Asia Aviation

Asia Aviation Plc (AAV)

3Q13A: In line. 3Q13A net profit was Bt158mn, up 59% YoY but down 40% QoQ, in line
with market consensus. The rise YoY came from fleet expansion and the drop QoQ
from seasonally lower yield. Load factor was 84% vs. 82% in 3Q12 and 83% in 3Q13,
backed by a faster rise in passengers (RPK +33% YoY) than in capacity (ASK +28% YoY).
Competition pushed average fare down to Bt1,842/pax, -4% YoY and -2% QoQ. Ancillary
revenue was Bt346/pax, +2% YoY and 3% QoQ. Cost/ASK was Bt1.62, -3% YoY on lower
landing and parking fees at Don Muang airport but +1% QoQ from higher jet fuel price.
Its 9M13 accounted for 57% of consensus 2013 forecast.
Analyst meeting highlights.
Unchanged 2013 targets of 10mn passengers (+20% YoY vs. 7.5mn in 9M13), 82%
load factor (vs. 84% in 9M13), and 35-plane fleet at end-2013 (4 delivered in 4Q13).
4Q13 is high season with stronger demand and yield plus fleet expansion. AAV is
seeing some adverse impact from new Chinese regulations to control zero dollar
tours, in place since Oct. 1. Forward bookings from China (19% of its revenue in
9M13) slid 5-10% in 4Q13. AAV expects this to return to normal in 1Q14.
Seven new routes in 4Q13: BKK – Khon Kaen (Oct 2013) and Pitsanunok (Nov 2013),
Chiangmai-Krabi (Dec 2013), BKK–Siem Reap (Oct 2013), Naypydaw (Oct 2013),
Kunming (Nov 2013) and Krabi – Singapore (Nov 2013). It adding flight frequencies
on the BKK-Chiang Mai, Krabi, Hatyai, Nakhon Sri Thamarat, Suratthani, Chiangrai
and Yangon routes. It is still looking to southern China, Indochina, plus at home.
AAV will introduce “fly thru” on selected routes to/from China, Indochina, India and
domestic cities in December 2013. This allows passengers on connecting flights to
check their baggage through to final destination and go through Immigration at
final destination. With a charge of Bt650, AAV expects this to boost ancillary
income and load factor by 1-2%.
Air Asia X Thailand (low-cost, long-haul segment) will become operational in
March 2014, beginning with two planes. Destinations will be 6-8 hours from hubs
opening up North Asia (Japan and Korea) and Australia markets. AAV expects
passenger feed-through from Air Asia X (Thailand) to add 1-2% to its load factor.
Maintain BUY. We trim 2013F by 5% (China regulations lowering cabin factor and yield
in 4Q13) but raised 2014F by 2%, adding higher load factor from “fly-thru” and Air Asia
X (Thailand). We maintain BUY with mid-14 PT at Bt6.5, based on 20x PE with 3-year
EPS growth of 30% (+1SD on 7-year PE for Air Asia Berhad vs. average EPS growth of
20%). We expect 4Q13 to be even better at 40% of 2013F, mid-range of its historical 4Q
of 30-50% of full year in 2011-12, and solid 2-year EPS growth at 26% in 2013-15,
supported by fleet expansion, the “fly thru” service and Air Asia X (Thailand) plus the
overall healthy outlook for LCC growth.