Air Asia India Set To Expand Its Fleet Size

Air Asia, the much talked about low cost airlines is all set to expand its fleet size to about eight and further later on to about 16 to 20 planes. This move comes days after a widespread criticsm was aimed at the ruling authorities which made it mandatory for the new airlines to follow the 5/20 rule.

The rule states that any new airline must have a 5 year of service period in serving the domestic circuit as well as a minimum fleet of 20 aircrafts to be able to operate on international routes in India. The rule will hit the likes of Air Asia the heaviest as their entire USP is based on promising dirt cheap international travel. Not just Air Asia, but the newly operational Vistara is also suffering because of the same rule.
The news of the fleet expansion was disclosed by the AirAsia Chief Tony Fernandes, who also confirmed further capital infusion in the airlines. He went on to appreciate the raw potential of India as a market for airlines by stating, "Let the market decide and where routes are needed to be subsidised, subsidise them. India is a huge country with a huge market and it has a massive potential".

Mr Fernandes though, was less than impressed with the fuel taxes and the airport costs in India hinting that they could prove to be a major block for new entrants. He said, "Your airports are very costly and your fuel taxes are one of the highest. Please make business easier to do".

http://www.gizmodo.in/indiamodo/Air-Asia-Set-To-Expand-Its-Fleet-Size/articleshow/51023991.cms

Cheap oil paves way to revive expansion: AirAsia CEO Tony Fernandes

SAN FRANCISCO: With low oil prices reducing its operating costs, AirAsia Chief Executive Tony Fernandes said the budget carrier was ready to start expanding again in southeast Asia and was eyeing Vietnam and the Philippines.

Fernandes, speaking to reporters on the sidelines of a US-ASEAN trade conference here on Wednesday, said the pace of expansion would depend on securing approvals for new routes and airport access.

"We're going to start expanding again in different parts of ASEAN," Fernandes said.

While some benefits of the collapse of oil prices have been swallowed up by a decline in currencies in its major markets, Fernandes said he viewed the lower fuel costs as "an opportunity to expand, to regrow, to put capital investment in."

In November, AirAsia reported a consolidated third-quarter net loss of 406 million ringgit ($96 million), versus a year earlier net profit of 5.4 million ringgit. It blamed foreign exchange losses and a writedown at its Indonesian affiliate.

The company also had said its major shareholders were evaluating "all strategic options" after Reuters reported that Fernandes was sounding out investors to take the company private in the wake of a steep fall in its shares.

Fernandes said the two Southeast Asia markets that excited him most for expansion were the Philippines and Vietnam, calling the latter "the last piece of our jigsaw puzzle."

But securing route approvals was a problem, and lack of available take-off and landing capacity at Manila's Ninoy Aquino International Airport needed to be resolved, he said.

Clark International Airport could be a good alternative solution, Fernandes said, but this would require the government to invest in a new high speed train into Manila.

Fernandes also said he hoped to win approval for flights to Hawaii this year, but could not predict when that might occur.


http://economictimes.indiatimes.com/news/international/business/cheap-oil-paves-way-to-revive-expansion-airasia-ceo-tony-fernandes/articleshow/51040070.cms

AIRASIA BERHAD - 4QFY15 Operating Statistics

12-Month Target Price RM1.88

AirAsia released its 4QFY15 operating statistics which saw a 14.6% YoY growth in traffic volume to 15.98bn revenue-passenger-kilometres (RPKs) while load factor increased to 83.2% (+4.7pts YoY). For its Malaysian operations, the number of passengers carried increased by 9.6% YoY to 6.47m in 4QFY15, while load factor increased to 84.8% (+6.5pts YoY). AirAsia’s 4QFY15 results are expected to be released on 26th February 2016. We maintain our Outperform call on AirAsia with target price of RM1.88.

• 4QFY15 performance. The group carried 13.5m passengers (+12.1% YoY) with seat capacity of 16.3m (+5.7% YoY). Available-seat-kilometres (ASK) increased to 19.3bn (+9.3% YoY) and revenue-passenger-kilometres (RPK) increased to 16.0bn (+14.6% YoY) in 4QFY15 due to increase in frequencies and routes. AirAsia’s 4QFY15 results and passenger yield data will only be released next week. 
• Malaysia (MAA) recorded +6.5pts YoY growth in load factor to 84.8% on the back of 6.5m passengers carried (+9.6% YoY), despite a flat growth of 1.2% YoY in seat capacity. Thailand (TAA) remained strong with load factor at 82.4% on the back of passenger volume and capacity growing YoY by 17.2% and 12.5% respectively. Indonesia (IAA) performance was flat YoY with load factor remain at 80%, but slightly improved on QoQ (+4.6pts) despite a capacity reduction of 14.4% YoY and number of passengers declining by 13.9% YoY following its turnaround strategy plan. Philippines’ (PAA) saw a strong YoY growth in passenger and capacity volume of 46.7% and 30.1% respectively. 
• Pending more detail yield data and results for 4QFY15 and full year 2015 next week, we maintain our Outperform call with unchanged TP of RM1.88, pegging a 10x multiple to the FY16F earnings (20%-discount). At current share price, AirAsia is trading at 6.2x FY16F earnings, which is below its 4-year average PER.

 

Source: PublicInvest Research - 16 Feb 2016

AirAsia group carried 11% more passengers in 2015

AirAsia's Malaysian operations posted a 10% increase in the number of passengers carried last year to 24.25 million. The EPA photo shows a police motorcyclist moving past an AirAsia billboard in Kuala Lumpur.

 

 

KUALA LUMPUR: The AirAsia group carried 50.68 million passengers in the 2015 financial year (FY15), up 11% from 45.58 million passengers in the preceding year.

In its preliminary operating statistics released on Monday, the low-cost airline said its capacity rose 9% to 63.34 million versus 58.16 million previously.

“The load factor rose by two percentage points year-on-year (yoy) to 805,” the company said.

It said Malaysia AirAsia (MAA) posted a 10% increase in the number of passengers carried last year to 24.25 million, gained 7% in capacity to 30.08 million and added two percentage points in load factor.

 

As for its units in other countries, AirAsia India saw the number of passengers it carried soared by 324% to 1.46 million in 2015 versus 345,298 in 2014 while capacity increased by 322% to 1.82 million from 430,560 and load factor gained one percentage point yoy to 81%.

However, Indonesia AirAsia recorded a decrease of 17% in the number of passengers carried to 6.52 million last year compared with 7.85 million previously, while capacity was down 13% to 8.76 million from 10.04 million and load factor eased 4% to 74 percentage points yoy.

For the fourth quarter (Q4) ended Dec 31, 2015 (4Q15), the AirAsia group’s load factor increased by 5 percentage points to 83% compared with the same quarter a year ago.

It said the number of passengers carried in Q4 rose by 12% yoy to 13.5 million, ahead of the 6% increase in capacity.

“At the end of 2015, the group has a fleet size of 170 aircraft (171 including one aircraft that was delivered to AirAsia Japan in 4Q15, which has not commenced operation),” it said.

It said MAA posted a load factor of 85% in 4Q15, up seven percentage points yoy.

AirAsia said demand exceeded capacity with 10% increase in the number of passengers carried at 6.5 million and 1% yoy increase in capacity.

“MAA ended the quarter with a total fleet of 80 aircraft. Three new routes commenced operations during the quarter: Kuala Lumpur-Male, Changsha and Colombo. Frequencies were added on three routes: Kuala Lumpur-Kochi and Jakarta; and Johor Baru-Ho Chi Minh City,” it said.

Meanwhile, Thai AirAsia recorded a load factor of 82% in 4Q15, up three percentage points yoy, while Indonesia AirAsia maintained its load factor at 80%, it said.

As for the Philippines’ AirAsia, it said, its load factor was up by nine percentage points to 81% and AirAsia India recorded a load factor of 84%, one percentage point better compared with the same period last year. - Bernama

http://www.thestar.com.my/business/business-news/2016/02/15/airasia-group-carried-11pc-more-passengers-in-2015/

Mittu Chandilya not quitting AirAsia India: Tony Fernandes

MUMBAI: AirAsia India CEO Mittu Chandilya is not quitting the airline, AirAsia Group chief Tony Fernandes said today as he announced that the 2-year old Indian carrier would "shortly" add two aircraft as part of its fleet expansion plans.

"I read about Mittu calling it quits from you guys. I absolutely deny it. There is no substance to the rumours," the Malaysian airline group chief told reporters at the Make in India week here.

Unconfirmed reports had a few days ago said that Chandilya has put in his papers.

To questions on the loss-making airline's much-delayed fleet expansion plan, Fernandes said two more planes would be inducted "shortly and a dozen later" but did not put a time line to these deliveries.

AirAsia India, which currently has six Airbus A320-200 planes, is a joint venture in which Malaysia's AirAsia Bhd holds 49 per cent, Tata Sons Ltd 41 per cent and Arun Bhatia of Telestra Tradeplace Pvt Ltd the rest.

On the issue of 5/20 rule to enable an Indian carrier fly abroad, Fernandes said "all I am looking for is the ease of doing business. I hope basically your aviation sector is made easy". The rule allows only those Indian airlines which have a 20 aircraft fleet and have operated on the domestic sector for five years to fly abroad.

Besides 5/20 rule, he said "your airports are very costly and your fuel taxes are one of the highest. Please make businees easier to do."

He replied in the affirmative to questions on further capital infusion in AirAsia India but did not elaborate.

AirAsia India and Tata-Singapore Airlines venture Vistara are the prime opponents of the 5/20 rule, which is being supported by almost all major Indian carriers.

Regarding reported disagreements between the partners of AirAsia India, Fernandes said the Tatas were "a fantastic partner" but parried questions on some objections allegedly raised by the third partner, businessman Arun Bhatia, in a board room battle which had reportedly erupted recently.

On whether the Group had "underestimated" the Indian aviation market, Fernandes said "never. But we are taking time to understand it better. ... And aviation is a long-term business and we are here to for the long-term as well."

 

http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/mittu-chandilya-not-quitting-airasia-india-tony-fernandes/articleshow/50984428.cms

An excellent article on the Future of world economy. A view from Stanford University....

Governments, businesses, and economists have all been caught off guard by the geopolitical shifts that happened with the crash of oil prices and the slowdown of China’s economy. Most believe that the price of oil will recover and that China will continue its rise. They are mistaken. Instead of worrying about the rise of China, we need to fear its fall; and while oil prices may oscillate over the next four or five years, the fossil-fuel industry is headed the way of the dinosaur. The global balance of power will shift as a result.

LED light bulbs, improved heating and cooling systems, and software systems in automobiles have gradually been increasing fuel efficiency over the past decades. But the big shock to the energy industry came with fracking, a new set of techniques and technologies for extracting more hydrocarbons from the ground. Though there are concerns about environmental damage, these increased the outputs of oil and gas, caused the usurpation of old-line coal-fired power plants, and dramatically reduced America’s dependence on foreign oil.

The next shock will come from clean energy. Solar and wind are now advancing on exponential curves. Every two years, for example, solar installation rates are doubling, and photovoltaic-module costs are falling by about 20 percent. Even without the subsidies that governments are phasing out, present costs of solar installations will, by 2022, halve, reducing returns on investments in homes, nationwide, to less than four years. By 2030, solar power will be able to provide 100 percent of today’s energy needs; by 2035, it will seem almost free — just as cell-phone calls are today.

This seems hard to believe, given that solar production provides less than one percent of the Earth’s energy needs today. But this is how exponential technologies advance. They double in performance every year or two and their prices fall. Given that California already generates more than 5 percent of its electricity from utility-scale solar, it is not hard to fathom what the impact of another few doublings would be: the imminent extinction of the fossil-fuel industry. Exponential technologies are deceptive because they move very slowly at first, but one percent becomes two percent, which becomes four, eight, and sixteen; you get the idea. As futurist Ray Kurzweil says, when an exponential technology is at one percent, you are halfway to 100 percent, and that is where solar and wind energies are now.

Anyone tracking the exponential growth of fracking and the gradual advances that were being made in conservation and fuel efficiency should have been able to predict, years ago, that by 2015, the price of oil would drop dramatically. It wasn’t surprising that relatively small changes in supply and demand caused massive disruptions to global oil prices; that is how markets work. They cause commodities futures and stock prices to fall dramatically when slowdowns occur. This is what is happening to China’s markets also. The growth of China’s largest industry, manufacturing, has stalled, causing ripple effects throughout China’s economy.

For decades, manufacturing was flooding into China from the U.S. and Europe and fueling its growth. And then a combination of rising labor and shipping costs and automation began to change the economics of China manufacturing. Now, robots are about to tip the balance further.

Foxconn had announced in August 2011 that it would replace one million workers with robots. This didn’t occur, because the robots then couldn’t work alongside human workers to do sophisticated circuit board assembly. But a newer generation of robots such as ABB’s Yumi and Rethink Robotics’ Sawyer can do that. They are dextrous enough to thread a needle and cost as much as a car does.

China is aware of the advances in robotics and plans to take the lead in replacing humans with robots. Guangdong province is constructing the world’s first “zero-labor factor,” with 1,000 robots which do the jobs of 2,000 human

s. It sees this as a solution to increasing labor costs.

The problem for China is that its robots are no more productive than their counterparts in the West are. They all work 24×7 without complaining or joining labor unions. They cost the same and consume the same amount of energy. Given the long shipping times and high transportation costs it no longer makes sense to send raw materials across the oceans to China to have them assembled into finished goods and shipped to the West. Manufacturing can once again become a local industry.

It will take many years for Western companies to learn the intricacies of robotic manufacturing, build automated factories, train workers, and deal with the logistical challenges of supply chains being in China. But these are surmountable problems. What is now a trickle of manufacturing returning to the West will, within five to seven years, become a flood.

After this, another technology revolution will begin: digital manufacturing.

In conventional manufacturing, parts are produced by humans using power-driven machine tools, such as saws, lathes, milling machines, and drill presses, to physically remove material to obtain the shape desired. In digital manufacturing, parts are produced by melting successive layers of materials based on 3D models — adding materials rather than subtracting them. The “3D printers” that produce these use powdered metal, droplets of plastic, and other materials — much like the toner cartridges that go into laser printers. 3D printers can already create physical mechanical devices, medical implants, jewellery, and even clothing. But these are slow, messy, and cumbersome — much like the first generations of inkjet printers were. This will change.

In the early 2020s we will have elegant low-priced printers for our homes that can print toys and household goods. Businesses will use 3D printers to do small-scale production of previously labor-intensive crafts and goods. Late in the next decade, we will be 3D-printing buildings and electronics. These will eventually be as fast as today’s laser printers are. And don’t be surprised if by 2030, the industrial robots go on strike, waving placards saying “stop the 3D printers: they are taking our jobs away.”

The geopolitical implications of these changes are exciting and worrisome. America will reinvent itself just as does every 30-40 years; it is, after all, leading the technology boom. And as we are already witnessing, Russia and China will stir up regional unrest to distract their restive populations; oil producers such as Venezuela will go bankrupt; the Middle East will become a cauldron of instability. Countries that have invested in educating their populations, built strong consumer economies, and have democratic institutions that can deal with social change will benefit — because their people will have had their basic needs met and can figure out how to take advantage of the advances in technology.

达里奥（Ray Dalio）说：不，你必须指出我的缺点！

近来十分红火的辩论节目《奇葩说》有一期辩题是，如果你认为你的老板做错了，要不要告诉他？立足于中国的企业环境，辩论结果是反方获胜，大多数观点是：小员工还是不要自掘坟墓。但桥水基金创始人雷•达里奥（Ray Dalio）说：不，你必须指出我的缺点！

这个亿万富翁的“开明”之举，在多大程度上令桥水基金成为史上最成功的对冲基金？沃顿商学院管理与心理学教授Adam Grant在其新书《原创力：独行者如何推动世界》（Originals: How Non-Conformists Move the World）中，对达里奥与其桥水基金分享了如下见解。

桥水基金是市场公认的“最能赚钱的对冲基金”。Dalio曾在2007年准确预言了金融危机，但当时，美国财政部和白宫都未曾给予达里奥论断足够的重视。2010年，桥水基金的利润超越了谷歌、eBay、雅虎，以及亚马逊利润之和。

行为金融理论发展至今最为成熟的一条投资策略是“反向投资策略”，即，当你与别人的投资角度都不一样，才能够赚钱。桥水基金将这一策略发挥到极致：这家公司通过鼓励每一个雇员发表其反对意见（dissenting opinions）来避免趋同思维。

这令桥水基金在其余投资者出错的时候，更有机会做出正确的决策。伯克利心理学家Charlan Nemeth的研究结果显示，少数派意见对改善决策有正向作用，即使这些观点本身是错的。

被称为投资界乔布斯的Ray Dalio认为，“任何人都有权利表达批评意见。”

作为老板，达里奥可不是说说场面话而已。

桥水基金的一个客户经理曾在一个会议后发电邮给Dalio称：雷，你今天的表现我只能给D-的分数。你几乎闲扯了50分钟，但凡你稍微准备过，都不会是这样的情况。今天你的表现太糟糕了，下不为例。

令人吃惊的是，Dalio没有恼羞成怒，也没有开除这个客户经理。他向所有参会人士发了邮件，让他们给自己的会议表现从A到F打分。桥水基金的联合CEO把这位客户经理的批评邮件转发给公司所有员工，让每个人从交流中吸取此次教训。

Dalio一直努力形成一种公司机制，令他可以听到所有人的观点，并从中选择最好的一个。

为了践行Dalio的理念，桥水基金大部分管理者为自己的团队指定了一个“魔鬼代言人”：希望有一个人能够对多数派观点提出异见。

但从Nemeth的研究以及桥水基金的实践来看，这个做法行不通。当一个雇员被指定“魔鬼代言人”的角色后，他往往只是在扮演这个角色。这导致了两个负面结果：他们的反对意见根本没有说服力；他们的意见越来越不受重视。

Nemeth称，为反对去反对就丧失了反对的意义。

反对意见是为了寻求事实真相，为了找到最好的解决办法。当你真心提出反对意见，真理可以越辩越明，异见者也会更有自信。

Nemeth的实验结果显示，如果团体中有一个真正的反对者，比指定一个反对者要多提供48%的解决方式，并且，他们的意见更有质量。

但Nemeth同时表示，尽管这一指定角色的作用没有一个直接的反对者来得药效强。但指定角色确实会给该雇员镀上一层保护色，以减少团体内的敌意和意见反弹。

但对Dalio来说，他显然不需要“魔鬼代言人”这层窗户纸。对于“指定”，他更致力于发掘他们。

每次桥水基金需要做一个重要决定，Dalio都会采取调查问卷的方式来听取每个人的意见，从中选择有极端观点的人来辩论，并要求所有雇员来听取反对意见。

“人类最大的弱点就是不能全面思考来挖掘真相。”

但这并不意味着哗众取宠的人更有表演空间。换句话说，Dalio欢迎所有人的观点，但不意味着他会给所有人的观点同等的重视。

“一人一票的民主决策是相当愚蠢的，因为不是每个人都有相同的可信度。”

桥水基金的每个雇员都对应一个可信度分数，这个分数根据雇员过去的判断、推论和行为来决定。

即使以上桥水基金的所有管理经验我们都难以借鉴，但对任何公司来说，该高度重视“自我意识”这一点是最有价值的一课：当雇员在表达观点时，是在期望建立更高的可信度，也在树立一种自信。

了解更多：点击查看桥水基金员工手册/《全球最大对冲基金创始人：这五个习惯让我成功》/《雷•达里奥（Ray Dalio）——对冲基金教父的人生“禅”（上）》

Gaming - Looking To A Better 2016

We still like gaming stocks for their attractive valuations, being the market laggards in the past 2-3 years. GENTING looks fairly attractive for its deep valuation, which trades at 41% discount to its SoP valuation while BJTOTO is at multiple-year’s low of 11x earnings multiples with one of the best yields at 7%-8%. We expect a better year in 2016 for the players in anticipation of recovery in business volume and luck factors. In all, we continue to prefer NFO players over casino operators given the formers’ supernormal dividend yields of 6%-8% while for the latter, GENTING especially is affected by the lacklustre performance from GENS. We maintain our OVERWEIGHT rating for the sector while BJTOTO remains our TOP PICK.
Still OVERWEIGHT on valuations. Except Genting Malaysia Bhd (GENM, UP; TP: RM4.26), all gaming stocks saw another lacklustre year in 2015 with share prices contracting 7%-19% over the year after the 11%-14% decline in 2014. This was mainly attributable to the GST as well as their non-shariah status while foreign funds also have little interest in the sector. However, this sector offers deep value like Genting Bhd (GENTING, OP; TP: RM8.52) and attractive yields such as Berjaya Sports Toto Bhd (BJTOTO, OP; TP: RM3.56) and Magnum Bhd (MAGNUM, OP; TP: RM2.93). GENTING is now trading at c.41% discount to SoP valuation, which could be a sign of bottoming out given its 10-year average discount of 30%. On the other hand, NFO players, such as BJTOTO are trading at their multi-year’s lows even after we trimmed their earnings estimates recently. BJTOTO continues to be our TOP PICK for the sector for its dividend yield and defensive earnings. OVERWEIGHT for the sector maintained.
NFO: it is always about valuation and yield. We trimmed BJTOTO and MAGNUM earnings recently as we were too bullish on ticket sales even after adjusting for the 6% GST. As such, we see little earnings risk for now unless there is a big swing in luck factor to the downside. Post earnings revision, valuations for both stocks remain undemanding at 11x-14x earnings multiples. This is especially so for BJTOTO as it is trading at its multiple-year’s lows. Given that the gaming sector is highly regulated and matured, earnings prospect remains unexciting and we expect ticket sales to grow at 2%-3% annually with their usual 20 extra special draws each year while the luck factor is the determining factor for bottom line. However, one should also look into the attractive yields that are as high as 6%-8% which is among the highest on Bursa Malaysia.
Casino: GENM is the focus in 2016. With Phase 1 of Genting Integrated Tourism Plan (GITP) in its final leg of completion in 2H 2016, GENM is likely be the focus as the 10-year RM5b revamping program is a major catalyst to Resorts World Genting. The prime attraction will be the first full-scale 20th Century Theme Park, which will be ready by end-2016/early-2017, and will definitely change the image of RWG as the new face of holiday theme park destination in the region with its cool climate as part of the selling point. Although we are not certain if RWG is allowed to expand its casino floor, all the new addons should help to bring in more footfalls, which could help to boost casino traffic. Meanwhile, there is no development from Japan regarding the liberalisation of the gaming industry there while the construction of Resorts World Jeju is on track to open progressively from 2017 and to complete by 2019. In Singapore, Resorts World Sentosa lost its market leader status to its sole rival Marina Bay Sand for the third consecutive quarters with the market share for VIP rolling chip volume falling further to 40% in 3Q15 from 47% in 2Q15. This was mainly attributable to the sharp decline in Chinese VIP arrivals. As such, Genting Singapore plc (GENS, Not Rated) has switched its focus to the mass market since three quarters ago.
Looking to a better 2016. Generally, gaming companies had a bad year in 2015 given the slowdown in business volume coupled with the absorption of GST. In addition, the luck factor was also not in their favour. As such, we expect a better 2016 for the players with expectations of recovery of business volume and the normalisation of luck factor. Earnings of BJTOTO, GENTING and GENM were badly hit in 2015, with the abovementioned expectations, we could see a moderate improvement in 2016 which we estimate 10%/10%/17% earnings growth for them, respectively. On the other hand, MAGNUM will be the only gaming stock to post flattish earnings growth of <1% in 2016 as it is the only company with earnings growth of <2% in 2015. Operationally, GENM could continue to enjoy stable earnings on the resilient RWG’s earnings while the North American operations, especially RWNYC should be able to drive the US-based earnings higher while RWB’s new 300-room luxury hotel is expected to reduce its operating loss and break even in 2H15. However, the UK operations could continue to see tougher times due to its VIP-centric nature. Meanwhile, GENS’ prospects remain challenging given the decline of visitor arrivals from the high-roller segment from China.
Source: Kenanga Research - 6 Jan 2016

AirAsia - Increase Stakes in Think Big

Highlights/ Comments

• AirAsia is increasing its stake in associate Think Big (BIG) from 46.1% to 71.9% (becoming a subsidiary), by acquiring 25.8% stake from shareholder Tune Money for cash consideration of RM101.5m. The agreed price is based on previous BIG valuation of US$109m, when AIMIA invested US$17.1m for a minority stake in BIG back in Jan 2014.
• 

• Based on AirAsia latest 9M15 result, AirAsia has a cumulative unrecognized losses amounting to RM31.4m for its 47.8% stake (later diluted to 46.1% by end 2015 after AIMIA increased its stakes). With the acquisition, AirAsia would need to consolidate BIG’s account and recognize the cumulative losses in 1Q16. Given BIG’s track record of losses (since startup in 4Q11), we do not expect BIG’s turnaround within the next 2-3 years, which may drag AirAsia’s earnings performance. BIG reported losses of RM18.2m for 9M15 and RM10.6m in FY14.

• We understand that BIG currently has a membership base of 15.6m across Asia Pacific (vs. 10m back in Jul 2014). BIG aimed for 20m memberships by 2017, leveraging on the regional connectivity of AirAsia group and their partners.

• We are relatively negative on the acquisition, given the high prices offered for a company that is loss making and may exert drag to AirAsia’s earnings in the near term. Nevertheless, we see potential turnaround by 2017-18, when BIG achieves its 20m membership target and able to extract synergies within AirAsia group.

Risks

• World crisis (ie. war, terrorism and epidemic outbreak), delay in KLIA2 completion, prolong surge in jet fuel and high speed train infrastructure between Singapore and P. Pinang.

Forecasts

• Unchanged.

Rating

• Buy

Positives

• 1) Sustaining lowest cost LCC operator in Asia with largest network and strong brand name; 2) Low jet fuel price; 3) Increasing ancillary income; and 4) Routes rationalization of major competitor MAS.

Negatives

• 1) Higher cost of living faced by consumers (from GST implementation and subsidy rationalization); and 2) Regional air-demand slowdown and political issues.
• Strengthening of US$.

Valuation

• We remain positive on AirAsia’s outlook given the expectation yield sustainability and lower jet fuel costs. Maintained Buy with unchanged TP of RM2.00 based on unchanged 20% discount to SOP.

Source: Hong Leong Investment Bank Research - 4 Feb 2016

AirAsia ups stake in Think BIG

KUALA LUMPUR (Feb 3): AirAsia Bhd is increasing its stake in Think BIG Digital Sdn Bhd (Think BIG) to 71.9%, from 46.1% currently, after acquiring a 25.8% stake from its affiliate Tune Money International Sdn Bhd (TMI) for RM101.5 million or RM49 per share.
In a filing with Bursa Malaysia, AirAsia said it has entered into a share sale agreement with TMI to acquire 2.07 million shares, representing 25.8% of the issued and paid-up share capital of Think BIG, which will be satisfied via the company’s internally-available funds.
The budget carrier said its increased stake in Think BIG would improve AirAsia’s topline and promises high returns on investment.
“Additionally, once AirAsia increases its stake in Think BIG to above 50%, Think BIG will no longer be classified as an associate and AirAsia will be able to consolidate Think BIG contributions to Company revenue, which would improve AirAsia’s top line,” the filing read.
“(Think BIG has a) high return on investment, as the company has a business plan to grow its loyalty business and membership base significantly,” it added.
AirAsia said a higher stake in Think BIG would also accord it with greater strategic control over the day-to-day operations of Think BIG, the owner and operator of AirAsia’s BIG loyalty programme.
AirAsia said greater control would also accelerate decision-making with regards to AirAsia priority items that would help support the Company’s business plan and commercial objectives.
“Acquiring the remaining 25.8% stake in Think BIG Digital will confer onto AirAsia additional benefits that can only be realised through greater controlling stake of Think BIG Digital.
“This would allow AirAsia to extract greater value from the AirAsia BIG loyalty programme, managed by Think BIG Digital,” it added.
The transaction is a related party transaction, as two of TMI’s shareholders and directors, Tan Sri Anthony Fernandes and Datuk Kamarudin Meranun, who is also AirAsia executive chairman, are shareholders and directors in AirAsia.
Both hold a 35% stake each in TMI and a 19% indirect stake each in AirAsia. AIMIA Holdings UK II Ltd holds a 17% stake in Think BIG.
AirAsia said upon acquisition, TMI’s stake will be reduced to 11.1%.
AirAsia also said the purchase price is based on the agreed valuation of Think BIG’s 100% equity at RM393.4 million, with the valuation taking into account the previous share acquisition and subscription in Think BIG by AIMIA in 2014, which valued the company at US$109 million (RM459.82 million).
The transaction is expected to contribute positively to the earnings and cashflow of AirAsia in the future, through its shareholding in Think BIG, AirAsia said.
However, it will not have an effect on the audited consolidated NA per share or the consolidated gearing of AirAsia for the financial year ending Dec 31, 2016, and AirAsia will not be assuming any of Think BIG's liabilities.
AirAsia closed 4 sen or 2.82% lower at RM1.38 today, for a market capitalisation of RM3.84 billion.
http://www.theedgemarkets.com/my/article/airasia-ups-stake-think-big