AirAsia reported its operating numbers for the second quarter of 2016, reflecting the performance of its Malaysian, Thai, Indonesian, Indian, and Philippine entities. In terms of air traffic, AirAsia unveiled a better-than-expected performance, beating Macquarie Equities Research’s (MQ Research) estimates by 7.8%, which translated to a better than expected load factor. In its report, MQ Research reiterated an ‘Outperform’ rating on AirAsia, with a 12-month target price of RM3.50.

Event

• AirAsia (AIRA MK) released a good set of 2Q16 operating statistics on late Tuesday.
• In terms of air traffic (RPK), its Malaysian entity, the major contributor to MQ Research’s sum-of-parts target price, is tracking 8% ahead of MQ Research’s estimates and its India entity is tracking marginally above expectations (4%), while its Thai and Indonesia entities are tracking in line with MQ Research’s estimates. However, its Philippine entity is tracking marginally below MQ Research’s estimates due to an unexpected capacity reduction.

 
‌Impact

• Load factor improvements across its five entities in Malaysia, Thailand, Indonesia, Philippines and India.
• Malaysia AirAsia improved load factors by 6.7% to 87% and delivered a 10% passenger growth in an industry that had zero growth in 2Q16.  Traffic beat MQ Research’s expectations by 7.8% and capacity was in line with MQ Research’s expectations, leading to the positive surprise in load factors
• Thai AirAsia delivered double-digit passenger growth in 2Q16, carrying 18% more passengers in 2Q16. Its three-year compound annual growth rate (CAGR) stands at 20%, a commendable performance, in MQ Research’s view. Capacity and traffic figures for Thai AirAsia were in line with MQ Research’s expectations.
• Indonesia AirAsia, in line with its restructuring plans, carried 2% more passengers. Load factors were 83%, an increase from 73% in 2Q15. Capacity and traffic figures for Indonesia AirAsia were in line with MQ Research’s expectations.
• Philippines AirAsia surprisingly reduced 7% year-on-year (YoY) capacity in 2Q16, thus leading to traffic figures marginally below MQ Research’s expectations. Load factor received a boost, at 91% for 2Q16 vs MQ Research’s expectations of 85%.

 
‌Action and recommendation

• Reiterate Outperform with a target price of RM3.50 (+25.8% TSR).

Source: Macquarie Research - 28 Jul 2016