Asia Aviation

Asia Aviation Plc (AAV)

AAV is looking at a season of exciting growth, backed not only by the
growth potential in the LCC market but also by the move to Don Muang
and fleet expansion. Supported by Thailand’s high season, 4Q12 core
earnings will be outstanding (50% of our 2012F forecast) and 2013F
earnings growth is estimated to be strong at 39% (above sector’s at
25%). Valuation is undemanding, trading at 14x 13PE vs. its 2-year
earnings growth of 26%. “BUY” with PT of Bt5.3.
Outstanding 4Q12F core earnings. 4Q12F core earnings are expected to be
outstanding at 50% of our 2012F forecast and 60% of consensus. Delivery of three new
aircraft (+13% of existing fleet) will support passenger revenue in the 4Q12 high season.
It will also enjoy the full positives of the dual increase in baggage handling fees, first at
the end of 2Q12 and again in 3Q12, and the rise in fuel surcharge on international
routes (40% of its routes) since mid-Sep 2012. The move to Don Muang in Oct provides
cost savings from the 30% reduction in airport charges for 4Q12 and 1-2% lower jet fuel
costs from the shorter runways and shorter queues for takeoffs and landings.
Impressive 2013F earnings growth at 39%. AAV’s 2013F core earnings growth at
39% (forecasted by SCBS and market) is expected to be above sector’s at 25%, backed
by both company-specific and industry factors. The company-specific factors include a
full year of cost savings from the use of Don Muang (50% contribution to 2013F
earnings growth), fleet expansion (+6 aircraft or +22% of fleet capacity), route
expansion to destinations with strong demand (domestic, Indochina and South China),
and an increase in ancillary income to sales (+0.5%) via the introduction of new
products (Red Carpet in Dec 2012, in-flight entertainment in 1Q13 and lounge and flythru
in 2013). The industry factor is the exciting growth potential for low cost carriers
(LCCs). Note that of total seats, Southeast Asia’s LCC capacity accounted for 32%, still
behind the EU’s 39%.
Undemanding valuation. AAV’s valuation is undemanding, trading at 14x 13PE
against its two-year earnings growth of 26%.
Maintain BUY. We maintain BUY on the counter with end-13 PT of Bt5.3, based on
17x PE vs. two-year EPS growth of 26% (+0.5SD on 7-year PE on Air Asia Berhad vs.
average EPS growth of 20%). We like AAV for: 1) outstanding 4Q12 results provided by
the annual high season and lower costs after the move to Don Muang; 2) impressive
two-year earnings growth of 26%, backed by company specific factors - the move to
Don Muang and the fleet expansion - as well as industry specific factors – the LT
growth potential for LCCs; 3) undemanding valuation.