BRIEF-HSBC cuts Air Asia target price to RM 0.60

Nov 30 (Reuters) - Air Asia :

* HSBC (nyse: HBC - news - people ) cuts air Asia target price to rm 0.60 from rm 0.90

* Management said at the briefing it will recover the cost of unwinding its fuel derivatives in 2-3 months via a simple derivative structure pending on oil prices falling further. Management would not provide more details on this plan nor elaborate on its previous announcement regarding potential privatisation at MYR1.30-1.35 per share.

* We maintain our long-held view that Air Asia create rather than eliminate risk via its derivatives positions, especially where they are off balance sheet and poorly disclosed.

* Cutting earnings forecast: Stripping out forex and derivative losses, 3Q08 recurring pretax losses of MYR77m exceeded our forecasts by MYR67m mainly due to higher operating costs. We increase our FY08-10 operating costs assumptions and adjust FY08 earnings for 3Q08 forex and derivative losses and lower tax credit.

* Maintain UW with lower TP: We continue to value the company using asset replacement value, add non-aircraft assets less liabilities and obtain a revised target price of MYR0.60 based on our revised earnings. Risks include Air Asia providing limited disclosure about its derivative positions, making it difficult to assess its gains or losses.