB Research) as outlined in a released research report.

The research house expected AirAsia’s first quarter FY12/11 core profit before tax (PBT) to come in between RM160 million to RM165 million, down 51 per cent to 53 per cent sequentially with respect to the RM340 million recorded in fourth quarter FY12/10. This would have accounted for 33 per cent to 34 per cent of the full-year PBT forecast of RM487.8 million; but only 19 per cent of the full-year market PBT consensus PBT of RM867 million.

Based on the analyst’s ‘back-of-the-envelope’ calculations, the seasonally lower traffic and yields as well as higher fuel cost in first quarter FY12/11 would have resulted in first quarter’s PBT being about RM175 million to RM180 million lower with regard to fourth quarter FY12/10.

“The numbers derived take into consideration RM87.7 million top-line impact, coming from an actual three per cent sequential decline in the number of passengers carried from 4.44 million to 4.32 million, coupled with an estimated eight per cent sequential drop in average fares from RM188 to RM173,” said RHB Research.

In addition, RM90 million was cost impact, arising from an estimated 33 percent jump in average jet fuel cost from US$90 per barrel to US$120 per barrel, taking the cue from this year’s January-to-March average of US$121 per barrel of the benchmark Singapore Jet Kerosene price.

AirAsia was not substantially hedged against the rising fuel cost. As at end of FY12/10, it had only hedged forward up to 21 per cent of its fuel requirements up to second quarter FY12/11 at US$92 per barrel West Texas Intermediate (WTI) crude.

The list of risks to offset the analyst’s view included stronger-than-expected yields achieved, lower jet fuel cost and effective containment of outbreaks of pandemic diseases in destination regions.

“The turnaround in the global aviation sector could be cut short by the surging crude oil prices on the back of the unrest in North Africa and the Middle East.

Furthermore, the outlook for the local low-cost air travel sector had turned cloudy with Malaysia Airlines’ decision to expand whollyowned Firefly into a fullfledged low-cost carrier,” the research house added.

Firefly would be backed by a fleet of 30 fuel efficient 189-seater Next Generation Boeing 737-800 aircraft by 2015 that would give it the firepower to compete headon with AirAsia’s Airbus A320 fleet.

RHB Research expected newcomer Firefly to go all out to capture market share at the expense of profitability by heavy price discounting. It reckoned that AirAsia might also want nip the competition in the bud by dropping fares. As such, a full-scale price war would weigh down on yields of both players. RHB Research assumed that AirAsia’s yields in terms of revenue per available seat kilometres (ASK) to only ease down 6.1 per cent in FY12/11 compared with 7.7 per cent down previously. “Based on the 12 times revised FY12/11 earnings per share, we raise the fair value by 27 per cent from RM2.10 to RM2.66 per share,” it said.