Asia Aviation

Asia Aviation Plc (AAV)

Q1 2013 net profit of Bt397mn. AAV reported a 1Q13 net profit of Bt397mn, +64% YoY
but -17% QoQ. The results were 15% below consensus. The earnings improvement YoY
was mainly thanks to more planes that carried more passengers. The decline QoQ was
due to higher SG&A expenses from the recording of brand license fee (1% of sales) to
Air Asia Berhad and the booking of higher tax expenses after changing its treatment of
current and deferred income taxes.
Highlights:
Load factor was strong at 87% (flat YoY but +5% QoQ) from the delivery of new
aircraft to bring the total to 28 planes at end-1Q13 (+4 planes YoY and +1 plane
QoQ) and 2.6mn passengers, up 24% YoY and 13% QoQ.
Average fare was Bt1,995/pax, +5% YoY partly from the low base from the floods
but -6% QoQ.
Ancillary revenue grew to Bt914mn (15% of revenue), +21% YoY and +11% QoQ, in
tandem with the rise in the number of passengers. Ancillary revenue was
Bt357/pax (flat YoY but -2% QoQ).
Cost/ASK was Bt1.71 (stable YoY and QoQ) from a slight rise in jet fuel price to
US$129/barrel (+1.5% YoY but flat QoQ) and higher staff costs offsetting the cost
savings from lower landing/parking fees and fuel usage brought by the move to
Don Muang on Oct 1, 2012.
2013 guidance. To serve the expected strong demand, AAV is adding more to its fleet
than originally planned to bring total planes to 61 by 2017F (Figure 2). In 2013, it will
add eight planes to its fleet (+30% of capacity) vs. its previous plan of seven. It will
focus on adding flight frequencies in the domestic market (i.e. Phuket, Chiang Mai, Hat
Yai, and Krabi), China and Indochina. New destinations will be seen in 4Q13. In 2013, it
targets 10mn passengers (+20% YoY), an 82% load factor with the stable fare rate from
1Q13. It plans to boost ancillary income to close to 2011’s level of Bt383/pax (vs.
Bt357/pax in 1Q13) from new innovative products. It will also enjoy cost benefits from
the full year’s use of Don Muang, including 30% lower landing and parking fees and 2%
lower jet fuel usage from shorter taxi time and flight time.
Maintain BUY. 1Q13 accounts for 28% of our full-year estimate, and we maintain our
forecast. We expect its 2Q13 earnings to rise YoY in tandem with its fleet expansion
but decline QoQ from seasonality. We maintain BUY on the counter with unchanged PT
of Bt7.8, based on 25x PE vs. 3-year EPS growth of 32% (+1.5SD on 7-year PE for Air Asia
Berhad vs. average EPS growth of 20%). We like AAV for its impressive LT earnings
growth, backed by company specific factors - the move to Don Muang and the fleet
expansion – and industry factors – the LT growth potential for LCCs.