COMPANY UPDATE

TA Securities A Member of the TA Group

Monday, 03 April 2017
FBM KLCI: 1,740.09
Sector: Transportation
MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048

AirAsia Berhad TP: RM3.02 (-3.9%)

Strengthening Network in SEA Last Traded: RM3.14
THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* SELL
Tan Kam Meng, CFA Tel: +603-2167 9605 kmtan@ta.com.my www.taonline.com.my

Venturing into Vietnam Share Information

AirAsia announced that it has executed a shareholders agreement and a share Bloomberg Code AIRAMK
subscription agreement with Gumin Company Limited, Mr. Tran Trong Kien Stock Code 5099
Listing Main Market
and Hai Au Aviation Joint Stock Company (HAA) to formalize cooperation
Share Cap (mn) 3341.9
between AirAsia, Gumin, Mr. Tran and HAA to establish a low-cost carrier (LCC) Market Cap (RMmn) 10493.6
in Vietnam. Par Value 0.1
52-wk Hi/Lo (RM) 3.30/1.84
Some salient terms about the agreements as well as the loan agreement: 12-mth Avg Daily Vol ('000 shrs) 20416.0
Estimated Free Float (%) 67.8
- HAA to increase its paid-up capital to VND1tn (RM194mn) for the Beta 1.2
purpose of this joint venture operation; Major Shareholders (%)
- AirAsia to subscribe for 30% of HAAs enlarged share capital for Tune Live Sdn Bhd - 16.7%
VND300bn (RM58.2mn); Tune Air Sdn Bhd - 15.5%
- AirAsia and Gumin will have their respective interest of 30% and
69.9% in HAA while Mr. Tran will have 1 share of HAA; Forecast Revision
- AirAsia and Gumin will provide loans amounting to USD2mn FY17 FY18
(RM8.84mn) and USD4mn (RM17.68mn) to HAA. Forecast Revision (%) 0.0 0.0
Net profit (RMm) 1298.0 1260.0
- Other transaction document to be entered into between AirAsia and
Consensus 1,256.0 1177.0
HAA include the brand licensing agreement to licence the use of the TA's / Consensus (%) 103.3 107.1
AirAsia brand to the HAA for a fee. Previous Rating Hold (Downgraded)
Financial Indicators
Our view FY17 FY18
We are positive on this venture as it will strengthen AirAsias network in South Net debt/equity (x) 1.0 1.0
East Asia. Importantly, the total capital committed to HAA by AirAsia is only CFPS (sen) 3.6 (14.4)
P/CFPS (x) 86.6 (21.7)
RM67.0mn or as little as 1% of AirAsias shareholder funds. As such, we think it ROE (%) 14.7 12.8
worth the effort and money to explore Vietnams aviation market, the 5th ROA (%) 5.1 5.2
largest market in South East Asia after Indonesia, Thailand, Malaysia and NTA/Share (RM) 2.6 2.8
Singapore, with a population of 95mn. As HAA is expected to operate both Price/ NTA (x) 1.2 1.1
domestic and international flights in Vietnam, HAA can leverage on AirAsias Share Performance (%)
strong brand name and capture meaningful market share in the international Price Change AIRASIA FBM KLCI
segment. 1 mth 19.4 1.9
3 mth 35.9 6.4
6 mth 12.5 5.3
Currently, there are two existing players in the market namely, Jetstar Pacific 12 mth 71.6 1.7
and VietJet Air, which started low-cost carrier business models back in 2007
and 2011 respectively. Jetstar Pacific is owned by national carrier Vietnam (12-Mth) Share Price relative to the FBM KLCI
Airlines (70%) and Qantas (30%) while VietJet is private owned by Sovico
Holdings, HDBank and other institutional investors. Jetstar Pacific and VietJet
have fleet size of 18 and 45 aircraft respectively, mostly Airbus A320 family
fleet, serving both domestic and international destinations. Looking at the total
fleet size, we opine that the LCC market in Vietnam is not over-crowded and not
dominated by a single airline company yet, like Malaysia and Indonesia
dominated by AirAsia and LionAir.

Also, judging from the bullish profit guidance from the CEO of Vietjet, we
believe there are ample room for growth for a new comer. Note that the CEO of Source: Bloomberg
Vietjet said that VietJet expect net profit to climb by 30% in 2017, after its
bottomline almost doubled over in 2016.

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 TA Securities
A Member of the TA Group 3-Apr-17
Forecast
As the venture into Vietnam is still at a preliminary stage, pending successful
application for airline operators certificate by HAA, we maintain our earnings
projections for FY17-18.

Risk
A foreseeable risk include operational conflicts between AirAsia and Gumin in
the future. Information on Gumin is scarce and not mentioned in the
announcement. Meanwhile, Mr. Tran Trong Kien is a chairman of Buffalo
Tours, a leading inbound tour company in Asia.

Valuation
We maintain our target price at RM3.02 based on unchanged 9x CY17 EPS.
As the share price has advanced 37% YTD, we believe the market has
largely priced in those corporate exercises, i.e.: disposal of AAC and special
dividend, listing of AAI and PAA, highlighted in various media reports. As
such, we downgrade AirAsia to Sell from Hold.

Profit and Loss (RM'mn) Balance sheet (RM'mn)

YE Dec 31 2014 2015 2016 2017F 2018F YE Dec 31 2014 2015 2016 2017F 2018F
Revenue 5415.7 6297.7 6923.9 7016.7 7425.6 PPE 12533.5 10927.6 10792.6 12004.6 13448.6
Associates 230.5 1020.6 2232.7 2315.8 2430.5
EBITDA 1,545.5 2,739.9 2,923.7 2,371.1 2,302.1 JV 191.6 164.0 188.3 213.8 240.6
Depr & Amor (719.5) (703.2) (744.9) (820.8) (888.6) Derivatives 381.7 945.5 867.9 867.9 867.9
EBIT 826.0 2,036.6 2,052.2 1,550.2 1,413.4 Others 4793.4 3972.1 3392.0 2682.7 2751.6
Net finance cost (412.1) (569.9) (384.0) (441.9) (392.2) LT Assets 18130.7 17029.9 17473.5 18084.9 19739.2
JV & associate 27.6 (800.0) 181.1 108.6 141.4
EI (389.8) 9.3 101.9 0.0 0.0 Trade receivables 682.9 617.4 837.7 922.7 986.3
PBT 22.7 215.0 2,167.2 1,217.0 1,162.7 Cash 1337.8 2426.7 1741.6 2235.3 1135.8
Adj PBT* 307.2 719.3 2,248.9 1,175.4 1,217.6 Others 512.6 1242.3 1849.3 1878.5 1903.1
Tax 60.1 326.1 (134.0) (54.8) (52.3) ST Assets 2533.4 4286.4 4428.6 5036.6 4025.1
Net profit 82.8 541.0 2,036.3 1,162.2 1,110.4
Adj net profit* 281.6 683.4 2245.6 1120.7 1165.3 Total Assets 20664.1 21316.3 21902.2 23121.4 23764.3
EPS (sen) 10.1 24.6 80.7 33.5 34.9
DPS (sen) 3.0 4.0 4.0 4.0 5.0 Trade payables 773.1 1634.1 1965.1 1384.1 1473.9
* Core net profit comprises share of profits from IAA, AAP, AAJ, & others JVs Sales in advance 502.8 664.3 607.7 607.7 607.7
Cash Flow (RM'mn) Borrowings 2274.9 2377.3 1945.2 1845.2 1745.2
YE Dec 31 2014 2015 2016 2017F 2018F Others 561.4 596.2 482.9 482.9 482.8
PBT 22.7 215.0 2167.2 1217.0 1162.7 ST Liabilities 4112.3 5271.7 5000.9 4319.9 4309.7
Non- cash item 479.5 565.6 563.9 712.2 747.2
Chg in workin cap. (917.4) 482.2 (1401.1) 279.6 42.6 LT Borrowings 10453.1 10235.6 8633.9 8233.9 7833.9
Tax (15.2) (31.1) (18.0) (54.8) (52.3) Others 1543.7 1358.1 1653.3 1918.8 2028.6
Others 626.1 972.2 41.5 (0.0) 0.0 LT Liabilities 11996.8 11593.7 10287.2 10152.8 9862.5
CFO 195.8 2203.9 1353.5 2154.0 1900.2
Share Cap 278.3 278.3 278.3 334.2 334.2
Capex (1967.2) (613.9) (619.9) (2032.8) (2332.6) Reserves 4276.8 4174.0 6340.9 8319.8 9263.1
Others (78.3) 511.1 770.2 0.0 0.0 Shareholder's Funds 4555.1 4452.3 6619.2 8654.0 9597.3
CFI (2045.5) (102.8) 150.3 (2032.8) (2332.6) MI 0.0 (1.5) (5.2) (5.2) (5.2)
Liabilities + Equities 20664.1 21316.3 21902.2 23121.4 23764.3
Net Borrowing 3129.5 1458.2 832.2 (500.0) (500.0)
Dividend Paid (111.3) (83.5) (111.3) (133.7) (167.1) Ratio
Others (1242.7) (2677.4) (0.2) 1006.2 0.0 YE Dec 31 2014 2015 2016 2017F 2018F
CFF 1775.5 (1302.7) 720.7 372.5 (667.1) EPS Growth (%) (34.3) 142.7 228.6 (58.4) 4.0
PER (x) 31.0 12.8 3.9 9.4 9.0
Key Assumptions (RM'mn)
2014 2015 2016 2017F 2018F Div Yield (%) 1.0 1.3 1.3 1.3 1.6
ASK - MAA (mn) 34590 37408 40086 40560 43620 Net cash/(debt) (RMm) (11390.2) (10186.1) (8837.6) (7843.8) (8443.4)
RPK - MAA (mn) 27273 30006 34676 34412 36678 Net gearing (x) 2.5 2.3 1.3 0.9 0.9
ASK - TAA (mn) 15420 18116 20629 21475 22469 ROE (%) 5.9 15.2 40.6 14.7 12.8
RPK - TAA (mn) 12420 14872 17535 18039 18874 ROA (%) 1.5 3.3 10.4 5.0 5.0
RPK - IAA (mn) 11663 11135 8792 7569 9934 NTA (RM) 1.63 1.59 2.33 2.55 2.84
RPK - IAA (mn) 9150 8354 7278 6055 7947 P/NTA (x) 1.9 2.0 1.3 1.2 1.1
Jet fuel (USD/b) 120 81 50 61 61 EV/EBITDA (x) 13.0 6.9 6.0 7.7 8.2

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 TA Securities
A Member of the TA Group 3-Apr-17

( T HI S P AGE I S I NT E N T I ON AL L Y L E FT B L ANK)

Stock Recommendation Guideline

BUY : Total return within the next 12 months exceeds required rate of return by 5%-point.
HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point.
SELL : Total return is lower than the required rate of return.
Not Rated: The company is not under coverage. The report is for information only.

Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months.
Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.
Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and
opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts.
We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may
have an interest in the securities and/or companies mentioned herein.
for TA SECURITIES HOLDINGS BERHAD(14948-M)
(A Participating Organisation of Bursa Malaysia Securities Berhad)
Kaladher Govindan Head of Research

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