Aug 3 2011, 10:32 PM
AirAsia soars to all-time high
KUALA LUMPUR: Just 10 months after overtaking Malaysian Airline System Bhd (MAS), AirAsia Bhd’s market capitalisation is now twice that of the national carrier’s.
Shares of the low-cost carrier (LCC) surged 15 sen to reach an all-time high of RM4.14 yesterday, on heavy volume of 13.25 million shares. That gave it a market capitalisation of RM11.49 billion, more than double MAS’ RM5.05 billion.
AirAsia is now ahead of UKbased Easyjet plc, which has a market capitalisation of £1.51 billion (RM7.27billion), and is about half the size of the world’s two largest LCCs — Ryanair Holdings plc (market capitalisation of €4.61 billion or RM19.34 billion) and Southwest Airlines (US$7.7 billion or RM22.79 billion). It is just under one-third the size of Singapore Airlines Ltd (S$15.05 billion or RM36.94 billion).
AirAsia is also the best performing stock among global LCCs, chalking up gains this year despite investors’ lacklustre appetite for airline stocks due to rising fuel costs.
AirAsia has gained 64% year-to-date, compared to losses of about 18% for Ryanair, 20% for Easyjet and 25% for Southwest Airlines. Among the full-fare airlines, MAS shares have fallen almost 28% year-to-date, while Singapore Airlines Ltd has declined 18%.
Yesterday, the stock broke the RM4-mark for the first time, having seen its share price surge 176% from the RM1.50-levels a year ago, despite the carrier announcing a 23.3% drop in profit for 1QFY11 ended March 31 to RM171.93 million from RM224.11 million in the previous corresponding period. Revenue rose to RM1.05 billion from RM870.6 million. Rising fuel prices have taken their toll, MAS posted a net loss of RM242.3 million during the quarter against a net profit of RM310 million the year before.
Indeed, the divergent fortunes of the two carriers have prompted speculation of a possible merger between the two. AirAsia’s rising share price would give it a major advantage in any M&A, observers say, especially in a share swap. However, it remains pure speculation at this point.
The share price rally also augurs well for a fundraising exercise — a rights issue, for instance, or a share placement. Analysts said there is no pressing need for AirAsia to raise fresh capital although it has placed a large order for aircraft recently.
It is interesting to note that while foreign funds are shunning airline stocks in general, the Employees Provident Fund (EPF) has been actively scooping up AirAsia shares.
Filings with Bursa Malaysia show that the EPF has acquired 9.4 million shares in the last two months, from June 30 to July 28. Tune Air Sdn Bhd is the largest shareholder holding 23.07% equity interest in AirAsia, while the EPF owns 9.66%.
As for the other catalysts driving AirAsia’s share price, analysts point to its robust business model, financials and a venture to Japan.
“It may be because investors are anticipating the company will post positive 2QFY11 results, or because of the recent news of its Japanese venture,” said a fund manager.
The company recently partnered with All Nippon Airways Group (ANA) to form AirAsia Japan Co Ltd, which will serve as a platform for AirAsia’s foray into the East Asia and Americas markets.
AirAsia Japan, in which AirAsia will hold a 49% stake with the remaining 51% to be held by ANA, will focus on short-haul routes to Japan, China and South Korea with an initial fleet of three to four aircraft.
OSK Research is positive on the venture, as budget airlines have yet to make their mark in Japan with only a 9.1% market share of air travel.
“LCCs in Japan typically operate on a small scale and have been victims of acquisitions by bigger carriers given the unaggressive expansion strategy.
Arguably, in the past LCCs there did not operate as a pure low-cost carrier model, which by right would emphasise high seat density and a no-frills model. As such, this has resulted in a high cost base structure for Japanese LCCs compared with most leading LCCs nowadays,” said OSK in a previous report.
OSK believes AirAsia Japan can achieve an average load factor of 80% given the low competition for budget travel.
AirAsia Japan, which will have a paid-up capital of ¥5 billion (RM190.4 million), is applying for its Air Operator’s Certificate in September and is expected to launch its maiden flight in August 2012.
The Japanese venture follows the company’s expansion into Thailand, Indonesia, the Philippines and Vietnam.
Thai AirAsia and Indonesia AirAsia are believed to be planning a listing process by year-end. This would generally be perceived as a positive development for AirAsia. The listings would establish financing for both entities so they would rely less on AirAsia.
This article appeared in The Edge Financial Daily, August 3, 2011.
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