Asia Aviation

Asia Aviation Plc (AAV)

Q3 2012F net profit of Bt110mn. We expect Q3 2012F net profit of Bt110mn, vs. Bt99mn in
3Q11 and Bt15bn in Q2 2012. Stripping out extra items, its normalized profit will be
~Bt100mn, +11% YoY and +18% QoQ. The earnings improvement comes from: 1) a
strong load factor at 82% (vs. 80% in Q3 2011 and 79% in Q2 2012); 2) lower jet fuel costs at
US$119/barrel (-6% YoY and -9% QoQ); 3) the increase of ancillary income from the
increase in baggage handling fees at the end of Q2 2012. These will offset the negative
factors from: 1) fewer passengers in the lowest season of the year; 2) higher SG&A
expenses from the advertising expenses for the move to Don Muang and the opening
of new routes in Q4 2012. It will release results on November 14.

Q4 2012 core profit to be the year’s highest. We expect Q4 2012 earnings to be this year’s
highest. Delivery of three new aircraft (+13% of existing fleet) in Sep-Nov 12 will
support passenger revenue in the Q4 012 high season. It will also enjoy the full positives
of the increase in baggage handling fees at the end of Q2 2012 and the rise in fuel
surcharge (+<Bt50/trip or less than 20%) on international routes (40% of its routes)
since mid-Sep 2012. The move to Don Muang in Oct provides ST cost savings from the
10-30% reduction in airport charges for Oct 2012-Sep 2015 and 1-2% lower jet fuel costs
from the shorter runways and shorter queues for takeoffs and landings. The recent
drop in jet fuel price (45% of its cost) should be positive, as the company has locked in
only 30% of its jet fuel usage in Q4 2012.

LT positive with two-year earnings growth of 23%. We are LT positive on its two year
earnings growth of 23% p.a. in 2012-14F. Undergirding the growth are company specific
factors, i.e. the move to Don Muang and the fleet expansion as well as industry-specific factors such as the LT growth potential for low cost carriers (LCC).

Maintain BUY. We maintain BUY with a mid-13 PT of Bt5.1, based on 16x PE vs. 2-year
EPS growth of 23% (+0.5SD on 7-year PE on Air Asia Berhad vs. average EPS growth of
20%). While its Q3 2012F earnings seem unexciting, we recommend accumulate for
stronger earnings in Q4 2012-1Q13 off the high season, the increase in baggage handling
fees/fuel surcharge, and cost reduction from the move to Don Muang and for the LT
outlook of outstanding growth arising out of the potential for LCCs in Asia, continued
fleet expansion and cost reduction from the move to Don Muang until 2015.