Airasia's net profit decline in line with lower load factor

Airasia has just announced its results for 1Q2008 ending 31/3/2008. Its net profit increased by 85.7% to RM161.3 million from RM86.9 million recorded in 1Q2007, on the back of a 31.7%-increase in turnover from RM406.2 million to RM535.2 million. However, its turnover dropped by 15.4% due to seasonal factor and this contributed to the decline in net profit of 34.4% q-o-q.


Table 1: Airasia's 8 quarterly performance

The increased turnover, when compared to 1Q2007, was attributable to 21%-increase in higher passenger volume; 10%-increase in average fare from RM171 to RM189; and, higher ancillary income. Load factor has, however, dropped by 4.4% to 72% due to significant capacity additional (it took delivery of 39 new Airbus A320 up to 31/3/2008) and initial under-performance of newly-launched routes.

From Table 3 below, we can see that Airasia's Average Number of Operating Aircraft has increased from 27.84 in 1Q2007 to 36.04 in 1Q2008. This led to a 35.7%-increase in Available Seat Kilometer ('ASK') from 3215 million to 4364 million. The additional aircraft has caused Airasia's Property, Plant & Equipment to increase from RM2.642 billion to RM5.010 billion during the periods. As the bulk of these costs were financed by borrowings, its gearing ratio increased from 1.47 times to 1.87 times- a level that may begin to raise some concern. Liquidity position is less of an issue as its current ratio has risen from 1.40 times to 1.66 times.


Table 2: Airasia's Q-o-Q & Y-o-Y comparison


Table 3: Airasia's Performance Indicators

Valuation

Airasia (closed at RM1.01 as at May 29th) is now trading at a trailing PE of 3.1 times (based on last 4 quarters' EPS totaling 32.8 sen) or 1.1 times (based on NTA per share of RM0.95 as at 31/3/2008). At these multiples, Airasia is deemed very attractive.

Technical Outlook

Airasia has dropped from its recent high of RM2.14 recorded on October 26th, 2007 to a low of RM0.99 yesterday. The share price has been drifting lower in a channel, which has not been seriously challenged on the upside yet. This downtrend would only be over if the share price can break above RM1.20. The stock would also have to overcome the strong horizontal resistance at RM1.24-27 before any uptrend can begin.


Chart 1: Airasia's daily chart as at May 29th, 2008 (source: Quickcharts)



Chart 2: Airasia's weekly chart as at May 29th, 2008 (source: Quickcharts)

Conclusion

Despite the high oil prices, Airasia has been able to post pretty decent results in the last 2 quarters. There are concerns over the decline in load factor & increase in gearing position, which could explain the sharp selldown of this stock. Because of this selldown, the stock is now trading at attractive multiples. If you like Airasia's business model, then this could be a good time to look at this stock.