Hot Stock Air Asia falls 7% after 2Q results; FX risks seen

Hot Stock Air Asia falls 7% after 2Q results; FX risks seen
Business & Markets 2013
Written by Ho Wah Foon of theedgemalaysia.com
Thursday, 22 August 2013 13:11

KUALA LUMPUR (Aug 22): Shares of AIRASIA BHD [] fell in morning trades after the high profile company released its second quarter results.

Some analysts have alerted currency risk in view of the weakening ringgit vis a vis the US dollar.

Yesterday, the low-cost airline reported core earnings of RM109 million for its second quarter ended June 2013, which brought first half core net profit to RM264 million – largely within the estimates of analysts.

At noon, the stock fell 21 sen or 7% to RM2.77 on trades of 15.6 million shares. It was the 10th most active counter against a depressed market.

AmResearch, in a note today, said the strength in dollar is “a developing risk” for Air Asia as the bulk of its cost (from buying fuel) is denominated in US dollar.

“We estimate that every 1% change in our US dollar assumption will impact FY13-14F earnings by 2%-2.5%... Increasing earnings risk from a weak currency (ringgit), a deteriorating yield environment and rising cost, entice us to maintain our HOLD call.”

“We reaffirm our HOLD rating on Air Asia at unchanged fair value of RM2.80/share following the release of its 2Q13 results last night.”

The research house noted that despite a 5% YoY drop in spot jet fuel price, AA’s core earnings (excluding forex losses, mark-to-market gains and deferred tax) contracted by 22% YoY and is down 13% YTD. Operating parameters seem to have deteriorated with yields falling 12% YTD and loads falling 1.4% YTD.

But Kenanga Research, which like other research houses expect Air Asia to see stronger earnings in 2H13 due to more public holidays traveling and positive contributions from its associates, has maintained “outperform” rating on the airline.

“We maintain our target price of RM3.51 based on an unchanged 11x FY14 PER,” said the research house.