KUCHING: The Malaysia Competition Commission (MyCC) penalty on AirAsia Bhd (AirAsia) is set to have minimal impact on the low-budget airline’s earnings as its fundamentals still remains intact, underpinned by continually strong operating statistics.
To recap, last week, MyCC announced that it has decided to impose a penalty of RM10 million each to AirAsia and Malaysia Airlines Bhd (MAS) for breaching the Competitions Act 2010 pursuant to the collaboration agreement between both airlines in August 2010 with minimal impact to share price expected for the former.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), a share swap agreement was signed between the two local carriers’ major shareholders to push forward for interest tied-up and this was followed with the route rationalisation exercise.
Nonetheless, as a result from the strong protest from MAS’s employee union, the collaboration was called off after eight months period. The MyCC stated that the routes that triggered the anti-competitive behaviours were the four domestic routes from KL to Sabah/Sarawak. However, the two local carriers are given 30 days to appeal the case.
Overall, the research house opined that the penalty would have a negligible impact on AirAsia’s earnings as it translates into merely 0.4 sen per share.
Meanwhile, spot jet fuel price remained at manageable levels of circa US$130 per barrel as at August 30, lower by 4.4 per cent year-on-year despite the imminent risk of a US attack on Syria.
“However, we view that the weakening of ringgit and other regional currencies would likely exert higher pressure to the group’s earnings as it inflates the cost of fuel consumption.
If the current situation continues to persist, we would see that AirAsia might have to pass-through the additional costs to passenger by increasing the fuel surcharge,” noted the research house.
AirAsia’s share price had plummeted by 16 per cent since the release of its second quarter 2013 (2Q13) results and is now trading at an attractive consensus price earnings ratio 2014 (PER14) of 7.8 times, which is below its average five-year PER of 10-times, MIDF Research noted.
“We are positive on the company as the fundamentals still remain intact, which are underpinned by continually strong operating statistics, expected rebound in fare yield due to lessening direct competitions from Malindo Air after the latter revised its earlier fleet plan to fly four ATR-600 turbo-prop plane out of Subang Skypark by end of FY13, and rising aircraft utilisation rate which helps to drive down non-fuel cost of available seat kilometer,” it viewed.