Asia Aviation

Asia Aviation Plc (AAV) 

 

AAV hosted an analyst meeting yesterday to clear the air after Mr. Vichai Srivaddhanaprabha, CEO of King Power, and his family acquired a 39% stake on June 13. Overall tone is positive, as it envisions good growth potential in the China market arising out of the collaboration with King Power. Mr. Tassapon Bijleveld confirms he will stay on as AAV’s CEO for at least five more years, meaning no changes in AAV’s operations and strategy. Maintain BUY with TP at Bt7.5/share. 

 

Potential growth from China tourists. China is a major client base for both AAV and King Power. Mr. Tassapon believes King Power’s strong reputation will help support AAV’s business in China. King Power has a well-established network with authorities and outbound tour operators in China and has been awarded the Chinese Outbound Tourism Quality Service Certification guaranteeing it is providing high quality services and products for Chinese travelers. An example of the way they could work together: King Power could offer a special discount to AAV passengers flying from China – which would encourage visitors to fly on AAV and at the same time boost sales for King Power. We also believe collaborating with King Power will strengthen AAV’s hand as it applies for new routes to China down the road. Mr. Tassapon expects the plus from collaboration between AAV and King Power to start to show up in 4Q16.  

 

Online duty-free in a few months. AAV and King Power are studying offering online duty-free purchases, specifically regulations related to the pickup point in aircraft and cost for related parties. Mr. Tassapon expects to start up the online duty free business in the next few months, with implementation this year. King Power already has on-board duty-free service on Thai Airasia’s international flights, with AAV getting a portion of the sales revenue, but this accounts for only 1% of AAV’s revenue. In the future, Mr. Tassapon sees a good chance to bring King Power’s online duty-free service to AirAsia Group as a whole.  

 

Mr. Tassapon continues as CEO. Although there is no contract, Mr. Tassapon says he will continue as AAV’s CEO for at least five more years and that there will be no change in the management team. This means AAV’s operations and strategy will continue as normal. He maintains AAV’s 2016 guidance of 17mn passengers with 83% load factor and expects 2016 to be another strong year for AAV.  

 

Maintain BUY. We maintain BUY on AAV with TP at Bt7.5/share. Of airline operators, we like AAV most: its fundamentals are sound and earnings growth strong, supported by growing travel demand, particularly from China and AEC countries and now it also has potential growth from duty-free business.