HLIB Research

PP 9484/12/2012 (031413)

AirAsia (HOLD , EPS )

NEWSBREAK SECTOR: NEUTRAL

8 April 2013 Price Target: RM2.84 () Share price: RM2.87 Daniel Wong kkwong@hlib.hongleong.com.my (603) 2168 1077 KLCI Expected share price return Expected dividend return Expected total return Share price
(RM) 4.0
AIRA (LHS) KLCI (RHS)

India AirAsia is COMING

News

AirAsia has received the formal approval from Indian Foreign Investment Promotion Board (FIPB) for its 49% JV investment with Tata Sons Limited (30%) and Mr. Arun Bhatia (21%) into India AirAsia. With this approval, India AirAsia is formally set up with Shareholders Agreement and Brand Licensing Agreement (with AirAsia) to be signed within April. However, the JV still needs to apply for the aviation license (to fly aircrafts) with the Indian Directorate General of Civil Aviation. The JV is aiming to commence operation as early as Deepavali (end 2012), to take advantage of the India largest festivals. Financial impact is expected to be minimal, as AirAsia is likely to recognize losses from the new JV up to its capital investments of RM22.5m. The initial startup investment for India AirAsia is expected to be US$14.5m (RM45m). We continue to be positive with AirAsia penetrating into India market given its huge population of 1.2bn and fast developing economy (one of the BRICs). The new hub will expand AirAsia Groups connectivity further into the west such as Pakistan and Middle East countries. India market is well known for its competitiveness due to the many number of domestic airlines, complex regulations, high cost structures and low domestic income level. Indian airlines have been making losses over the past years with some airlines even in the brink of bankruptcy. We believe the new India AirAsia will face tough competitions and incur losses in the early years of operation (similar to all the previous JVs i.e. Thailand, Indonesia, Japan and Philippines). However, India AirAsia is likely to survive the competition, banking on strong brand name, disciplined cost structures, vast networks connectivity and experienced management.

1689 -1.0% 1.9% 0.9%

(KLCI) 1700

1650 3.5

Financial impact

1600 3.0 1550

Pros / Cons

2.5 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13

1500

Information Bloomberg Ticker Bursa Code Issued Shares (m) Market cap (RMm) 3-mth avg daily vol (000) Price Performance Absolute Relative Major shareholders Tune Air Wellington EPF Table 2013E 5,894 1,812 843 826 826 30 9.7 2.0 1.4 7.6 2.1% 136.2 16.0 5.0 1M 1.8 -0.3

AIRA MK 5099 2,781 7,980 8,344 3M 4.2 4.2 12M -10.2 -15.0

23.0% 9.0% 7.9%

Risks

Forecasts Rating

Summary Earnings 2012A 4,996 1,695 Pre-tax Profit 2,051 Unchanged. Rpt. net profit 1,876 Norm. net profit 815 HOLD Norm. EPS (sen) 29 Positives P/E (x) 9.8 1.9 Beneficiary of strong air traffic into Malaysia, in line with Book Value (RM) P/B (x) 1.5 government initiatives to boost tourism sectors. 7.7 Largest and lowest cost LCC in Asia with strong brand EV/EBITDAR (x) Net Dvd Yield (%) 8.4% name. Net Gearing (%) 116.2 Strong ancillary income. ROE (%) 17.3 ROA (%) 5.4 Negatives HLIB

World crisis (ie. war, terrorism and epidemic outbreak), delay FYE Dec (RM m) in KLIA2 completion, high jet fuel price and development of Turnover high speed train between Singapore and Pulau Pinang. EBITDA

2014E 2015E 6,902 7,483 2,105 2,310 989 1,052 976 1,039 976 1,039 35 37 8.2 7.7 2.3 2.6 1.3 1.1 6.9 6.4 2.4% 2.6% 141.3 127.7 16.5 15.4 5.0 4.8

High jet fuel cost. Entry of Malindo Airways enforcing price competition. Proposed construction of high speed railway for KL-SG.

Valuation
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Maintained Hold on AirAsia with unchanged TP of RM2.84.

8 April 2013

HLIB Research | AirAsia

www.hlebroking.com

Financial Projections
Income statement FYE 31 Dec (RMm) Revenue Operating cost EBITDAR Lease EBITDA Depreciation Net Interest Associates Exceptionals Pretax profit Taxation (Inc Def Tax) Minorities Net profit Core profit (Ex Def Tax) No of shares (m) Rep. EPS (sen) Core EPS (sen) Balance sheet FYE 31 Dec (RMm) Fixed assets Other long-term assets Other short-term assets Working capital Receivables Payables Inventory Net cash Cash ST debt LT debt Shareholders' funds Share capital Reserves Minorities Other liabilities Assumption Metrics FYE 31 Dec ASK (m) RPK (m) Load factor (%) Passenger Carried ('000) Passenger Yield - Rev/RPK (sen) Passenger Yield Growth (%) Ancillary Income/Pax (RM) Ancillary Income/Pax Growth (%) Fuel price/barrel (USD) MYR/USD Bloomberg, HLIB 2011A 26,075 21,036 80.7% 17,987 14.5 -5.2 47.3 7.1 133 3.08 2012A 28,379 22,731 80.1% 19,679 14.5 0.1 39.5 -16.5 135 3.08 2013E 33,786 27,029 80.0% 23,771 14.2 -2.5 40.7 3.0 130 3.05 2014E 37,667 30,133 80.0% 26,775 14.2 0.3 41.9 3.0 135 3.05 2015E 39,819 31,855 80.0% 28,458 14.3 0.5 43.1 3.0 138 3.05 2011A 8,586 1,407 1,730 99 1077 -998 20 -5,761 2,020 -615 -7,166 4,045 278 3,767 0 2,015 2012A 9,786 2,916 1,689 -509 1363 -1,896 24 -6,219 2,226 -726 -7,718 5,353 278 5,075 0 2,310 2013E 2014E 2015E 11,547 13,792 14,705 2,919 2,989 3,080 1,794 2,046 2,191 -823 -896 -833 1467 1719 1864 -2,318 -2,648 -2,733 28 33 36 -7,509 -8,939 -9,160 1,998 1,991 2,149 -726 -726 -726 -8,781 -10,204 -10,583 5,513 6,326 7,171 278 278 279 5,235 6,048 6,893 0 0 0 2,414 2,666 2,812 2011A 4,489 -2,765 1,724 -81 1,643 -588 -312 6 51 794 -230 0 564 725 2,773 20.3 26.1 2012A 4,996 -3,141 1,855 -160 1,695 -562 -299 -4 1,218 2,051 -176 0 1,876 815 2,778 67.5 29.3 2013E 5,894 -3,862 2,033 -221 1,812 -679 -360 70 0 843 -18 0 826 826 2,780 29.7 29.7 2014E 6,902 -4,459 2,443 -338 2,105 -805 -437 126 0 989 -13 0 976 976 2,782 35.1 35.1 2015E 7,483 -4,796 2,687 -377 2,310 -917 -480 139 0 1,052 -13 0 1,039 1,039 2,784 37.3 37.3 Cashflow FYE 31 Dec (RMm) EBITDA Net interest received Working capital changes Taxation Others Operating cashflow Capex & acquisitions Free cashflow Other inv cashflow New borrowings Share issuance Dividends paid Other fin cashflow Net cashflow Forex translation Beginning cashflow Ending cashflow Valuation Ratios FYE 31 Dec (RMm) Reported basic EPS (sen) Core basic EPS (sen) Core FD EPS (sen) PER (x) FD PER (x) Net DPS (sen) Net DY (%) BV/ share (RM) PB (x) FCF/ share (sen) FCF yield (%) Market capitalization Net cash Enterprise value EV/ EBITDAR (x) ROE (%) Other Ratios FYE 31 Dec (RMm) Growth (%) Sales Growth EBITDAR Growth EBITDA Growth EBIT Growth PBT Growth Net Profit Growth Margins (%) EBITDAR Margin EBITDA Margin EBIT Margin PBT Margin Net Profit Margin Net Debt/Equity (%) 2011A 13.0 -1.0 -1.9 -8.4 -11.6 -13.4 38.4 36.6 23.5 16.6 16.2 142.4 2012A 11.3 7.6 3.2 7.3 12.1 12.3 37.1 33.9 22.7 16.7 16.3 116.2 2013E 18.0 9.6 6.9 0.0 1.2 1.3 34.5 30.7 19.2 14.3 14.0 136.2 2014E 17.1 20.2 16.2 14.7 17.3 18.2 35.4 30.5 18.8 14.3 14.1 141.3 2015E 8.4 10.0 9.8 7.2 6.4 6.4 35.9 30.9 18.6 14.1 13.9 127.7 2011A 20.3 26.1 11.0 5.0 1.7 1.5 1.8 113 NA 7,973 -5,761 13,734 8.0 18.9 2012A 67.5 29.3 9.8 24.0 8.4 1.9 1.4 -212 NA 7,978 -6,219 14,197 7.7 17.3 2013E 29.7 29.7 9.7 5.9 2.1 2.0 1.3 -249 NA 7,984 -7,509 15,493 7.6 16.0 2014E 2015E 35.1 37.3 35.1 37.3 8.2 7.7 7.0 7.5 2.4 2.6 2.3 2.6 1.2 1.0 -475 -27 NA NA 7,989 7,994 -8,939 -9,160 16,928 17,154 6.9 6.4 16.5 15.4 2011A 1,637 -312 350 -49 -283 1,344 -1,030 314 537 -264 5 -77 16 532 0 1,476 2,008 2012A 1,700 -299 -359 -25 290 1,306 -1,896 -590 -39 887 2 -77 16 199 0 2,008 2,207 2013E 1,812 -360 314 -18 0 1,748 -2,440 -692 0 1,062 2 -667 67 -228 0 2,207 1,979 2014E 2,105 -437 73 -13 0 1,727 -3,050 -1,323 0 1,423 2 -165 57 -6 0 1,979 1,972 2015E 2,310 -480 -63 -13 0 1,754 -1,830 -76 0 379 2 -195 48 157 0 1,972 2,130

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HLIB Research | AirAsia

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Disclaimer The information contained in this report is based on data obtained from sources believed to be reliable. However, the data and/or sources have not been independently verified and as such, no representation, express or implied, is made as to the accuracy, adequacy, completeness or reliability of the info or opinions in the report. Accordingly, neither Hong Leong Investment Bank Berhad nor any of its related companies and associates nor person connected to it accept any liability whatsoever for any direct, indirect or consequential losses (including loss of profits) or damages that may arise from the use or reliance on the info or opinions in this publication. Any information, opinions or recommendations contained herein are subject to change at any time without prior notice. Hong Leong Investment Bank Berhad has no obligation to update its opinion or the information in this report. Investors are advised to make their own independent evaluation of the info contained in this report and seek independent financial, legal or other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise represent a personal recommendation to you. Under no circumstances should this report be considered as an offer to sell or a solicitation of any offer to buy any securities referred to herein. Hong Leong Investment Bank Berhad and its related companies, their associates, directors, connected parties and/or employees may, from time to time, own, have positions or be materially interested in any securities mentioned herein or any securities related thereto, and may further act as market maker or have assumed underwriting commitment or deal with such securities and provide advisory, investment or other services for or do business with any companies or entities mentioned in this report. In reviewing the report, investors should be aware that any or all of the foregoing among other things, may give rise to real or potential conflict of interests. This research report is being supplied to you on a strictly confidential basis solely for your information and is made strictly on the basis that it will remain confidential. All materials presented in this report, unless specifically indicated otherwise, is under copyright to Hong Leong Investment Bank Berhad. This research report and its contents may not be reproduced, stored in a retrieval system, redistributed, transmitted or passed on, directly or indirectly, to any person or published in whole or in part, or altered in any way, for any purpose. This report may provide the addresses of, or contain hyperlinks to, websites. Hong Leong Investment Bank Berhad takes no responsibility for the content contained therein. Such addresses or hyperlinks (including addresses or hyperlinks to Hong Leong Investment Bank Berhad own website material) are provided solely for your convenience. The information and the content of the linked site do not in any way form part of this report. Accessing such website or following such link through the report or Hong Leong Investment Bank Berhad website shall be at your own risk. 1. As of 08 April 2013, Hong Leong Investment Bank Berhad has proprietary interest in the following securities covered in this report: (a) -. 2. As of 08 April 2013, the analyst, Daniel Wong, who prepared this report, has interest in the following securities covered in this report: (a) -.

Published & Printed by

Hong Leong Investment Bank Berhad (10209-W)

(Formerly known as MIMB Investment Bank Berhad) Level 8, Menara HLA No. 3, Jalan Kia Peng 50450 Kuala Lumpur Tel 603 2168 1168 / 603 2710 1168 Fax 603 2161 3880

Equity rating definitions

BUY TRADING BUY HOLD TRADING SELL SELL NOT RATED Positive recommendation of stock under coverage. Expected absolute return of more than +10% over 12-months, with low risk of sustained downside. Positive recommendation of stock not under coverage. Expected absolute return of more than +10% over 6-months. Situational or arbitrage trading opportunity. Neutral recommendation of stock under coverage. Expected absolute return between -10% and +10% over 12-months, with low risk of sustained downside. Negative recommendation of stock not under coverage. Expected absolute return of less than -10% over 6-months. Situational or arbitrage trading opportunity. Negative recommendation of stock under coverage. High risk of negative absolute return of more than -10% over 12-months. No research coverage, and report is intended purely for informational purposes.

Industry rating definitions

OVERWEIGHT NEUTRAL UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% over 12-months. The sector, based on weighted market capitalization, is expected to have absolute return between 5% and +5% over 12-months. The sector, based on weighted market capitalization, is expected to have absolute return of less than 5% over 12-months.

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8 April 2013