Asia Aviation

Asia Aviation Plc (AAV) 

 

1Q15 net profit Bt506mn (Bt0.1/share), up from Bt139mn in 1Q14 and Bt430mn in 4Q14. Excluding extra item from FX gain/loss gives core earnings of Bt498mn, rising from Bt148mn in 1Q14 and Bt420mn in 4Q14. 1Q15 core profit reflects a record high as expected, but was below market and SCBS expectations of Bt550-600mn due to higher tax and SG&A expenses. 1Q15 core profit accounted for 28% of our full-year forecast and we maintain our earnings projection.  

 

1Q15 highlights: 

- Revenue was Bt7.7bn, up 20% YoY but down 2% QoQ. 

- Load factor was 83%, up from 80% in 1Q14 and 79% in 4Q14. Available Seat Kilometers (ASK) increased 17% YoY and 2% QoQ backed by: 1) fleet expansion to 42 aircraft from 40 in 4Q14 and 2) adding flights to existing routes and opening new routes to get in on the improved Thai tourism prospects. Revenue Passenger Kilometers (RPK) rose at a faster pace of 21% YoY and 4% - QoQ as AAV carried 3.7mn passengers in the quarter, up 19% YoY and 8% QoQ.  

- Average fare was Bt1,755/pax, up 3% YoY but down 10% QoQ. Average fare normally drops QoQ on seasonality. However, we view the 10% QoQ drop as unusually large, possibly from adding new domestic routes attracting lower fares. 

- Operating cost rose 5% YoY but fell 7% QoQ, below revenue growth. Major costs, such as fuel expenses, declined by 9% YoY and 17% QoQ, aligning with lower jet fuel price, while other costs such as airport operating expenses, depreciation expenses and staff costs increased with the increase in fleet size.  

- SG&A expenses surged 49% YoY but slipped 7% QoQ. 

- RASK-CASK in 1Q15 was Bt0.22, up from Bt0.05 in 1Q14 and Bt0.14 in 4Q14 upon higher revenue and lower costs, largely the lower jet fuel price. 

- Tax expenses were Bt186mn, up from Bt62mn in 1Q14 and Bt20mn in 4Q14. 

- Financial health was strong with interest-bearing debt to equity at 0.5x. 

 

BUY maintained. Airline stocks – including AAV - are likely to be under pressure by the concerns of a downgrade by the International Civil Aviation Organization (ICAO) and its response to Thailand’s corrective action plan (release on June 18). However, so far, the ICAO issue has had no impact on AAV and it is keeping its ambitious 2015 targets of 14.5mn passengers (up 19% YoY) and 83% load factor (up from 80% in 2014). In the worst case that AAV is not able to add new routes to new cities in China, its key market, by the end of this year, it believes 2016 operations will not be materially affected, as it plans to explore other potential markets such as India, Cambodia and Vietnam. Maintain BUY on AAV with TP of Bt7.5/share.