OSK Research reiterates buy call on AirAsia

Tags: AirAsia | OSK Research

Written by Surin Murugiah

Thursday, 25 June 2009 09:09

OSK Research Sdn Bhd has reiterated its trading buy call on AIRASIA BHD [] at RM1.16 with a target price of RM1.75 and said it was not surprised with AirAsia's move to scraps administrative fees given that its peers have already introduced other promotion efforts including "All-Inclusive Low Fares" to attract passengers.

It said the latest development was just another publicity stunt to grab passengers' attention given the intense competition.

"Meanwhile, we suspect the administration charges ranging from RM22.50 to RM43.50 may in one way or other be compensated by the potential increase in passenger volume and ancillary income apart from higher air ticket charges," it said.

"Also, thanks to weak economic climate worldwide, more people are switching from full service carriers and flying with low cost carriers, a trend that will benefit AirAsia."

Commenting on AirAsia's fresh appeal to MAHB to reduce airport tax charges for the carrier from RM51 for the international sector to RM10, the research house it was unlikely to materialise.

"Given the fact that AirAsia passengers departing from the Low Cost Carrier Terminal already enjoy a special airport tax of RM25 for international flights — which is approximately half of that charged at other main terminals — and MAHB's introduction of lower landing and parking fees in view of the economic slowdown to ease cost pressure on the airlines, we believe a further reduction in airport tax is highly unlikely at this juncture.

"We also understand from the management that as the RM65 million owing to MAHB has been fully provided for in the company's income statement, the repayment will only involve physical cash outflow but will have no impact on AirAsia's profit and loss," it said.

OSK Research said while it believed that AirAsia's latest move might not translate into significant improvement in the company's bottom-line, it was impressed with the group's strong 1Q results and expects the intensity of down-trading activities to benefit the airline.

"However, the heavy borrowings arising from its aggressive aircraft purchases that have led to its gearing level bloating to a discomforting 3.71 times as at March 31, 2009 prompts our trading buy recommendation after considering the company's high investment risk profile," it said.

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Last Updated on Thursday, 25 June 2009 09:11

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