AirAsia’s venture into China a good sign of global traction

Posted on : 15-05-2017 | By : sabah today | In : National Business

KUCHING: Analysts gave two thumbs up to AirAsia Bhd’s (AirAsia) memorandum of understanding (MOU) with the China Everbright Group (Everbright) and Henan Government Working Group (Henan Government) on Sunday.

In a filing on Bursa Malaysia, AirAsia explained that the MOU is to confirm the parties’ interest in establishing a joint venture (JV) for a low cost airline to be known as AirAsia China either through an acquisition or by obtaining a new airline license.

“In addition to the airline, the JV will also look into developing infrastructure.

“The JV will invest in the development of the following in Zhenzhou; a low cost carrier (LCC) terminal, an aviation academy for pilots, engineers and crew trainng as well as a maintenance, repair and overhaul provider (MRO),” the group said.

“The parties have also expressed interest to incorporate AirAsia China in Zhengzhou which is intended to be AirAsia (China)’s operating base and headquarters. Henan provincial government has been engaged and is fully supportive of the establishment and operations of AirAsia (China) from Zhengzhou.”

While the news of setting up a JV in China did not come as a surprise to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), the novelty of tapping into the world’s largest outbound tourist market with one of China’s largest state owned enterprises resonated positively with MIDF Research.

“In addition, the venture would mark Airasia’s first attempt in setting up and operating an LCC terminal, an idea which it had floated before,” the research arm said.

MIDF Research made no changes to its earnings forecast following the news pending further details such as timeline and total investments required.

The research arm noted that China, for its immense size has relatively few LCCs whose focus is mainly on domestic routes, which presents Airasia with opportunities.

However, MIDF Research raised its target price to RM4.06 per share premised on a higher target forward price-to-earnings ratio of 10-fold financial year 2017 (FY17) earnings per share (EPS) (previously 8.5-fold), on par with AirAsia’s regional LCC peers.

“We are removing the discount to peers as AirAsia’s associates are expected to breakeven this year,” it said.

Meanwhile, MIDF Research anticipated further positive newsflow from the sale of AirAsia’s leasing arm, Asia Aviation Capital (AAC) and positive first quarter of FY17 (1QFY17) results with the group’s load factor hitting the elusive 90 per cent mark for its Malaysia operations in its recently released 1QFY17 operating stats.

All in, AirAsia remained as the research arm’s top pick for the aviation sector.


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