Wednesday, September 03, 2008

Analysts turn cautious on AirAsia

AIRASIA Bhd’s weak financial performance for the six months ended June raised few eyebrows.

Most analysts were not surprised. While some are now in the midst of revising their estimates downwards, some are still optimistic of the budget carrier’s long-term prospects.

AirAsia saw its net profit for the second quarter ended June 30 plunge 95% to RM9.42mil from RM185mil a year ago after accounting for deferred taxation, mainly due to a RM77mil translation loss resulting from the weakened ringgit.

Despite its weaker results, most analysts have not removed the stock from their radar, with some even making a “buy” call with a target price of RM1.30.

However, there is no lack of sceptics when it comes to AirAsia. UBS AG, which has downgraded the budget carrier to “sell” from “neutral”, predicted two years of losses and advised investors to sell the stock.

In the first quarter, AirAsia fended off dire profit warnings when more than six airlines, mainly low-cost carriers, ceased operations after being hit by soaring oil prices and intense competition.

However, passenger numbers for AirAsia during its second quarter climbed 20% year-over-year to 2.8 million and average fare rose 16%.

Instead, it was a 65% jump in fuel costs and a RM77mil charge related to the ringgit’s decline that caused turbulence to AirAsia’s figures.

For the three months ended June 30, AirAsia’s revenue soared 41% to RM608.4mil and core operating profit lifted 2% to RM30mil from RM29.4mil in the previous corresponding period.

Its ancillary revenue jumped 60% to RM50.3mil during the period under review.

AirAsia also introduced a checked-bag fee to partially offset the higher fuel prices without undermining passenger demand.

Chief executive officer Datuk Tony Fernandes was quoted as saying a downturn would ultimately reward AirAsia with “untold fortunes”.

“We continue to grow when others recoil, we enhance our service quality when others are scaling back, introduce new routes when others are cancelling destinations and continue to offer low fares when others are raising them.

“As the turbulent industry unfolds, AirAsia will emerge as the market leader.”

When AirAsia first took flight in 2001, critics said it would not survive two months, but AirAsia has vindicated itself and delivered.

Many believe that the weaker financial performance is just a temporary setback for the carrier.

AirAsia has encountered and overcome many adversities, including high fuel prices, in the early stages of its operation.

Many analysts believe new routes and fleet expansion would continue to underpin AirAsia’s growth, moving forward.

Source : STAR
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