COMPANY UPDATE

TA Securities

Friday, 2 October 2015

FBM KLCI: 1,633.93
Sector: Transportation

A Member of the TA Group

MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048

TP: RM1.68 (+33.1%)

AirAsia Berhad

Last Traded: RM1.26

Merger between IAA and IAAX

BUY

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

Tan Kam Meng, CFA

Tel: +603-2167 9605

kmtan@ta.com.my

Yesterday, an Indonesian news portal, Tempo.co, quoted Suprasetyo, a director

general for air transportation at the Transportation Ministry, as saying that
Indonesia AirAsia (IAA) airline will end its operation in Indonesia as it will be
merged with Indonesia AirAsia X (IAAX).
According to Suprasetyo, the merger is to save IAA from having its operating
license revoked because by merging with IAAX, IAAs equity will not be
negative. He was further quoted as saying IAAXs equity is not negative
because it has not been audited and its operation is still less than a year. After
the merger, all IAAs operation in Indonesia will be under IAAX and IAAX will
submit new business plans and process route permits again so that they can
use IAA routes.
Our View
We do not have much information about the merger as AirAsia has not made
the relevant announcement. However, based on what Suprasetyo said, we
suspect the merger will likely involve 2 key exercises:

IAA to inject its operating aircraft into IAAX in return for IAAXs new shares;
IAAX to issue new shares to finance the acquisitions of IAAs aircraft;

www.taonline.com.my

Share Information
Bloomberg Code
AIRAMK
Stock Code
5099
Listing
Main Market
2783.0
Share Cap (mn)
Market Cap (RMmn)
3506.6
0.1
Par Value
2.94/0.765
52-wk Hi/Lo (RM)
20216.0
12-mth Avg Daily Vol ('000 shrs)
63.7
Estimated Free Float (%)
Beta
1.0
Major Shareholders (%)
Tune Air Sdn Bhd - 19.0%
Wellington management - 10.0%
EPF - 7.3%

Forecast Revision
Forecast Revision (%)
Net profit (RMm)
Consensus
TA's / Consensus (%)
Previous Rating

FY15
FY16
0.0
0.0
294.0
424.3
654.1
714.9
44.9
59.4
Buy (Maintained)

Financial Indicators

In this manner, IAAs will become a holding company having a controlling block
in IAAXs share. In contract, AirAsia Xs (AAX) stake in IAAX will be diluted. We
believe this will be a win-win exercise for both IAA and IAAX. For IAA, its
operation will be taken over by IAAX and it might not have to carry out
exercises to rectify its negative shareholders fund status, thus making
significant savings from fees and charges by investment bankers and bond
arrangers. Although its flying permit will be terminated, its airline operations
will continue under IAAX.
For IAAX, who has trouble in increasing its fleet size to at least 10 to comply
with the aviation laws, can fix its problem by acquiring IAAs fleet of aircraft.
However, judging from the difference between the value of AAXs current 49%
interest in IAAX worth RM5.9mn (100% of IAAXs shareholders funds should
worth RM12mn) and the value of IAAs property, plant and equipment worth
IDR1.45tn (c. RM435mn), the issuance of new IAAX shares to IAA can be so
huge that we doubt AAX can continue equity accounting contributions from
the new IAAX, which its services will cover domestic, short haul and mediumto long-haul flights.

Net debt/equity (x)

CFPS (sen)
P/CFPS (x)
ROE (%)
ROA (%)
NTA/Share (RM)
Price/ NTA (x)
Share Performance (%)
Price Change
1 mth
3 mth
6 mth
12 mth

of the existing amount due from IAA of IDR2,058 billion as of 30 June 2015.

Page 1 of 4

FY16
1.7
16.8
7.5
7.6
1.9
2.1
0.6

AIRASIA
31.9
(17.6)
(45.9)
(49.8)

FBM KLCI
2.8
(5.8)
(10.8)
(11.1)

(12-Mth) Share Price relative to the FBM KLCI

Despite the statement about merger between IAA and IAAX made by
Suprasetyo, AirAsia announced yesterday that the board has approved the
subscription of up to 49% of IDR4,200bn nominal value of perpetual capital
securities issue by IAA at 100% of its nominal value by way of converting part
This is to address its negative equity position which may lead to suspension of
operations. Salient terms and conditions of the perpetual capital securities

FY15
1.9
52.8
2.4
5.9
1.4
1.9
0.7

Source: Bloomberg

TA Securities

2-Oct-15

A Member of the TA Group

include:

Direct, unsecured and unsubordinated obligations of IAA and ranks

ahead of IAAs other share capital instruments or securities for the
time being outstanding;
Carry an initial periodic distribution rate of 12% per annum which is
payable semi-annually;
Perpetual in tenure, with IAA having a call option to redeem the
Perpetual Capital Securities at the first call date, which is at the end of
the seventh year from date of issuance and on each subsequent
periodic distribution date thereafter at their principal amount;
The periodic distribution rate will step-up by 5% if the Perpetual
Capital Securities are not redeemed at the first call date;
Periodic distributions on the Perpetual Capital Securities can be
deferred (in part of in full) at IAA option, where the deferred periodic
distributions are cumulative and compounding;
Should the periodic distribution is deferred, IAA will not be able to (i)
declare or pay any discretionary dividends, distribution on junior or
parity securities or (ii) redeem, cancel, buyback any of its junior or
parity securities;
The applicable periodic distribution rate will step-up by 5% should
IAA breach the covenants in the terms and conditions of the Perpetual
Capital Securities. Upon covenant breach, IAA has a call option to
redeem the Perpetual Capital Securities at 101 per cent of the
principal amount plus accrued distributions;
The Perpetual Capital Securities will not be rated and will not be listed
in any stock exchange;
The Perpetual Capital Securities may also be redeemed by IAA upon
the occurrence of certain events as more particularly detailed in the
terms and conditions of the Perpetual Capital Securities;
The initial holder of the Perpetual Capital Securities can transfer its
Perpetual Capital Securities to any other third parties without prior
approval from IAA; and
The governing law shall be the laws of the Republic of Indonesia

Forecast
In our opinion, it does not really matter whether IAAs operation will be taken
over by IAAX or IAA will continue operations on its own by addressing the
negative shareholders funds issue. The important point is that investors can
be rest assured that AirAsia is not exiting Indonesia, which is an integral part of
AirAsias overall route networks. We maintain our FY15-17 earnings
projections, pending further clarifications from Indonesian Transportation
Ministry and AirAsia.
Valuation
We maintain AirAsias target price at RM1.68/share based on unchanged
11x CY16 EPS. Maintain Buy.

Page 2 of 4

TA Securities

2-Oct-15

A Member of the TA Group

Table 1: Peer comparison

Currency

Company
Asia FSC
Singapore Airlines*
Cathay Pacific Airways*
Thai Airways*
Bangkok Airways
Qantas*
China Southern Airlines*
China Eastern Airlines*
China Airlines*
Air New Zealand*
Japan Airlines*
EVA Air
Average (exc: outliers)
Asia LCC & Hybrid
AirAsia
Cebu Air
Tiger Airways
AirAsia X
Nok Airlines

Price

Mkt Cap
(US'mn)

Recom.

TP

EPS growth (%)

CY15
CY16

CY16

P/B (x)
CY15
CY16

Div yield (%)

CY15
CY16

SGD
HKD
THB
THB
AUD
CNY
CNY
TWD
NZD
JPY
TWD

10.70
14.52
10.10
19.70
3.72
7.49
7.30
11.25
2.45
4215.00
18.40

9875.7
7362.6
676.6
1269.6
7488.3
11846.9
14906.1
1978.0
2342.4
14937.3
2044.2

NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR

NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR

46.5
78.4
>100
442.1
>100
364.3
266.7
>100
100.0
>100
366.7

33.2
13.4
(301.7)
35.9
82.8
24.6
14.5
(8.6)
(9.9)
6.2
(8.5)

20.6
9.2
nm
19.1
12.8
11.5
13.3
8.0
6.0
9.2
8.2
11.8

15.5
8.2
8.5
14.1
7.0
9.2
11.6
8.8
6.6
8.9
9.0
9.8

1.0
1.0
0.8
1.5
2.3
1.8
2.3
1.0
1.2
1.9
1.4
1.5

1.0
0.9
0.7
1.4
1.9
1.6
2.0
0.9
1.1
1.7
1.2
1.3

2.2
4.1
0.0
2.6
0.5
1.5
0.8
1.0
8.2
2.3
0.8
2.2

3.3
4.7
1.6
3.6
2.2
1.6
0.8
0.8
7.3
2.8
0.5
2.7

MYR
PHP
SGD
MYR
THB

1.26
86.55
0.30
0.19
7.00

1001.9
1164.4
591.2
225.2
134.3

Buy
NR
NR
NR
NR

1.68
NR
NR
NR
NR

13.6
143.4
91.4
73.5
>100

44.3
2.9
>100
>100
82.9

11.9
7.1
(3.3)
nm
9.2

8.3
6.9
15.0
(19.0)
5.0

0.7
1.9
3.0
0.9
1.0

0.6
1.6
3.0
0.9
0.9

3.6
2.3
0.0
0.0
7.3

4.0
2.5
0.0
0.0
9.1

Profit and Loss (RM'mn)

YE Dec 31
2013
Revenue
5111.8

2014
5415.7

2015F
5187.8

2016F
5271.3

2017F
5563.3

EBITDA
Depr & Amor
EBIT
Net finance cost
JV & associate
EI
PBT
Adj PBT*
Tax
Net profit
Adj net profit*
EPS (sen)
DPS (sen)

1,548.8
(719.5)
829.3
(412.1)
27.6
(389.8)
22.7
307.3
60.1
82.8
281.6
10.1
0.0

1,842.2
(764.7)
1,077.5
(552.4)
84.0
306.1
915.2
309.2
(15.2)
900.0
294.0
10.6
4.5

2,002.3
(839.1)
1,163.2
(574.1)
63.5
0.0
652.6
447.2
(22.8)
629.8
424.3
15.2
5.0

2,198.9
(860.4)
1,338.5
(602.8)
211.7
0.0
947.5
810.8
(42.6)
904.8
768.2
27.6
6.0

1,460.2
(597.3)
862.9
(364.2)
55.3
(155.2)
361.2
447.5
0.9
362.1
428.6
15.4
4.0

* Core net profit comprises share of profits from IAA, AAP, AAJ, & others JVs

Cash Flow (RM'mn)

YE Dec 31
2013
PBT
361.2
Non- cash item
254.7
Chg in working capital(59.5)
Tax
(22.4)
Others
427.1
CFO
961.1
Capex
Others
CFI

PE (x)
CY15

2014
22.7
479.5
(917.4)
(15.2)
626.1
195.8

2015F
915.2
680.6
107.1
(15.2)
(0.0)
1687.7

2016F
652.6
775.6
206.4
(22.8)
(0.0)
1611.7

2017F
947.5
648.7
391.6
(42.6)
0.0
1945.1

(2117.5) (1967.2)
(228.6)
(78.3)
(2346.1) (2045.5)

(218.4)
0.0
(218.4)

(1143.0) (1632.2)
0.0
0.0
(1143.0) (1632.2)

Net Borrowing/Rpmt 1176.0

Dividend Paid
(667.2)
Others
0.0
CFF
508.8

1885.9
(111.3)
0.8
1775.5

0.0
(125.2)
0.0
(125.2)

0.0
(139.1)
0.0
(139.1)

0.0
(167.0)
0.0
(167.0)

Key Assumptions (RM'mn)

2013
ASK - MAA (mn)
33401
RPK - MAA (mn)
26607
ASK - TAA (mn)
12951
RPK - TAA (mn)
10829
RPK - IAA (mn)
12136
RPK - IAA (mn)
9293
Jet fuel (USD/b)
128

2014
34590
27273
15420
12420
11663
9150
120

2015F
33811
27048
16244
12995
9831
7177
80

2016F
34395
27516
17702
13807
10746
8382
70

2017F
34533
28317
19514
16392
11432
9145
70

Page 3 of 4

Balance sheet (RM'mn)

YE Dec 31
PPE
Associates
JV
Derivatives
Others
LT Assets

2013
11292.8
260.5
134.4
235.665
3009.6
14932.9

2014
12533.5
230.5
191.6
381.686
4793.4
18130.7

2015F
11987.2
306.0
200.2
381.686
4547.8
17422.9

2016F
12291.1
354.0
215.6
381.686
4524.6
17767.0

2017F
13063.0
548.2
233.1
381.686
4453.5
18679.5

Trade receivables
Cash
Others
ST Assets

731.5
1380.4
811.2
2923.2

682.9
1337.8
512.6
2533.4

818.7
2681.9
520.1
4020.7

797.2
3011.5
534.9
4343.6

731.6
3157.4
552.4
4441.4

Total Assets

17856.1

20664.1

21443.5

22110.6

23120.8

Trade payables
Sales in advance
Borrowings
Others
ST Liabilities

745.0
661.6
1119.4
46.2
2572.3

773.1
502.8
2274.9
561.4
4112.3

895.4
502.8
2274.9
561.4
4234.6

974.8
502.8
2274.9
561.4
4314.0

1097.4
502.8
2274.9
561.4
4436.5

LT Borrowings
Others
LT Liabilities

9051.4
1231.5
10282.9

10453.1
1543.7
11996.8

10453.1
1426.1
11879.1

10453.1
1523.1
11976.2

10453.1
1672.9
12126.0

Share Cap
Reserves
Shareholder's Funds

278.1
4722.8
5000.9

278.3
4276.8
4555.1

278.3
5051.5
5329.8

278.3
5542.2
5820.5

278.3
6280.0
6558.3

Liabilities + Equities

17856.1

20664.1

21443.5

22110.6

23120.8

Ratio
YE Dec 31
EPS Growth (%)
PER (x)
Div Yield (%)
Net cash (RMm)
Net gearing (x)
ROE (%)
ROA (%)
NTA (RM)
P/NTA (x)
EV/EBITDA (x)

2013
nm
8.2
3.2
(8790.4)
1.8
8.7
2.6
1.80
0.7
8.4

2014
(34.3)
12.5
0.0
(11390.2)
2.5
5.9
1.5
1.63
0.8
9.6

2015F
4.4
11.9
3.6
(10046.1)
1.9
5.9
1.4
1.91
0.7
7.4

2016F
44.3
8.3
4.0
(9716.5)
1.7
7.6
1.9
2.09
0.6
6.6

2017F
81.0
4.6
4.8
(9570.6)
1.5
12.4
3.4
2.35
0.5
5.9

TA Securities

2-Oct-15

A Member of the TA Group

( T HI S P AGE I S I NT E N T I ON AL L Y L E FT B L ANK)

Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to
change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect
loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.
for TA SECURITIES HOLDINGS BERHAD (14948-M)
MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048
(A Participating Organisation of Bursa Malaysia Securities Berhad)

Kaladher Govindan Head of Research

Page 4 of 4