Is AirAsia Group Bhd A Great Bargain Now?

AirAsia Group Bhd (AAGB) is the largest low-cost carrier in Asia. It operates nine airlines in six countries across Asia. As of 9 June 2019, AAGB is valued at RM 9.7 billion in market capitalisation. In this article, I’ll bring an update on the airline’s latest financial results, major growth plans and valuation figures. Thus, here are 8 key things to know about AAGB before you invest.

1. Fleet Size
   AAGB has increased its fleet size from 84 aircrafts in 2009 to owning as much as 226 aircrafts in 2018. Out of which, 141 aircrafts are operating under Airasia Malaysia. The growth in fleet size is due to its continuous expansion in Airasia Malaysia and the launch and growth of Airasia in a handful of countries such as Indonesia, Thailand, the Philippines, India,  and Japan during the 10-year period.
   
   
   

Source: AAGB’s Annual Reports

1. Total Capacity & Load Factor
   As a result, AAGB increased its total passenger capacity from 19 million in 2009 to 53 million in 2018. In total, the number of actual passengers carried has grown from 14 million in 2009 to 44 million in 2018, hence, improving its load factor from 75% in 2009 to 85% in 2018.
   
   
   

Source: AAGB’s Annual Reports

1. Local Market Share
   AAGB is enjoying significant local market share in Malaysia, Thailand & the Philippines. Its market share in Indonesia and India remains below 5% while Airasia Japan is fairly new. In 2018, Airasia Malaysia continues to be the bread and butter for AAGB as its overseas airlines are still not profitable.
   
   

Nations	Revenue 2018 (RM Million)	Net Operating Profits 2018 (RM Million)	Domestic Market Share (%)
Malaysia	8,900	4,806	58%
Thailand	4,866	7	32%
Philippines	1,602	-155	20%
Indonesia	1,191	-266	2%
India	1,317	-365	5%
Japan	69	-162	n/a

Source: AAGB’s Annual Report 2018 & Airasia 3.0 Presentation in April 2019

1. Financial Results
   In line with its fleet expansion, AAGB has achieved continuous increase in total revenues from RM 3.1 billion in 2009 to RM 10.6 billion in 2018. Its shareholders’ earnings, however, were volatile as it was impacted by fuel prices and numerous one-off gains and losses such as:
   
   – Fluctuations of Foreign Exchanges
   – Fair Value Changes in Derivatives
   – Purchase and Disposal into subsidiaries, associates and joint ventures
   – Disposal of property, plant, and equipment
   
   
   
   

Source: AAGB’s Annual Reports

1. Latest 12-Month Results
   For the last 12 months, AAGB has generated RM 10.8 billion in revenue and  RM 978.8 million in shareholders’ earnings or 29.3 sen in earnings per share (EPS). In Q4 2018, AAGB has recorded a substantial RM 395.0 million in quarterly losses. This is because it incurred RM 254 million in additional fuel expenses due to a hike in jet kerosene prices and a total of RM 318 million in one-off expenses.
   
   

Figures in RM Million unless stated otherwise

Year	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Total
Revenues	2,624	2,609	2,823	2,780	10,836
Earnings	362	916	-395	96	979
EPS (Sen)	10.8	27.4	-11.8	2.9	29.3

Source: AAGB’s Quarterly Reports

1. Balance Sheet Strength
   AAGB has reduced its non-current liabilities substantially over the last 5 years, down from RM 12.0 billion in 2014 to RM 5.5 billion in 2018. This had resulted in a substantial fall in gearing ratio from 263.4% in 2014 to 89.2% in 2018.  
   
   In 2019, AAGB has adopted the MFRS 16 accounting policy. It measures lease liabilities based on the present value of future lease payments on its right-of-use assets. The adoption of this policy has increased AAGB’s asset column and liabilities column by RM 9.4 billion and RM 9.6 billion respectively. As a result, AAGB’s gearing ratio increased substantially to 201.0% in Q1 2019 from 89.2% in Q4 2018.
   
   AAGB has reported to have RM 8.8 billion in current assets and RM 8.4 billion in current liabilities. Thus, its current ratio is 1.05.
   
   
   
2. Airasia 3.0
   AAGB aspires to be the preferred travel & digital platform in Southeast Asia. It would focus on three areas for growth. They include:
   
   
   Airline
   AAGB intends to complete net addition of 18 aircrafts in 2018 and thus, move towards owning 500 aircrafts by 2020. In addition to growing key markets, AAGB is exploring opportunities for expansion in China and as well as in Vietnam.
   
   
   

Source: Airasia 3.0 Presentation in April 2019


Digital
AAGB remains big on data. Moving forward, it has identified a number of new data sources to drive expansion across AAGB’s ecosystem. They include statistics in airport terminals such as

– Passengers’ queue time.
– Weight of Passengers and Cabin Baggage
– Passengers’ Movements
– Counter Transactions … etc.

They enable AAGB to identify brand new sources of revenues and also opportunities for cost reductions.


Technology
AAGB intends to further develop its marketplaces which include a few major websites such as Airasia.com, BigPay, and Teleport.

Airasia.com will be developed into a comprehensive travel and lifestyle marketplace which encompasses online travel, ecommerce, media, and ride-hailing activities such as transportation and food delivery.

BigPay is one of the fastest growing fintech companies in Malaysia with over 0.5 million users to-date since its launch in January 2018. BigPay is Asia’s Money App which offers services such as e-wallet, remittances, & loans to millenials and travelers in Southeast Asia.

Teleport is established to simplify cargo supply chain, thus, significantly reducing air cargo fulfillment from 138 hours to around 12 hours. Thus, it allows AAGB to tap into rising demand for both social commerce and ecommerce across Southeast Asia.

1. Valuation Figures
   As of 9 June 2019, AAGB is trading at RM 2.90 a share. In Point 5, AAGB made 29.3 sen in EPS. Thus, its current P/E Ratio is 9.90. For Q1 2019, it has reported to have RM 2.47 in net assets  share. Therefore, AAGB has a current P/B Ratio of 1.17, which is below its 10-year average of 1.462.
   
   AAGB has paid out 12.0 sen in dividends per share (DPS) per annum for the last 3 years. Thus, it offers a dividend yield of 4.14% per annum if it is able to maintain its DPS at 12.0 sen in subsequent years to come. The dividend figures are exclusive of a special dividend of 40.0 sen in 2018. This is because the 40.0 sen in special DPS are paid from one-off profits derived from the sale of 79 aircrafts and 14 engines in 2018.
   
   

VIA’s Verdict

AAGB has been aggressive in expanding its markets and sources of income. This had resulted in stable growth in revenues for the past 10 years. But, it recorded a lot of one-off transaction gains and losses and has been (and will be) affected by the ups and downs in fuel prices. They caused AAGB’s earnings to be volatile as shown in the graph below. It has caused AAGB’s stock price to be volatile too for the last 10 years.

Source: AAGB’s Annual Reports

Source: Google Finance

Are you able to find the resemblance between the two charts above? Volatility in profits had caused stock prices to be volatile.

The question is: ‘Would you invest in AAGB at RM 2.90 a share today?’

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