Friday August 3, 2012
AirAsia carries 9.7mil passengers Jan-June beating analyst expectations
By Affin Bank Research
Target price: RM4.20
AirAsia's Malaysian operations flew 4.9 million passengers in the second quarter of 2012, taking the number of passengers carried in the first half of 2012 to 9.7 million, which was 10.6% more than the first half 2011.
At 10.6% year-on-year growth, this is ahead of our full year passenger growth assumption of 9.6%.
The strong growth was driven by more flight frequencies to popular routes, including KLTerengganu, KL-Langkawi, KLVientiane and KLSaigon.
Load factor in the second quarter 2012 remained high at 80% despite a 9.4% year-on-year increase in capacity (available seat per km - ASK) with the delivery of one aircraft during the quarter. In tandem, revenue passengers kilometre (RPK) grew by 7.1% year-on-year taking first half 2012 RPK growth by 7.8%.
Thailand the first half of 2012 registered pax growth of 18.5%. Thailand AirAsia's (TAA) load factor in the second quarter of 2012 deteriorated by 6.8 percentage points to 78.8% as RPK fell by 6% while capacity grew by 2% quarter on quarter.
However, on a yearly basis, RPK grew by an impressive 15.2% in tandem with the 16% growth in ASK. TAA carried 1.9 million passengers in the second quarter of 2012, taking the number of passengers carried in first half 2012 to 5.1 million, an impressive 18.5% growth year-on-year.
The strong growth was fuelled by a new route from Chiang Mai Macau and additional frequency for the BangkokTrang route. TAA also has an additional four new aircraft in the second quarter of 2012 compared with second quarter 2011.
Indonesia impressive 15.6% pax growth in the first half of 2012.
Indonesia AirAsia's (IAA) preliminary operating statistics continued to remain strong. Load factor in the second quarter of 2012 improved by 2.3 percentage points year-on-year to 77.8% as the 5% growth in RPK outpaced the 1.9% growth in capacity.
In the second quarter of 2012, the number of passengers carried grew by 14.9% year-on-year, taking the total passengers carried in first half 2012 to 2.7 million, which was an impressive 15.6% growth. The strong pax growth was the result of IAA's continued effort to strengthen its hub via the introduction of BandungPenang, BandungPekanbaru and DenpasarYogyakarta. IAA also increased flight frequency for BandungKuala Lumpur and DenpasarSurabaya.
Maintain add with an unchanged target price of RM4.20.
We maintain our earnings forecast pending its Q2'12 results on Aug 28, 2012.
We continue to like AirAsia's sound fundamentals, which are backed by its strong operating statistics. Also unchanged is our add recommendation and target price of RM4.20 based on 14 times calendar year 2013 price to earnings ratio.
Potential re-rating catalysts include further improvement in yield and load factor and a further drop in jet fuel price.
Key risks to our recommendation include strong foreign-selling (currently foreign shareholding stands at about 52%) and a reversal in jet fuel price.
By Alliance Research
Target price: RM4.37
EARLIER this week on Monday and Tuesday, India was hit by a massive power disruption affecting over 600 million people, marking India's worst power crisis.
While Monday's blackout impacted nine states, it was far worse on Tuesday with 20 states affected, covering India's entire northern half.
India's Federal Power Minister said the outage was caused by states drawing power “beyond their permissible limits”. There appeared to have been a domino effect, with the overloaded northern grid drawing too heavily on the eastern grid, which in turn led to the collapse of the north-eastern network.
We think that this event serves as a loud wake-up call for the Indian government to quickly resolve India's power shortage, which is estimated to run at a negative reserve margin of 15%, which implies that blackouts are experienced at some point every day.
However, we take the blackout as a positive event for Mudajaya's 26% associate company RKM Powergen, as there is heightened pressure for Coal India Ltd (CIL) to ink the fuel supply agreements with IPPs to ensure the generation capacity comes as planned.
RKM is tasked to operate four times a 360MW coal fired power plants in Raigarh, Chhattisgarh.
Recall that one of the major hiccups in India's power sector is the reluctance of CIL to ink the coal supply agreement with IPPs. CIL recently agreed to supply 80% of the required coal to the IPPs with any shortfalls met via imports. To meet the minimum supply, 65% will come from domestic coal while the balance 15% will be imported to cover the shortfall.
Each IPP will pay the same price for its coal, which is based on the weighted average price of domestic and imported coal. It should not impact RKM as it can invoke its fuel cost pass through mechanism to charge a correspondingly higher tariff.
It was previously proposed that a 0.01% penalty be imposed on CIL if it fails to supply the minimum 80% requirement. With such an insignificant penalty, there were concerns whether CIL will be committed to fulfill its supply obligations.
However, with coal imports and a pooled pricing mechanism now coming in, we think this penalty clause is likely to be raised. Earlier proposals were for a 40% penalty on the shortfall sum.
Therefore, we maintain our earnings forecast and a buy rating on Mudajaya at an unchanged target price of RM4.37.
Our target price is based on a 25% discount to sum-of-parts value comprising of 10 times its financial year ending Dec 31, 2012 (FY12) earnings and free cash flow to equity valuation of its Chhattisgarh IPP at 16% equity cost. This implies an undemanding FY12 till FY13 price to earnings ratio of 9 times and 7.5 times respectively.
By UOB Kay Hian Research
Target price: RM4.85
FROM our meeting with the management, we gather that the results for the financial year ended June 30, 2012 (FY12) results might fall below expectations given its weaker fresh fruit bunch (FFB) production growth (minus 3.4% year-on-year) and lower contributions from other divisions.
FY13 could likely be an unexciting year for IOI given the weakening momentum across all divisions.
This would have some downside risk to our earnings forecasts.
Every one percentage point drop in FFB growth and earnings before interest and taxes (EBIT) margin for its downstream business and property division would result in a 7% decrease in our FY13 forecast EPS (earnings per share).
The production growth in FY12 was below expectation and IOI reported a 3.4% and 3.2% contraction in FFB and crude palm oil (CPO) production respectively.
This is disappointing as production for the fourth quarter of 2011 was significantly lower than expected, especially from Sabah estates.
This is the fourth consecutive year where IOI reported a contraction in FFB production growth.
We are expecting a marginal production growth of 3% to 4% for FY13 and 2% to 3% for FY14 due to its mature age profile.
If El Nino does return in end-2012, IOI's FY13 to FY14 FFB production might be hit given its ageing age profile as mature oil palm trees are more sensitive to a change in weather condition.
For every 1% drop in production, our FY13 forecast EPS would drop by 0.6%.
Meanwhile, the management indicates the downstream business has been challenging with the change in Indonesia's export tax structure affecting its refining margin and the European debt crisis affecting demand for specialty fats.
However, the management is seeing better contribution coming from oleochemicals as its products are focused in high-demand developing countries such as China, India and Pakistan.
It should be noted that the new planting activity in Indonesia has been slow.
So far, IOI has only planted about 1,000ha of new area in FY12 (versus target of 10,000ha), bringing the total planted area in Indonesia to about 9,000ha.
The management indicates that the delay in new plantings is mainly due to the slow progress in obtaining relevant documentation, water-locked problems in the area and partly due to the distraction from the listing of its associate company, Bumitama Agri (about a 30% stake).
Also, IOI's FFB yield has been declining over the years, from a peak of 28.5 tonnes per hectare in FY08 to 23.7 tonnes per hectare in FY11.
This is likely due to its ageing age profile which has resulted in the contraction of FFB production growth over the years.
Oil palm trees have the strongest FFB yield growth at a young age but go downtrend from age 14 onwards.
We are assuming a 23 to 23.5 tonnes per hectare yield for FY13 and FY14.
It should be pointed out that the management is guiding a capital expenditure (capex) of RM1.3bil for FY13, of which about 65% will be allocated to the property division.
Also, the recent issuance of the US$600mil guaranteed senior notes (part of the US$1.5bil Euro medium term notes established in May 2012) is mainly for its property development in Malaysia, particularly its IOI resort city in Putrajaya.
However, the momentum for its property development has been coming off with its delaying of launches for its Malaysia and Singapore projects.
For the first nine months of FY12, the property division contributed about 20% of group pre-tax profit.
Also, IOI has submitted the property development proposal for approval for its newly-bidded land in Clementi, Singapore.
We are more optimistic on this project as compared with its high-end projects in Sentosa Cove and the South Beach project.
The Clementi project targets the mass market and its strategic location should attract buyers.
We reduce our net profit forecasts by 7.7%, 5.6% and 6.1% for FY12 to FY14 respectively, to factor in the lower-than-expected production in FY12.
We also lower our FFB production assumptions for FY13 and FY14 accordingly and now forecast 2% to 4% growth.
We are now expecting EPS of 26.8 sen, 35.8 sen and 39.9 sen for FY12 to FY14 respectively.
We maintain a hold call with a lower target price of RM4.85 (previously RM5.15), based on sum-of-the-parts valuation, which implies a blended 13.6 times FY13 forecast price earnings.
Entry price is RM4.12. However, we foresee downside risk to earnings from weak FFB yield and lower margins.
The share price catalysts include a surge in CPO prices, and stronger demand for resources-based manufacturing segment's products.