Maybank IB upgrades aviation to ‘overweight’, upgrades AirAsia

by **Cals** Tue 26 Nov 2013, 05:02

Business & Markets 2013

Written by Zatil Husna of theedgemalaysia.com

Monday, 25 November 2013 16:45

KUALA LUMPUR: Maybank IB has upgraded the aviation sector to ‘overweight’ from ‘neutral’. it also upgraded AirAsia Bhd.

The research firm said the upgrade was based on capacity growth and domestic exposure. Those with lower capacity rollout and less domestic Malaysia exposure fared much better.

“The impact was most hard felt by MAS with substantial yield decline of 17.3% year-on-year (y-o-y). AirAsia and AirAsia X were not as badly hit with only 6.5% and 1.6% yield deterioration, respectively, y-o-y.

“Our top pick is AirAsia X, followed by a Trading BUY call for AirAsia (TP: RM2.80), MAS is our sole SELL call (29 sen).

Meanwhile, the research firm rated AirAsia X a buy (TP: RM1.30) and MAHB a hold (TP: RM7.70).

“AirAsia X is poised for strong profit growth and is our top BUY for the sector. AirAsia is a value stock and we advocate a trading BUY as, in our view, the market has over punished the stock.

“MAHB’s share price has had a good run and its valuation is fully valued compared to regional peers. MAS is a SELL as it continues to struggle in the current market environment and we think it will only be profitable in 2015, at best,” the research house said.

The research firm said Malindo’s entry has ‘sparked the fire’ as airlines with significant exposure to the domestic sector were the most affected.

It said Malindo and Mas are mostly affected by domestic exposure while AirAsia and AirAsia X are least exposed.

Looking forward, the research firm expects traffic growth to be robust in the short term buoyed by firm aircraft deliveries by all major airlines.

“Airlines with high capacity deployment will be the most affected, and those with high exposure to the domestic Malaysian sector will experience higher yield pressures.

“However, we firmly believe that things will get progressively better because every airline management has acknowledged that the yield environment is too low and they have to do something to reverse it.

“At some point, the non performing strategies must change, and we think this will happen within the next six months,” it said.

Maybank IB research added that yields are likely to remain soft, but the quantum of decline should be less severe as compared to 3Q13.

Furthermore, fuel prices have been on a downtrend since Oct, and this will provide some relief to the airlines.