AirAsia Target Price RM3.65 by ECM Libra BUY Rating

AirAsia Bhd's units in Indonesia and Thailand are gaining substantial market share and a strong foothold in the respective countries, says ECM Libra Capital Sdn Bhd.

Despite higher jet fuel costs, demand is looking up for Indonesia AirAsia (IAA) and Thailand AirAsia (TAA), it said in a research note today.

In the first quarter 2011, IAA's passenger traffic rose 33.1 per cent year-on-year to 1.5 billion, with the load factor up 2.5 percentage points year-on-year to 80 per cent.

Likewise, TAA's traffic grew 23.5 per cent year-on-year to 1.9 billion as the first quarter is usually the peak season for tourism. The load factor was up by 4.6 percentage points year-on-year to 84 per cent.

ECM Libra maintained a "buy" call on AirAsia.

According to AirAsia, both IAA and TAA will focus on improving their market share for international routes and identify, create and interconnect new uncharted routes through existing hubs.

ECM Libra said AirAsia's affiliates are currently preparing for their upcoming initial public offerings and listings, which are expected to take place in the fourth quarter of this year.

TAA is looking to raise US$150 million from the exercise while IAA plans to raise between US$150-US$200 million in proceeds. This is to finance future growth plans, including capacity expansion and acquisition of aircraft.

"As part of the listing exercise, accumulated debts may be cleared, which means AirAsia may start recognising earnings from IAA and TAA through its 49 per cent stake in the units.

"Based on the 49 per cent stake, AirAsia would be able to gain an additional RM224 million in earnings," ECM Libra said.

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