Stock picks in key sectors

25 July 2009

IN good or bad times, there is always value to be found. StarBizWeek polled several analysts’ views on their stock picks and have compiled a list of eight stocks from several key sectors.

On the back of a 23% passenger growth and 77% load factor, analysts are expecting AirAsia Bhd’s quarterly results next month to surprise on the upside.

“Ancillary income will offset fuel price increase. It acts as the best defence against fuel price increase as every RM1 per pax increase will offset US$1 per barrel increase in fuel price,” says an analyst from ECM Libra.

He adds that ancillary income has doubled to RM29 per pax within the last two years and management targets to double it again to RM60 per pax by introducing more value-added services.

Meanwhile, AirAsia plans to defer the delivery of 15 A320 aircraft as it expects the construction of the new LCCT to be further delayed. Hence, capital requirement will be reduced by RM2.3bil while gearing will also be lowered.

“We reiterate our buy call on AirAsia with a target price of RM1.90. AirAsia is poised to outperform on consensus earnings upgrade in anticipation of strong second quarter results, sustained low fuel price and potential dual listing (or merger),” he says.

The analyst forecasts an 8.89% increase in revenue to RM2.87bil while net profit is expected to jump 211.13% to RM598.3mil for its year ending Dec 31, 2009.

irTran soars on positive outlook; Allegiant slumps on ancillary revenue fall; AirAsia higher

22 July 2009

Worldwide LCC share prices were mixed on Wednesday (23-Jul-09), reflecting softer conditions in European, Asian and North American equity markets. Oil prices in New York eased USD 32 cents to USD65.40 for Sep-2009 delivery, but rose 48 cents to USD67.19 in London.

Among the gainers, AirTran's shares jumped 10.8%, as the LCC reported a strong net profit of USD74.8 million 2Q2009, as it benefited from a combination of lower fuel prices, its decision to reduce capacity and its low cost structure, in what is otherwise a challenging and uncertain operating environment. AirTran CEO, Bob Fornaro, stated that, while the industry likely faces a slow recovery, AirTran's low cost structure puts it in a good position. He added that, as AirTran was one of the first airlines to react to the changing economic environment last year, it is “among the first airlines to show signs of recovery”.

Allegiant – yields and ancillaries down, remains unhedged

Also reporting yesterday was Allegiant Air. Despite the carrier reporting another solid performance in the quarter, with a nine-fold increase in net profit, the carrier’s share price slumped 9.4%.

While Allegiant remains a star performer in the US aviation industry, there are a few signs of weakness for the carrier: probably the most concerning is that, for the first time in years, ancillary revenue per passenger declined (albeit slightly, to a still impressive USD32.36/pax), with average fares also down in the quarter (-13%), although the carrier expects this to trend upwards in 3Q2009.

The carrier, which operates a fleet of geriatric MD80 aircraft, is also unhedged moving forward, making the carrier very susceptible to significant oil price increases in the future. However, contrary to the investor reaction, Allegiant CEO and President, Maurice Gallagher Jr, remains optimistic, stating, “we find ourselves in an exceptional place”, with the carrier also remaining hopeful that Jun-2009 “may mark the bottom of revenue softness”, as it approaches the seasonally-weak third quarter.

Mr Gallagher, added, "fares for July, including ancillary, are, thus far, trending slightly upwards, despite the large year-over-year capacity increase we have in this month. An improvement in the revenue environment as well as the recent moderation in fuel prices will help us to extend strong year-over-year earnings growth into the third quarter, historically the seasonally weakest of the year,” he concluded.

The unique airline has always been an enigma for the market, which tends to interpret its results uncertainly. It seems that investors are particularly anxious at the slightest indication of weakness, in particular the three issues – of reduced yields (over the previous, low season quarter), reduced ancillary income per unit and a – predictable – sequential quarter-on quarter increase in fuel costs for the unhedged carrier. Compared to carrier’s sequential comparisons, RASM fell 12% year-on-year for the quarter.

Elsewhere, in Europe, shares in Air Berlin, easyJet and Ryanair were all weaker yesterday, down 3.0%, 1.1% and 0.2%, while in Asia Pacific, AirAsia gained 2.4%.

Selected LCCs daily share price movements (% change): 22-Jul-09

AirAsia Submitting Merchant Bank

22 July 2009

We are pleased to announce the proposed issue by CIMB Bank of up to 100,000,000 European-style non-collateralised cash-settled call warrants over ordinary shares of RM0.10 each in AirAsia.

The AirAsia CW is constituted by the Deed Poll dated 7 April 2009 and First Supplemental Deed Poll dated 22 June 2009 executed by us, as supplemented from time to time. The AirAsia CW is subject to the terms and conditions of the Base Prospectus dated 8 May 2009, First Supplementary Base Prospectus dated 27 May 2009, Second Supplementary Base Prospectus dated 6 Jul-2009 and the Term Sheet for the AirAsia CW dated 22-Jul-2009.

The AirAsia CW is to be listed on the Warrants Board of Bursa Malaysia Securities Berhad and is the 7th call warrant to be issued by CIMB Bank under the Base Prospectus dated 8 May 2009.

A summary of the principal terms of the AirAsia CW is set out in Table 1.

AirAsia X CEO backs merger with AirAsia Bhd

23 July 2009

Azran: Merger will let AirAsia tap into long-haul markets

SEPANG: A merger between AirAsia X and AirAsia Bhd makes business sense and the combined balance sheet would make sourcing for future funding much easier, said AirAsia X chief executive officer Azran Osman-Rani.

“It would be difficult for AirAsia in the future if it did not have trunk routes as (this) is where the traffic volumes come from, so AirAsia needs growth from AirAsia X and the merger allows it to tap growth opportunities in the long-haul markets,” Azran told StarBiz in an interview.

“AirAsia cannot continue to just criss-cross and enter new markets, it needs a bigger base,’’ he added.

Given the nature of the business, which is counter-cyclical, a large base was necessary to balance the routes in peak and non-peak months, he said.

Azran Osman-Rani … ‘AirAsia needs growth from AirAsia X.’

That is why AirAsia X has to sell beyond Kuala Lumpur or else only 20% of the seats will be taken up. It has to sell destinations, be it in Malaysia or the region, and 80% of those travelling with AirAsia X use AirAsia to travel to Langkawi, Penang, Phuket or even Bali.

“That is why AirAsia needs growth from AirAsia X and for that greater control of AirAsia X is needed,’’ Azran said.

Recently, AirAsia group chief executive officer Datuk Seri Tony Fernandes was reported as saying his personal preference was for a merger of the two companies.

AirAsia has a 16% stake in AirAsia X and an option to increase it to 30%.

The remaining shareholders in AirAsia X are Aero Ventures Sdn Bhd (48%), the Virgin Group (16%), while Bahrain-based Manara Consortium and Japan-based Orix Corp hold the remaining 20%.

Aero Ventures is owned by Fernandes, Datuk Kamarudin Meranun, Datuk Kalimullah Hassan, Lim Kian Onn and former Air Canada chairman and CEO Robert Milton.

Fernandes and Meranun are controlling shareholders in AirAsia with a 30.7% stake via Tune Air Sdn Bhd.

Even though it is still at the idea stage, critics are already saying the merger is necessary to rescue AirAsia X as, to them, AirAsia is now subsidising AirAsia X.

“Rubbish, we can clearly dispute that. For the first quarter ended March 31, 2009 our net profit was RM18mil and we are net cashflow positive. We even had a little cash at RM3mil.

“We are in a very good position and on a much firmer footing and now is an interesting time to talk about merger,’’ Azran said.

Fernandes, in a separate interview with StarBiz recently, said the merger was merely his proposal but felt it was a good model. However, no decision has been made thus far.

“When we started AirAsia X, a lot of critics said we could not do it but AirAsia X has turned out to be a very cash-flow positive company. Azran will be going on a roadshow soon to explain so that people have a better understanding that this long-haul, low-cost model can work,’’ Fernandes said then, adding that the roadshow would cover Kuala Lumpur, Singapore, Hong Kong, New York and London.

A share swap is likely but Azran said AirAsia had an option to increase its stake from 16% to 30% and with that it could equity account its venture in AirAsia X.

“They can either put cash in and increase the stake from 16% to 30% or do a share swap. It is a decision only the shareholders can make and I am not privy to that,’’ he said.

Asked when the merger was likely to happen, he said: “I will be surprised if it happens this year. AirAsia X has not received any offer and the process cannot begin. We also have to appoint a valuer and AirAsia has to hold an EGM.’’

AirAsia X was last valued at RM1.3bil when Manara and Orix took up their stakes.

Good response, so AirAsia increases KL-Taipei flights

22 July 2009

PETALING JAYA: AirAsia is expanding the frequency of its Kuala Lumpur-Taipei route from five a week to daily flights, starting Oct 19.

The route was launched in April and had received overwhelming response, said AirAsia chief executive officer Azran Osman Rani.

“We are running at more than 75% load factor. More than 20,000 seats were sold within the first 12 hours of the sales announcement in April and forward bookings were exceptionally strong,” he said.

The all-in-fare is priced at RM129. Tickets for the period from Oct 19 to Jan 10, 2010 can be booked from tomorrow to July 31.

Citibank AirAsia credit cardholders get to enjoy 24-hour priority booking, starting today.

Free room stay is also offered, via the airline’s GoHoliday package, at Hotel Renaissance, Hotel Equatorial, One World Hotel, Corus Hotel and Tune Hotels.

Another promotion, Best Online Rates in Taipei, offers five-star hotel rooms for as low as RM383 per night.

AirAsia to fly from Miri, Tawau to Singapore

20 July 2009

AIRASIA will launch two new flights from Miri and Tawau to Singapore from Sept 9 to build up a stronger virtual hub in the “lion city”.

The introduction of these new routes makes AirAsia the first and only airline flying the Singapore-Miri and Singapore-Tawau sectors.

With its vast connectivity around the region, AirAsia now has a total number of 406 weekly flights to and from Singapore.

“We are proud to open up new markets as these sectors are not served. Students, families and foreign workers can now take advantage of our low fares and renew their social ties more frequently or even indulge in leisure holidays to both countries,” said AirAsia regional head of commercial Kathleen Tan.

“There are countless attractions in East Malaysia and Singapore offering a wonderful journey of discovery into their culture and heritage.

“Our recent initiative to remove the administration fee reiterates AirAsia’s commitment to offer big value so everyone can fly following our move to abolish fuel surcharge last year,” she added.

The two new routes will draw more inbound international tourist traffic arriving from Singapore into Sabah and Sarawak alongside from Kuala Lumpur through AirAsia X’s long haul network.

This brings in Chinese, Australians and European tourists, who are often interested to explore surrounding cities in the region and these routes will entice them to visit the state for its rich ecotourism activities.

AirAsia, through its holiday division GoHoliday, is also offering its guests free rooms (subjected to terms and conditions) when they book at its partner hotels in Singapore such as Concorde Hotel Singapore, Le Peranakan Boutique Hotel Singapore, Siloso Sentosa Hotel, The Metropolitan Y Hotel, Hotel Royal and Quality Hotel Singapore.

This promotion is valid via goholiday.airasia.com and is available on first come, first served basis.

Passengers can also follow AirAsia on Twitter, Facebook, and AirAsia blog where they will provide real time updates on the latest promotion.

Airasia celebrates Perth � Bali inaugural flight

20 July 2009

AirAsia, Skytrax World’s Best Low-Cost Airline celebrated the much awaited Perth-Bali flight The inaugural flight from Bali - Perth today carried 100% load both ways signifying the stout demand for the sector. Commencing August 19, 2009 AirAsia will be servicing the Bali-Perth route between Ngurah Rai International Airport and Perth Airport with 2 direct daily flights marking a major tourism and economic coup for both countries. Jointly, AirAsia Group has 21 flights weekly to Perth inclusive of one daily direct flight departing from Kuala Lumpur.

Perth is the first Australian destination to be serviced from Indonesia by AirAsia Indonesia and it is the 4th international route operated from the Bali hub after Kuala Lumpur, Bangkok and Singapore.
AirAsia Indonesia has succeeded to pass the strict regulations of the Foreign Airline Operating Certificate of Australia and has met the requirements of the Australian Civil Aviation Safety Authority (CASAA), demonstrating AirAsia’s high safety standard.

In addition to that, AirAsia, the champion of low fares will bring its innovative products and services, spacious and comfortable cabin, fun and friendly crew to its guests so that they will enjoy unparallel level of comfort and convenience. AirAsia also offers the most extensive route network in the region hence AirAsia guests will enjoy seamless access in the region and beyond including routes serviced by AirAsia’s long-haul affiliate, AirAsia X.

Chief Executive Officer of AirAsia Indonesia Dharmadi, says “Bali is an ideal and exciting choice as it is a prime holiday destination for Australians. With its unique culture, spectacular beaches, water sports activities, Bali needs no introduction to them. There are quite a number of Indonesians who are not only pursuing their studies but are also residing in Perth. The number of Australian tourists visiting Bali in the first quarter of 2009 rose 24.85 percent to 71,970 from 57,647 in the same period last year. The Australian tourists accounted for 14.67 percent of the total tourists coming to the Island of Paradise in the first quarter, out of the number, 71,199 of the Australian tourists visited Bali via Ngurah Rai International Airport in Denpasar,”

“We are very keen to position Bali as the gateway to Indonesia and other Asean cities as the airport also offers strong domestic and international connections. Indeed we have recorded an increase of inbound traffic to Bali and other parts of Indonesia from Perth and surrounding Western Australia with the inclusion of this new Perth-Bali service.” added Dharmadi

Kathleen Tan, Regional Head of Commercial of AirAsia Group commented “We are very thrilled with AirAsia Indonesia’s first foray to Perth, Australia today. AirAsia is breaking the trend with our aggressive expansion plans and increasing frequencies despite the challenging economic climate and when other airlines are cutting routes or downsizing capacity. The demand for Perth-Bali route has been phenomenal; we’ve sold over 75,000 seats since last May when we opened for sale. AirAsia is very competitive and committed in offering the lowest fares and many will find that AirAsia is a highly attractive option through our 8 hubs in Penang, Kuala Lumpur, Kota Kinabalu, Johor Bahru, Bangkok, Jakarta, Bali, Bandung and a virtual hub in Singapore. This has enabled us to build an extensive route network with the greatest Asean and Indochina connection.”

Meanwhile Mr. Brad Geatches, CEO of Westralia Airports Corporation says "The introduction of this new route is great news for West Australians who can now expect more competitively-priced flights and greater access to this favourite holiday destination. This new service not only offers great value flights to Denpasar, it also opens up the entire Asia region to travellers who can use Bali as a stop over to other destinations. We expect both our inbound and outbound traveller numbers to continue to grow over the coming months thanks to the new service."

AirAsia is also offering great hotel rates and exciting packages under GoHoliday, its one stop travel portal

at goholiday.airasia.com. Guests can benefit from greater savings and value for money on their accommodation in addition to the low fares that AirAsia offers. Currently, GoHoliday has a wide range of over 50,000 hotel partners where guests can select from 3-star hotels, 5-star hotels or even Boutique hotels to cater to every traveler’s budget.

The new route will be served by AirAsia’s brand new Airbus A320 aircraft, one of the most modern aircraft that boosts efficiency, enhances reliability and provides higher service levels to AirAsia’s guests. The Airbus A320 family provides operators with the highest degree of operational commonality and ensures guests’ safety and comfort.