Aviation (Overweight) - Jet Fuel Price High at US$135/bbl

Aviation (Overweight)

Jet Fuel Price High at US$135/bbl

• Political Tension in MENA region had caused jet fuel price to increase to US$137/bbl.
• AirAsia has just announced higher fuel surcharge (+30-50%), which we has estimated to increase revenue by ~RM72m, just enough to offset increment of US$5/bbl in 2012.
• MAS has not made any announcement yet on higher fuel surcharge. Its wholly owned subsidiary Firefly has re-introduced fuel surcharge.
• Based on our sensitivity test, we expect AirAsia to remain profitable if jet fuel priced increased to US$140/bbl, while MAS still in the red in FY12. For every US$5/bbl increase in jet fuel price, AirAsia’s EPS will decrease by ~6%.
• AirAsia is currently trading at a discount to regional and global LCC peers despite achieving highest ROEs and potential higher earnings from recognizing contributions from Thai and Indonesia associates post listing in 2012. Furthermore, LCC business model is expected to sustain during economy slowdown.
• Maintain Buy on AirAsia with Target Price of RM4.50 and Sell on MAS with Target Price of RM0.82.

Source: HLIB Research 30 March 2012