Asia Aviation

Asia Aviation Plc (AAV)

Thai SEC to relax rules pertaining to structured-note issuance to expand their appeal, capitalize on proximity

to region’s fastest- growing economies.

AAV’s share price has fallen a sharp 10% over the past three days in response to the 10% increase in jet fuel price. We see the drop in share price as overdone and view this as an opportunity to buy the stock to get in on the earnings uptrend backed by the recovery of Thai tourism. We stand by our 2015 core earnings estimate at Bt1.8bn. YTD average jet fuel price is US$64/bbl, well below our assumption of US$82/bbl, implying room for upside. We maintain BUY with TP of Bt7.5/share. 

YTD average jet fuel price still below our assumption. Jet fuel price has come back up by 10% over the past three days, aligning with the rise in Brent. Despite the bounce, we stand by our 2015 profit estimate of Bt1.8bn. YTD average jet fuel price is US$64/bbl (down 47% YoY and 31% QoQ) still well below our 2015 assumption of US$82/bbl, implying room for earnings upside. A call to the company elicits the information that AAV has raised jet fuel hedging position to 50% of total jet fuel usage through mid-2015 (from 15% in January) with estimated hedging price of ~US$80/bbl. This means AAV still has room to get in on the low jet fuel spot price. Our sensitivity analysis suggests a US$10/bbl fall in jet fuel price from our 2015 assumption will increase AAV’s core earnings by 23% and vice versa. 

Strong Chinese tourist influx. Visitors from China supply 20% of AAV’s revenues – and visitors from China (19% of Thailand’s tourists by country) are also the greatest driver to Thailand’s international tourist arrivals growth. In December 2014, Thailand’s international tourist arrivals achieved a record high 2.8mn, up 12% YoY and 17% MoM. Much of this is thanks to the 495,000 visitors from China in the month, up 87% YoY. We expect this strength to continue as China celebrates its “Golden Week” over 19-25 February. AAV guides a high load factor on China routes of 85-92% in the period.  

4Q14F the best of 2014, then on to higher highs in 2015. We expect AAV’s core earnings to turn to profit of Bt352mn, bouncing back from the Bt255mn loss in 3Q14 and doubling from the profit of Bt174mn in 4Q13. Within this is a load factor of 80% (vs. 82% in 3Q14 and 81% in 4Q13; note that greater capacity pushes load factor down. It also reports average fare of Bt1,856, up 17% QoQ and stable YoY. We note that 4Q14 profit will be the highest of 2014 and at a level that will be offset the loss in 9M14 and let it end 2014 with a core profit of Bt46mn. We expect AAV to go on to a new high in 2015 of Bt1.8bn, boosted by Thai tourism recovery and lower jet fuel price. 

BUY with TP of Bt7.5/share. The sharp 10% fall in AAV’s share price over the past three days in response to the 10% bounce back in jet fuel price is, in our view, overdone but does open the door to buy the stock to get in on the earnings uptrend backed by the recovery of Thai tourism. We maintain BUY on AAV with TP at Bt7.5/share.