Wednesday, December 02, 2015

Airasia: Cloudy sky!

Airasia hit a few air pockets in the past 6 months; causing the share price to swing sharply. It started out in June this year when it was the subject of a negative research report by GMT Research. This report questioned the sustainability of the airline. This caused the share price to plunge from RM2.00 in mid-June to RM0.80 in late August.

The oversold situation was the set-up for a strong rally which brought the share price up to RM1.60 in mid-October. Then the rumor of a possible management buyout surfaced. I found that to be very strange because you would expect the management to undertake a buyout when the share price is in the dump. Equally strange is the fact that after the rumor came out, the rally in the share price ceased. Was the rumor intended to draw in new buyers or to serve as a brake to facilitate a gradual sellout by existing shareholders?

Yesterday we have the release of the crash report for Airasia Flight 8501. The crash was attributed to pilot error as well as a technical fault. In my opinion, the later is very damaging. To wit:

(T)he system that regulates the plane's rudder movement kept malfunctioning because of a cracked solder joint. Aircraft maintenance records found it had malfunctioned 23 times in the year before the crash, and the interval between those incidents became shorter in the three months prior to the crash, Indonesia's National Transport Safety Committee said in a report.
One of the nagging concerns for low-cost carriers ('LCCs') is the safety standard- beginning with the reliability of its aircraft. An airplane with a persistent technical fault has been serving this airline for the past few months (possibly years) is a damning indictment of any airline- whether full-service or low-cost carrier. Airasia will be hard-pressed to explain why it kept the airplane in service; thus, sacrificing passenger safety. This dark cloud will weigh on Airasia for a while and it would drag down its sale & its profits.

Chartwise, we can see that Airasia is still in a downtrend line, SS with resistance at RM1.45. Its immediate support is at RM1.40 and then RM1.30.

Chart: Airasia's monthly chart as at Dec 2, 2015 (Source: ShareInvestor)

Based on negative newsflow & bearish technical outlook, Airasia is rated a SELL.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Airasia.


William Wang said...

In the light of this investigation, don't you think the management should be investigated and prosecuted?

Ks said...

If Fed raises the interest rate this month, how will it affect KLSE Alex?

steve said...

May I have your opinion on Sign? Thanks!

Alex Lu said...

Hi William Wang

Airasia will have to explain why it kept the airplane in service. I am not sure whether the Indonesian civil aviation authority will take action based on the finding. I won't be surprised if Airasia will be penalized for the infringement.

Alex Lu said...

Hi Ks

The million dollar question: If Fed raises the interest rate this month, what would happen. Your guest will be as good as mine. But let's try.

If Fed believes the market will drop because of the interest rate hike, it probably won't raise interest rate. Unless it believes that there are other more important priorities, such as the economy.

If Fed believes the economy will swoon because of the interest rate hike, it probably won't raise interest rate. Unless it believes that there are other more important priorities, such as the stability of the financial system.

If Fed believes the financial system will buckle because of the interest rate hike, it probably won't raise interest rate. Unless it believes that a short-term upheaval is a small price to pay compared to a long-term collapse.

It has been my belief that our financial system has been abused by the central bankers for too long to short-circuit the working of economic cycle. In my mind, any economy needs growth and slowdown, just like we need exertion and rest. We can't be running a series of marathon without a decent rest for recovery. And, that's exactly what we have experienced for the past 35 years.

How do you move away from central bank intervention- the gift that keeps giving. How can we not using steroid or antibiotic?! If we stop, we will lose the race or get sick! They are all the same thing! We have all grown accustomed to taking excessive "medication" in order not to get sick, to stay in the race & to continue to grow. One day, we will get sick or stall or fail to grow. When that day comes, nothing that we have on the medical kit will work.

So, Fed is now engineering a slowdown in order to conserve bullets or to restock our medical kit in preparation for the arrival of that one day. Fed will be concerned not only about the stock market or the economy in the short run. Its objectives include the long-term stability of the financial system that drives free enterprise as we know. And, you better pray hard that it works. The Chernobyl accident happens because it was an experiment to test the system in the event of a meltdown; an experiment that went out of control and actually led to a meltdown.

We are living in dangerous times!

Alex Lu said...

Hi steve

Sign has just broken blow its uptrend line at RM2.00. It must recover above that line quickly or else it will continue to slide. Track this carefully! Act accordingly!