Thursday May 17, 2012

AirAsia surprises investors

But its plan for significantly higher dividend may not trigger re-rating

PETALING JAYA: AirAsia Bhd surprised its shareholders and analysts when it announced its intention to pay a significantly higher dividend for the financial year ended Dec 31, 2011 (FY11).

“Increasingly, companies are giving out higher dividends and they realised that having a good dividend policy will boost investor sentiment,” an analyst said.

Analysts said the generous dividend from AirAsia may not trigger a re-rating for the counter but re-rating catalysts would come from the initial public offerings of AirAsia X, Thai AirAsia and Indonesia AirAsia.

They also warned that the aviation industry was currently undergoing a turbulence as soaring fuel prices pushed expenses higher.

On Tuesday, AirAsia recommended a first and final single-tier dividend of 50% or five sen per ordinary share of 10 sen for its FY11.

The proposed dividend, which requires the approval of shareholders, would be payable in cash on July 20 to the holders of ordinary shares registered in the Record of Depositors at the close of business on June 21.

Analysts say AirAsia’s re-rating catalysts will come from the initial public offerings of AirAsia X, Thai AirAsia and Indonesia AirAsia

It added that the dividend was tax exempt in the hands of the shareholders and the notice of entitlement would be announced and advertised at a later date.

“The announced five sen dividend was higher than our previous expectations of 2.6 sen (10% payout) and FY10 net dividend of 2.8 sen. The dividend represents about 20% payout of AirAsia's FY11 core earnings of 26 sen,” Hong Leong Investment Bank Research (HLIB Research) said.

HLIB Research is positive on the dividend payout as it believes AirAsia has reached a strong and stable growth and is in position to better reward shareholders.

“We do not expect the dividend payout (of about RM140mil) to have any significant impact on AirAsia's strong cashflow. Furthermore, AirAsia is likely to realise gains from the listing of its 49%-owned AirAsia Thai unit by June,” it said.

It added that the latest development would gradually change investors' perception that the stock not only had high growth but also was in position to declare dividend commencing FY10.

HLIB Research said AirAsia was exposed to risks such as world crisis (war, terrorism and epidemic outbreak), delay in the completion of KL International Airport 2, high jet fuel price and the development of high-speed train between Singapore and Pulau Pinang.

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