Saturday September 15, 2012
RHB: AirAsia has ‘many defences’ over rival Malindo
These included AirAsia's lower cost structure, strong balance sheet, much bigger size, highly recognised brand and good safety records, the brokerage said in a report.
RHB's aviation analyst Joshua Ng wrote, quoting AirAsia, that in the immediate term, the company might not need to cut ticket prices at all, or if it did, the cuts might not be significant to counter a price cutting by Malindo, should there be any.
This was because Malindo would not have the capacity to replicate all of AirAsia's domestic routes, and for those popular routes that it would, its frequencies might be just a fraction of AirAsia's, Ng said.
“We suspect the market (ourselves included) could have been a little ahead of itself in terms of the prediction of a price war, and the depth and width of it,” RHB said.
“Separately, AirAsia said that it is rethinking its plan to acquire rival Batavia Air in Indonesia for RM240mil cash. AirAsia hinted that having got to know the Indonesian aviation sector better due to the proposed acquisition, it now feels that to grow its Indonesian operations organically may not necessarily be a bad idea after all,” it said.
Ng said AirAsia's near-term earnings growth prospects were less exciting, as growth from its domestic operations was tapering off, coming from an enlarged base.
“Not helping either are lingering losses from its new low-cost carrier start-up in Japan and the online air travel agent Expedia JV, given the long gestation periods for these new ventures,” it added.
However, RHB believes that value has emerged after the steep selldown on the back of the Malindo news with a fair value of RM3.63 per share based on 12 times financial year 2012/2013 earnings.
“We do not believe Malindo can become a meaningful threat to AirAsia's domestic operations overnight as it takes time for Malindo to grow its operations to a significant size to become a worthy rival to AirAsia,” it said. “Over the longer term, its survival also depends on its ability to beat or at least match AirAsia's extremely low-cost structure.”