Airasia- bottom-line weighed down by finance charges

Results Update

Airasia's net profit increased by 46% q-o-q but declined by 53% y-o-y to RM152 million while its turnover was unchanged q-o-q but increased by 10% to RM1.076 billion. The increase in net profit q-o-q was attributable to deferred tax credit of RM46.6 million which arose from a reduction of deferred tax liabilities of RM26.6 million & the recognition of deferred tax assets of RM20.0 million.


Table 1: Airasia's last 8 quarterly results

For the detailed breakdown of the Profit & Loss account, see Table 2 below. It is noted that Airaisa's Operating Profit actually increased by 17% q-o-q & 2% y-o-y to RM251 million. This is despite a drop in the seat load factor by 1% point from 78% to 77%. Nevertheless, Airasia's pre-tax profit dropped 25% q-o-q & 65% y-o-y to RM108 million due to an increase in finance costs of 170% q-o-q or 18% y-o-y to RM265 million.


Table 2: Airasia's detailed P&L for q-o-q & y-o-y comparison



Chart 2: Airasia's last 22 quarterly results (incl. profit margin & moving average lines)

Valuation

Airasia (closed at RM3.45 as at 9.30am) is now trading at a PE of 12.8 times (based on the last 4 quarters' EPS of 27 sen). Given the challenging operating environment- with high fuel costs & slacking demand, I believe Aiasia is full valued.

Technical Outlook

In the past few posts, I've commended that Airasia's technical outlook has turned bullish as it had broken above the expanding triangle (see the two diverging red line). Now, I have drawn a best fit line (in blue) that may capture the price movement in the stock over the past 4 years. That move was initially gradual (in 2008 & 2009) but it accelerated in 2010. Now, there is clear signs that it has lost a lot of momentum. I believe the stock will pull back to RM3.00-3.20 to test the support of the blue 'best-fit' line and if that support fails, it may drop to test the upside of the expanding triangle at RM2.40-2.50.


Chart 3: Airasia's weekly chart as at Nov 21, 2011 (Source: Tradesignum)

Conclusion

Based on challenging operating environment, poorer financial performance, full valuation & weakness in technical outlook, Airasia is rated as a SELL INTO STRENTH or REDUCE.