Airasia- when the going gets tough...

Results Update

For QE30/9/2013, Airasia's net profit dropped by 39% q-o-q or 78% y-o-y to RM35 million while revenue inched up 3% q-o-q & y-o-y to RM1.28 billion.

 
Table 1: Airasia's last 8 quarterly results

From the next table, we can see that the q-o-q decline in net profit was attributable to fuel costs increase, forex losses on borrowing & absence of gain on disposal of interest in Japan Airasia which were partially offset by lower staff costs, higher other incomes and deferred tax credit. For y-o-y decline, the reasons are higher fuel cost, higher depreciation and forex losses on borrowing which were partially offset by forex gain versus forex loss on amount owing by associate companies, higher other incomes and deferred tax credit.


Table 2: Airasia's P&L account compared, q-o-q & y-o-y

Over the past 3 years, Airasia's bottom-line seems to be getting weaker while top-line continued to rise. With Malindo muscling into the market, the profit margin will be under greater threat. The slide in profitability can only persist in a competitive environment.


Chart 1: Airasia's last 30 quarterly results

Valuation

Airasia (closed at RM2.51 yesterday) is now trading at a PE of 26 times (based on annualized EPS of 9.6 sen). As such, Airasia is deemed overvalued.

Technical Outlook

From the daily chart (Chart 2), we can expect Airasia to find support at the gradual uptrend line (SS) at  RM2.45. However, the stock has been moving in a 2-year downward channel (see Chart 3) where the support is at the lower boundary (at RM2.30). If this support level (from RM2.30-2.45) cannot hold, Airasia will test the psychological RM2.00 mark. Below that, it may test the long-term uptrend line support at RM1.60.


Chart 2: Airasia's daily chart as at Nov 21, 2013_10.30am (Source: quickcharts)


Chart 3: Airasia's weekly chart as at Nov 21, 2013_10.30am (Source: quickcharts)

Conclusion

Based on challenging operating environment, poor financial performance, demanding valuation & deteriorating technical outlook, I rate Airasia a SELL.

Note: 
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.