Page 1
AIRASIA BERHAD Analysis Date:
(AIRASIA) Prepared by: L. C. Chong
All figures in thousands of Ringgit Malaysia except per share values and ratios
Financial Year: 2012 31/12/2012 Latest Quarter: 31/12/2012
Price: Stock Category: Fast Grower
Overview
Board: Main Board FBMKLCI: NO
Industry: TRADING SERVICES
Sub‐Sector: AIRLINE / AIRPORT SVCES AND AVIATION EQPMT
Ownership: Corporate Owned (Local)
Investment Strategy
Portfolio Strategy: Lump Sum + Top Up Averaging Down Method:
Portfolio Execution: Basis for Buying & Selling: Absolute P/E
EY % OSCILLATOR
Institutional Sponsorship
Market Direction
22/08/2013
2.98
AirAsia Berhad engages in the provision of air transportation services primarily in Malaysia and rest of Asia. The company
operates scheduled passenger flights and chartered flights; and offers air cargo and courier transportation services. It also
operates inbound and outbound tours; provides travel agency services; and leases aircraft. The company operates a fleet
of 122 aircraft. AirAsia Berhad is based in Sepang, Malaysia.
Dollar Cost/Value Averaging
Buy and Monitor
Momentum
L. C. Chong Page 1 of 14 http://lcchong.wordpress.com
Page 2
Financial PerformanceRating: Average
Measure 3‐Y Avg. 5‐Y Avg. 3‐Y % 5‐Y % Consistency
ROE ≥ 15% 25.28% 21.69% 0.09% 1.15% 7%
ROIC ≥ 15% 7.19% 6.66% ‐0.09% 0.20% 21%
Rating: Very Good
Result YoY % 3‐Y % 5‐Y % 10‐Y % Consistency
Revenue 10.03% 11.27% 16.21% 28.28% 96%
EPS 32.53% 7.95% 12.48% 1.07% 4%
AIRASIA’s high ROE is actually contributed by high borrowing. Stiff competition and
sky high price of fuel suppress margin of the airline business. 5‐Y ROIC (exclude
2008) of AIRASIA is 7.8%. Compare to other airlines, this rate is above average.
Besides, AIRASIA is still in rapid growing stage, and AIRASIA requires a lot of capital
to for expansion.
Revenue of AIRASIA increase consistently for the past 9 years even if facing tough
competition. However, EPS is not so consistent, but increasing since 2009. Few
reasons:
1.Capital changes – increase of NOSH
2.High fuel cost and expansion cost – Net income reduced
2004 2005 2006 2007 2008 2009 2010 2011 2012
ROE 5% 12% 8% 50% ‐31% 19% 29% 14% 31%
ROIC 28% 16% 1% 9% ‐3% 7% 8% 9% 6%
‐40%
‐30%
‐20%
‐10%
0%
10%
20%
30%
40%
50%
60%
Sustainable Profitability
6.43
0.53 0.38
3.93
‐2.11
2.06
3.84
2
6.59
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2004 2005 2006 2007 2008 2009 2010 2011 2012
‐3
‐2
‐1
0
1
2
3
4
5
6
7
8
Earnings ‐ Growth Quality
PAR‐Adjusted EPS Revenue Linear (PAR‐Adjusted EPS) Linear (Revenue)
L. C. Chong Page 2 of 14 http://lcchong.wordpress.com
Page 3
Rating: Poor
Measure 3‐Y Avg. 5‐Y Avg. 3‐Y % 5‐Y % Consistency
CROIC ≥ 15% 1.24% ‐2.22% ‐0.02% 0.92% 10%
CCC — — — — —
Rating: Average
Result YoY 3‐Y 5‐Y 10‐Y Consistency
Ops. Cash ‐2.69% ‐6.95% 245.86% 10.61% 63%
Owner
Earnings
‐4.72% 17.17% 261.00% ‐3.94% 7%
Even if CROIC is not up to my benchmark, but it has been increasing since 2007. This
is positive side. Low CROIC proves high capex in business expansion, such as
purchase new planes.
Net Operating Cash Flow and Owner Earnings increase since 2009. However, I
believe that the growth of cash flow will be slow due to the need of cash in
expansion.
2004 2005 2006 2007 2008 2009 2010 2011 2012
CROIC 11% ‐17% ‐50% ‐64% ‐40% ‐11% ‐3% 11% ‐3%
CCC 0 0 0 0 0 0 0 0 0
0
0
0
0
0
1
1
1
1
1
1
‐70%
‐60%
‐50%
‐40%
‐30%
‐20%
‐10%
0%
10%
20%
Healthy Cash Flow
‐3,000,000
‐2,500,000
‐2,000,000
‐1,500,000
‐1,000,000
‐500,000
0
500,000
1,000,000
1,500,000
2,000,000
2004 2005 2006 2007 2008 2009 2010 2011 2012
Cash Flow ‐ Growth Quality
Net Ops. Cash Owner Earnings
Linear (Net Ops. Cash ) Linear ( Owner Earnings)
L. C. Chong Page 3 of 14 http://lcchong.wordpress.com
Page 4
Rating: Average
Measure 3‐Y Avg. 5‐Y Avg. 3‐Y % 5‐Y % Consistency
NPM ≥ 10% 27.41% 23.79% 0.48% 1.05% 3%
FCF/Sales ≥
5%
2.07% ‐7.70% ‐0.05% 2.52% 6%
Rating: Poor
Measure 3‐Y Avg. 5‐Y Avg. 3‐Y % 5‐Y % Consistency
DCR ≥ 150% 1.25% ‐2.76% ‐0.06% 1.04% 10%
Debt/Eqty. <
100%
217.70% 253.63% ‐18.06% ‐28.90% 0%
Quick R. ≥
100%
147.30% 142.03% ‐9.17% 11.36% 18%
AIRASIA is highly leveraged, and has no sufficient cash and assets to repay its debts.
However, it has sufficient assets to cover its short term debts.
AIRASIA still enjoy good net profit margin, and this is surprisingly good. As explained
before, I don’t expect good FCF/Sales.
2004 2005 2006 2007 2008 2009 2010 2011 2012
NPM 12% 17% 10% 70% ‐19% 16% 27% 12% 37%
FCF/Sales 4% ‐16% ‐81% ‐196% ‐114% ‐33% ‐7% 24% ‐8%
‐250%
‐200%
‐150%
‐100%
‐50%
0%
50%
100%
Sustainable Competitive Advantage
2004 2005 2006 2007 2008 2009 2010 2011 2012
DCR 18% 0% ‐66% ‐85% ‐45% ‐14% ‐4% 14% ‐5%
Debt/Equity 613.13% 17.85% 129.20% 394.75% 665.92% 334.88% 263.65% 244.51% 183.71%
Quick R. 122% 557% 203% 336% 84% 129% 155% 172% 129%
‐200%
‐100%
0%
100%
200%
300%
400%
500%
600%
700%
800%
Conservative Debt
L. C. Chong Page 4 of 14 http://lcchong.wordpress.com
Page 5
Economic Moats
Reference: http://lcchong.files.wordpress.com/2013/07/cp‐v30‐n2‐9.pdf
Not available or no moat found
AIRASIA has maintained substantial gross margins, suggesting that they have been able to set prices without consideration of the cost of goods sold. This potentially leaves flexibility in inflationary environments to raise prices on consumers and maintain profitability.
‐ Consumers enjoy low cost air fare. The load factor is still above 80% and the volume in LCCT is much higher than KLIA.
‐ Consumers enjoy low cost air fare. However, this moat got expiration. This moat may not sustainable when the competitors (such as Malinda) start price war with AIRASIA.
Cost Advantage
Switching Costs
Network Effect
Intangible Assets
Efficient Scale
Not available or no moat found
L. C. Chong Page 5 of 14 http://lcchong.wordpress.com
Page 6
Market Timing
Discounted Cash Flows Valuation
Good 8% Base 4% Bad 0% Ugly ‐4% Good 8% Base 4% Bad 0% Ugly ‐4% Good 8% Base 4% Bad 0% Ugly ‐4%
Fair Value 3.08 2.81 2.56 2.32 3.16 2.79 2.47 2.18 3.25 2.74 2.31 1.96
Buy Under 2.01 1.83 1.67 1.51 2.06 1.82 1.61 1.42 2.12 1.78 1.51 1.28
Actual M.O.S. 3.39% ‐5.98% ‐16.49% ‐28.29% 5.76% ‐6.69% ‐20.87% ‐36.98% 8.40% ‐8.93% ‐28.94% ‐51.79%Refer Appendix 1
Growth rate applied in Reverse DCF to reach the current stock price (2.98): 6% Refer Appendix 2
EY% Valuation EPS QoQ Growth
EY% High EY% Low Buffer R4Q‐EPS FY13‐EPS* FY14‐EPS* Jun‐12 Sep‐12 Dec‐12 Mar‐13 Jun‐13 QoQ %
16.40% 8.99% 10% 0.24 0.31 0.34 0.430 0.057 0.126 0.038 0.021 ‐95.12%
2.70 3.40 3.83
1.55 1.95 2.20
2.49 3.15 3.54
Refer Appendix 3
Comments
Insider TradingRefer Appendix 5
Refer Appendix 4
Disposed
# Securities Price
07/08/2013 4,919,900 0.00
05/06/2013 50,000 3.50
Grand Total 4,969,900 1.17
I won’t use DCF for AIRASIA as AIRASIA is very cash hungry. Based on EY%, looking at 2 years
horizon, fair value of AIRASIA is 3.8. This looks quite a rac ve.
I will may use TA to accumulate AIRASIA. Besides, I may also get cheaper as market sentiment is
bearish.
3‐Y 5‐Y 10‐Y
Buy Under
Sell Above
Fair Value
L. C. Chong Page 6 of 14 http://lcchong.wordpress.com
Page 7
Notes
Created Date Details Type Source Type
22/08/2013 AirAsia CEO Aireen Omar said in a statement yesterday that the decline in RASK (revenue per available seat per kilometre)
in 2Q was due to low‐peak season, GE13 and the nega ve impact of the Lahad Datu intrusion in Sabah in April.
Despite that, said Aireen, the airline still managed to record a strong load factor of 80% which was in line with its strategy
of pushing passenger growth via low fares.
During the quarter under review, AirAsia recorded a 23.5% increase in operating profit year‐on‐year (y‐o‐y) to RM243.94
million, due to the increase in revenue and decline in opera ng cost.
"We have seen a good improvement from our cost reduction exercise, particularly in reducing our overall spend on
advertising and sponsorship as the company builds its brand awareness via the web. Cost per available seat per kilometre
[CASK] was reported at 12.83 sen (down 7% from 13.86 sen y‐o‐y), backed by the lower average fuel price which is down
8% y‐o‐y. CASK ex‐fuel also decreased at 6.53 sen (down 7% from 7.02 sen y‐o‐y)."
http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=251094&Itemid=79
Analysis;Announcement Newspaper
12/07/2013 AirAsia: 51.92pc shares held by foreigners
http://valueinvestorresearchklse.blogspot.com/2013/07/airasia‐5192pc‐shares‐held‐by‐foreigners.html
Note Newspaper
20/06/2013 AirAsia: Signs RM27.5bn engine deal. As part of its expansion programme, low cost carrier AirAsia signed a purchase
agreement with commercial aircraft supplier CFM International for the purchase of 100 sets of airplane engine. The CFM
LEAP‐1A and CFM56‐5B engines were purchased in a USD8.6bn (RM27.5bn) deal to power the 100 Airbus A320 aircraft it
ordered last year. (StarBiz)
Announcement Newspaper
13/06/2013 http://www.investmalaysiaconference.com/media/pdf/2013Slides/Corporate%20Presentation/AirAsia%20Berhad.pdf Growth Driver ‐
11/06/2013 AirAsia says may dissolve Japan venture over management conflict
http://www.theedgemalaysia.com/index.php?Itemid=79&id=241592&option=com_content&task=view
Announcement;Growth Driver Newspaper
06/06/2013 h p://www.theedgemalaysia.com/index.php?Itemid=77&id=241055&op on=com_content&task=view
AirAsia squeezed at home by perky new budget carrier
Announcement;Risk Newspaper
L. C. Chong Page 7 of 14 http://lcchong.wordpress.com
Page 8
Created Date Details Type Source Type
27/05/2013 h p://klse.i3investor.com/blogs/cimbresearchklse/30350.jsp
Improved outlook for MAL
Malindo Air seems to be spreading itself too thin across too many routes and may not have a strong market presence in
the immediate term to compete with AirAsia. We suspect that Lion Air's impending new LCC in Thailand will draw some
aircraft allocation away from Malindo in the future years while AirAsia itself has become more rational and reduced fleet
growth in Malaysia. As a result, we think AirAsia's yield deterioration in the years ahead could be lower than previously
forecast. We reduce our 2013 yield decline assump on from 3% to 2% and for 2014 from 6% to 4%.
Lower jet fuel prices?
Jet fuel is currently trading at just US$116/barrel and will average US$120 for 2013 if this level is maintained, well below
our US$130 assumption and suggesting a potential 20% upgrade in our EPS estimates for 2013‐14.
Analysis;Outlook Analyst Report
23/05/2013 h p://klse.i3investor.com/blogs/amresearch/30267.jsp
‐ It seems as if AA is sacrificing yields to maintain traffic growth – early signs of impact of new compe on.
‐ Loads slipped despite the sharp contrac on in core yields.
‐ Management intends to maintain fuel surcharge, though we believe this will likely be dictated by compe tors’ moves.
‐ AA is shrugging off competition from Malindo as Malindo is combining and cancelling certain flights. Our channel check
suggests that Malindo is experimenting with the different time slots to maximise loads currently. The massive core yield
contraction over the past 2 quarters is not fully reflective of competition yet (Malindo only started flight in end‐March)
and is largely the dilution impact of AA flooding additional capacity into key domestic routes to East Malaysia ahead of
actual competition.
Analysis;Outlook;Risk Analyst Report
21/05/2013 Cash flow growth of AIRASIA is not consistent as it needs cash for expansion. So, I won't use DCF valuation. Note ‐
L. C. Chong Page 8 of 14 http://lcchong.wordpress.com
Page 9
Appendix 1 ‐ Discounted Cash Flows Valuation
Discount Rate Margin of Safety
Average risk
premium
Average Risk
free rate
Unadjusted
Discount %
Business Risk
Factor
Financial Risk
Factor
Discount % Initial RRR Dividend Yield Est. EPS
Growth
Unadjusted
MOS
Risk‐Based
MOS
1.18 1.18 12.75% 35% 8% 35%
6%
Growth Estimation Financial Figures
7 61 75 21 57Owner
Earnings GR.
Terminal % Decay Rate
(Yr4E‐Yr7E)
Extra Decay
(Yr8E‐Yr10E)
Shares Out. FCF Type 2012 Owner
Earnings
Excess Cash Intangibles
Assets
Intangibles%
add to DCF
8% 3% 15% 20% 2780.51 637.29 907.42 0%
4%
Projection of Future Free Cash Flow (Base Line 4%)
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
FV 662.79 689.30 716.87 728.49 753.26 778.87 805.35 789.91 811.40 833.47
DPV 6,207.36 5,725.44 5,280.94 4,759.51 4,364.67 4,002.59 3,670.54 3,192.98 2,908.84 2,649.99
PV 7,702.60 7,762.86 7,818.45 7,747.73 7,766.21 7,783.16 7,798.71 7,623.50 7,614.82 7,606.92
3‐Y 5‐Y 10‐Y
2.81 2.79 2.74
1.83 1.82 1.78
‐6% ‐7% ‐9%
7.19% 3.44% 10.63% 25%2%
M.O.S. on Cur. Price (2.98)
7.33
Buy Under (M.O.S. 35%)
Fair Value
Owner
Earnings
L. C. Chong Page 9 of 14 http://lcchong.wordpress.com
Page 10
Projection of Future Free Cash Flow (Good Scenario 8%) 8%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
FV 688.28 743.34 802.81 829.13 885.52 945.73 1,010.04 973.61 1,026.57 1,082.42
DPV 6,446.10 6,174.33 5,914.01 5,417.08 5,131.04 4,860.10 4,603.47 3,935.49 3,680.21 3,441.50
PV 7,963.95 8,276.87 8,576.59 8,592.63 8,792.49 8,981.79 9,161.09 8,865.79 8,959.02 9,046.20
3‐Y 5‐Y 10‐Y
3.08 3.16 3.25
2.01 2.06 2.12
3% 6% 8%
Projection of Future Free Cash Flow (Bad Scenario 0%) 0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
FV 637.29 637.29 637.29 637.29 637.29 637.29 637.29 637.29 637.29 637.29
DPV 5,968.61 5,293.49 4,694.74 4,163.71 3,692.74 3,275.05 2,904.60 2,576.06 2,284.68 2,026.25
PV 7,441.24 7,267.40 7,113.22 6,976.48 6,855.21 6,747.65 6,652.26 6,567.66 6,492.63 6,426.09
3‐Y 5‐Y 10‐Y
2.56 2.47 2.31
1.67 1.61 1.51
‐16% ‐21% ‐29%
Projection of Future Free Cash Flow (Ugly Scenario ‐4%) ‐4%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
FV 611.80 587.33 563.84 554.94 536.08 517.85 500.24 511.13 497.22 483.70
DPV 5,729.87 4,878.48 4,153.60 3,625.67 3,106.24 2,661.22 2,279.96 2,066.07 1,782.53 1,537.90
PV 7,179.89 6,790.48 6,458.94 6,274.35 6,049.06 5,856.05 5,690.70 5,672.45 5,557.72 5,458.73
3‐Y 5‐Y 10‐Y
2.32 2.18 1.96
1.51 1.42 1.28
‐28% ‐37% ‐52%M.O.S. on Cur. Price (2.98)
Fair Value
Buy Under (M.O.S. 35%)
Buy Under (M.O.S. 35%)
M.O.S. on Cur. Price (2.98)
Fair Value
Buy Under (M.O.S. 35%)
M.O.S. on Cur. Price (2.98)
Fair Value
L. C. Chong Page 10 of 14 http://lcchong.wordpress.com
Page 11
Appendix 2 ‐ Reverse Discounted Cash Flows
Discount Rate Margin of Safety
Average risk
premium
Average Risk
free rate
Unadjusted
Discount %
Business Risk
Factor
Financial Risk
Factor
Discount % Initial RRR Dividend Yield Est. EPS
Growth
Unadjusted
MOS
Risk‐Based
MOS
7.19% 3.44% 10.63% 1.18 1.18 12.75% 35% 2% 6% 25% 35%
Growth Estimation Financial Figures
7 61 75 21 57Owner
Earnings GR.
Terminal % Decay Rate
(Yr4E‐Yr7E)
Extra Decay
(Yr8E‐Yr10E)
Shares Out. FCF Type 2012 Owner
Earnings
Excess Cash Intangibles
Assets
Intangibles%
add to DCF
8% 637.29
6%
Projection of Future Free Cash Flow (GR. 6%)
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Yearly GR.
FV 675.53 716.06 759.03 777.59 817.25 858.93 902.73 877.56 913.37 950.63
DPV 6,326.73 5,947.77 5,591.51 5,080.32 4,735.46 4,414.02 4,114.39 3,547.27 3,274.39 3,022.50
PV 7,833.27 8,017.55 8,190.78 8,160.69 8,264.27 8,360.81 8,450.81 8,219.60 8,256.79 8,291.13
3‐Y 5‐Y 10‐Y
Shares Outstanding
2.95 2.97 2.98
1.92 1.94 1.94
‐1% 0% 0%
2780.51 0%
Buy Under
Current Price 2.98
Actual M.O.S.
7.33
2780.51
Fair Value
Desired M.O.S. 35%
Owner
Earnings
907.423% 15% 20%
L. C. Chong Page 11 of 14 http://lcchong.wordpress.com
Page 12
Appenfix 3 ‐ EY% Valuation
EY% High EY% Low Buffer R4Q‐EPS FY13‐EPS* FY14‐EPS*
16.40% 8.99% 10% 0.24 0.31 0.34
2.70 3.40 3.83
1.55 1.95 2.20
2.49 3.15 3.54
* Estimations from Reuters or local analysts' reports
High Low
R4Q FY13 FY14
Green Zone Price($) 1.48 1.87 2.10
15.65% Buy Under 1.55 1.95 2.20 10%
7.41%
9.73% Sell Above 2.49 3.15 3.54 10%
Red Zone Price($) 2.70 3.40 3.83
Low High
Fair Value
Green Zone EY% 16.40%
Trading Range
Red Zone EY% 8.99%
Buy Under
Sell Above
EY% Price
L. C. Chong Page 12 of 14 http://lcchong.wordpress.com
Page 13
Appendix 4 ‐ Insider Trading
Last 3 months or last 30 insider transactions
Transaction Date Securities Holder Type of transaction No of securities Price Transacted
07/08/2013 Dato' Kamarudin Bin Meranun Disposed 2,292,900 0.00
07/08/2013 Tan Sri Dr. Anthony Francis Fernandes Disposed 2,627,000 0.00
05/06/2013 Dato' Abdel Aziz @ Abdul Aziz Bin Abu Bakar Disposed 50,000 3.50
L. C. Chong Page 13 of 14 http://lcchong.wordpress.com
Page 14
Appendix 5 ‐ Market Timing
Buy Signal
No. Method Description
1 EPS QoQ Growth The current quarter's EPS is up more than 15% from the same quarter the year
before.
2 DCF Intrinsic Value Price is below Intrinsic Value
3 EY % Oscillator Price is below or around the price derived from EY% High
4 Market Direction Stock price breaks out of consolidation/dip on an uptrend.
5 Institutional sponsorship Company owner/directors, EPF, Khazanah, PNB and major fund institutions heavily
buying
Sell Signal
No. Method Description
1 EPS QoQ Growth Quarterly EPS drop for 3 consecutive months.
2 DCF Intrinsic Value Has the stock risen too far from its intrinsic value?
3 Market Direction Long term trend changed from bullish to bearish
4 Institutional sponsorship Company owner, EPF, Khazanah and PNB heavily selling.
5 EY % Oscillator Price is above or around the price derived from EY% Low
6 Fundamental Analysis Fundamental of business turns unattractive or bad
‐ Declining cash flow
‐ Serial charges
‐ Serial acquirers
‐ The CFO or Auditors leave the company
‐ The bills aren’t being paid
‐ Changes in credit terms and account receivable
‐ Found a better opportunity to replace this stock
L. C. Chong Page 14 of 14 http://lcchong.wordpress.com