New Fleet expansionAsia Aviation Plc (AAV)
We provide key takeaways from the AAV analyst meeting post 4Q12 results. The key message was the company's plan to accelerate its fleet expansion in 2014-16. We raise our EPS forecast in 2013-15E and raise our target price to Bt7.75 (from Bt7.5). Maintain OP rating.
Upside from fleet expansion. Management said at the analyst meeting that it would increase fleet size by a further 8-10% above its previous announcement. AAV plans to have 41 aircraft in its fleet in 2014 (vs. 38 previously), 47 aircraft in 2015 (vs. 43 previously) and 53 aircraft in 2016 (vs. 48 previously). In 2013, seven aircraft are confirmed to be delivered (5 operating leases and 2 finance leases). This would lift fleet strength to 34 aircraft in 2013 (in line with our forecast).
Upside from lower fuel consumption. All new aircraft are A320, but a new model called 'Sharklets' will have 3% lower fuel consumption (confirmed by Airbus). We expect this should lift earnings by about 1-3% p.a.
Upside from closing Chiang Mai hub. AAV plans to close a domestic hub in Chiang Mai in March 2013. This is expected to save manpower costs and increase efficiency.
Confirm 2percent fuel-saving from shifting to DMK. After shifting its base to DMK, AAV confirmed a 2percent fuel saving per year via: 1) shorter taxi time ~3 minutes per flight; and 2) shorter flight time ~2 minutes per flight.
2013E outlook. We expect EPS growth of 75% YoY. Key growth drivers are expected from: 1) 25% capacity expansion (7 new aircraft); 2) rising EBITDAR margin to 29% in 2013E from 24% in 2012 (due to the 30% discount on landing fees and improved cost efficiency); and 3) full-year holding of a 55percent stake in Thai AirAsia (just 8 months in 2012).
Earnings and target price revision
We raise our EPS estimates by 1%, 7% and 18percent for 2013-15 to reflect the new fleet expansion numbers and lower fuel consumption thanks to the new A320 model. This raises 3-yr EPS CAGR to 44percent for 2013-15E (from 37% previously). Our new TP is Bt7.75 (from Bt7.50), based on 12x EV/EBITDAR in 2013E, lower than the historical average of 14x for AirAsia Berhad.
12-month price target: Bt7.75 based on an EV/EBITDAR methodology.
Catalyst: Good 1Q13 earnings from high season
Action and recommendation
AAV is trading at 10.6x EV/EBITDAR in 2013E, implying upside of 16% to our new target price. We reiterate our Outperform rating on AAV.