20170206-辉立证券-4QFY16_net_profit_seen_down_8.9_y-y,_fare_hike_to_offset_soaring_jet_fuel_costs_12页_1mb

Asia Aviation (AAV) Summary

Core Content

Asia Aviation (AAV) is a Thai-based low-cost airline, a subsidiary of the Asia Aviation Group. The company is part of the SET (Stock Exchange of Thailand) and operates within the service and transportation sector. The report provides an analysis of AAV's financial performance, strategic developments, and market positioning in 2016 and 2017, including its earnings forecast and valuation metrics.

Main Points and Analysis

Financial Performance (4QFY16)

• AAV reported a 4QFY16 net profit decline of 8.9% year-over-year to Bt249mn, primarily due to higher tax expenses and FX losses.
• Passenger traffic increased 8.5% year-over-year to 4.37mn, a slowdown from 18.7% growth in 9MFY16, attributed to the government's crackdown on zero-dollar Chinese tours and a domestic tourism slowdown during the mourning period for the late monarch.
• AAV launched two new routes in 4QFY16: Phuket-Siem Reap, Cambodia and Bangkok-Kolkata, India, and increased flight frequencies on five other routes.
• The load factor stood at 82% in 4QFY16.
• AAV added two new aircraft to its fleet, increasing the total to 51 aircrafts.

Earnings Forecast (FY16)

• Based on the above assumptions, AAV's FY16 net profit is forecasted at Bt2,077mn, a slight downward revision from the earlier estimate of Bt2,110mn.

4QFY16 Revenue and Costs

• Quarterly sales/service revenue is expected to rise 6.1% year-over-year to Bt8.1bn, with average fares dropping 3% to Bt1,530 per passenger due to increased competition and fare discount promotions.
• Costs are expected to increase slightly, mainly due to higher oil prices, but SG&A expenses are anticipated to decrease due to effective expense controls.
• Tax expenses are expected to rise substantially, due to deferred taxes of around Bt100mn from the new aircraft additions.
• AAV is expected to book a FX loss of around Bt93mn in 4QFY16, due to the baht's weakness against the US dollar, reversing a FX gain of Bt96mn in 4QFY15.

2017 Strategic Initiatives

• AAV set a passenger target of 19.5mn for FY17, representing a 13.2% year-over-year increase.
• The company plans to take delivery of six new fuel-efficient NEO aircrafts in FY17, increasing the fleet to 57 aircrafts.
• AAV plans to launch 8-10 new routes in CLMV and Indian markets and increase flight frequencies on profitable routes.
• These moves are expected to boost revenue as international flights are not subject to the jet fuel excise tax.
• AAV has a jet fuel hedging position of 75% of its needs at an average cost of US$60/barrel, which should shield it from rising oil prices.
• The average fare is raised to Bt1,695 per passenger in FY17 to offset the impact of the excise tax hike.
• This fare hike is expected to boost sales/service revenue to Bt39,490mn and net profit to Bt2,429mn for FY17.

Valuation and Investment Recommendation

• Closing price as of 06 February 2017: Bt6.25
• Target price for FY17: Bt8.00, offering an upside of 31.2%.
• The P/E multiple for FY17 is 16x.
• Earnings upgrade for FY17 has led to a revised 'BUY' call on AAV shares.

Key Financials

Peer Comparison (as of 03 February 2017)

Risk Factors

1. External events that may affect the aviation industry.
2. FX fluctuation impacting profitability.
3. Operational dependence on AirAsia Berhad.

Key Developments

• 2015: Launched fifth hub at U-Tapao Airport in Pattaya, expanded fleet to 45 aircrafts, and operated to 44 destinations.
• 2014: Opened fourth hub at Krabi Airport, expanded fleet to 40 aircrafts, and operated to 36 destinations.
• 2013: Launched third hub at Chiang Mai Airport, expanded fleet to 35 aircrafts, and operated to 36 destinations.
• 2012: AAV was listed on the SET.

Corporate Governance

• AAV participated in the Thai CAC (Collective Action Coalition Against Corruption) program.
• The Corporate Governance Report highlights the company's commitment to anti-corruption and transparency.
• The report also includes a survey result of the Thai Institute of Directors Association (IOD), which is third-party based and not an internal evaluation.

Industry Group