Published: Wednesday February 27, 2013 MYT 9:08:00 AM
Updated: Wednesday February 27, 2013 MYT 3:09:31 PM
CIMB Research upgrades AirAsia target price to RM3.10
It said on Wednesday that AirAsia's share price at RM2.64 has adequately reflected the risks of a Malindo entry, having declined 31% from a high of RM3.82 last July.
Malindo secured its Air Operator's Certificate on Tuesday, and plans to start operations by end-March 2013.
“Our forecasts have already incorporated a 3% underlying yield deterioration for 2013 (reduced from a 6% decline previously, due to a likely slower-than-expected ramp-up for Malindo), followed by another 6% underlying yield decline in 2014,” it said.
CIMB Research said as a result, it expects Malaysia AirAsia's (MAA) core net profit to experience on-year declines from 2014 onwards, until the moment arrives when Lion Air decides to call off the Malindo venture in view of what it expects to be relatively large losses.
“Hence, we emphasise that our target price for AirAsia has already taken into consideration these yield decline expectations,” it said.
The research house said AirAsia's 4Q12 core net profit was 23% above its forecast, due to 9% higher earnings at MAA on lower-than-expected interest expense, and stronger-than-expected performance of IAA.
“As a result, the full-year 2012 core group earnings were 9% above forecast,” it said.