Air asia cimb recommendation

Airlines│Malaysia

August 21, 2015

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

Malaysia’s yields disappoint Using a new method of calculating AirAsia’s core earnings, the group made a 1H core net loss of RM173m. As the 2H is seasonally stronger, the 1H results are some 10% below our previous full year expectations, mainly due to weaker than expected yields in Malaysia. However, we cut our FY15-17 group core EPS by 45-77% on lower yields, as well as by attributing 100% share of losses in IAA and AAP to the group, since AirAsia assumes virtually all the economic risks in those ventures, up from 49% and 40%, respectively. We switch our target price basis from sector average CY16 P/E of 11x, to SOTP, and slash our target to RM1.14. We maintain our technical Add call, but highlight that the upside is rather thin for the risks that accompany the stock.

Highlights of 2Q15 The group’s 2Q and 1H core net loss fell some 42-46% yoy due to broadly better performance in most countries. MAA’s 1H core earnings improved 85% from a very low base, but a large chunk of the benefits from lower oil prices were swallowed up by lower yields from the removal of fuel surcharges and lower loads in 1Q. Thai AirAsia (TAA) saw a seven-fold jump in 1H profits, again from a low base, due to the return of tourists into Thailand. AirAsia Philippines (AAP)’s 1H losses fell 35% yoy as it reduced its unproductive fleet by 20% and cancelled loss-making international routes. Unfortunately, Indonesia AirAsia (IAA) saw its 1H losses expand 28% yoy, as the negative impact of the QZ8501 crash on yields and loads more than offset the lower fuel prices.

Competitive environment in Malaysia still robust MAA failed to drive load improvements in 2Q15 despite cutting yields 8% yoy, possibly due to the lingering effects of QZ8501, but more likely because the competition had also cut its fares on the back of lower fuel costs. Our analysis of the domestic Malaysia and ASEAN seat capacity over the next six months suggest that there will only be minor improvement in the competitive dynamics as short-haul seat capacity is down only in the low-to-mid single digits.

Main worry is IAA We see higher risk that IAA’s convertible bonds (CB) may not be successfully issued, as the CBs are now being marketed to foreigners rather than the initial target of local Indonesian investors. We believe the market is already pricing in a scenario whereby AirAsia may not get repayment from IAA anytime soon.

CIMB Analyst(s)

—————————————————————————————————————————

Raymond YAP, CFA T (60) 3 2261 9072 E [email protected]

Share price info

Share price perf. (%) 1M 3M 12M

Relative -17.2 -42.0 -41.5

Absolute -25.7 -54.9 -57.6

Major shareholders % held

Tune Air 19.0

EPF 7.4

Show Style "View Doc Map"

AirAsia Bhd 2QFY15 RESULTS NOTE

AIRA MK / AIRA.KL Current RM1.01

Market Cap Avg Daily Turnover Free Float Target RM1.14

US$681.0m US$9.64m 73.6% Prev. Target RM2.26 RM2,811m RM36.51m 2,781 m shares Up/Downside 12.9%

Conviction| |

Sources: CIMB. COMPANY REPORTS

Results comparison - note that core net profit includes share of airline associate profits/losses, in particular 100% of IAA and AAP

FYE Dec (RM m) 2QFY15 2QFY14 yoy % qoq % 2QFY15 2QFY14 yoy % Prev.

chg chg Cum Cum chg FY15F Comments

Revenue 1,342.8 1,310.9 2.4 3.5 2,639.7 2,613.4 1.0 5,727.1 MAA's revenue was up 2.4% yoy, with increases in lease income

Operating costs (951.9) (986.6) (3.5) 8.8 (1,826.9) (1,919.6) (4.8) (3,964.0) offset by a drop in passenger flight revenue. The latter was

EBITDA 390.9 324.3 20.5 (7.3) 812.7 693.8 17.1 1,763.1 caused by a drop in yields which overwhelmed an increase

EBITDA margin (%) 29.1 24.7 30.8 26.5 16.0 30.8 in RPK demand.

Depn & amort. (165.6) (190.2) (12.9) (10.8) (351.3) (354.3) (0.8) (748.9) EBITDA rose 20.5% yoy on the back of lower fuel prices, offset

EBIT 225.3 134.2 67.9 (4.6) 461.5 339.5 35.9 1,014.2 by the impact of US$ appreciation.

Interest expense (149.2) (128.0) 16.6 (1.6) (300.8) (246.1) 22.2 (625.5) Depreciation fell yoy due to the sale and leaseback of 10 planes

Interest & invt inc 29.7 24.8 19.8 (24.7) 69.1 45.7 51.3 152.5 in 2Q, to be followed by a further 6 planes in 2H15.

Associates' contrib 13.0 (8.8) 247.7 (65.1) 50.2 7.6 560.5 188.7 We expect Thai AirAsia to perform better in 2H15.

Exceptionals (70.1) 233.1 (130.1) (318.4) (38.0) 242.4 (115.7) (245.6)

Pretax profit 48.8 255.3 (80.9) (74.8) 242.1 389.1 (37.8) 484.3

Tax 194.3 111.8 73.7 541.8 150.3 117.7 27.7 (154.7) A lot of deferred tax income was booked in 2Q, which we exclude

Tax rate (%) (398.4) (43.8) (62.1) (30.3) 31.9 from core net income.

Minority interests - - nm nm - - nm -

Net profit 243.0 367.2 (33.8) 62.7 392.4 506.9 (22.6) 329.6

Core net profit (98.4) (181.8) (45.9) 32.3 (172.7) (296.8) (41.8) 193.2 Group core net loss reduced yoy, on the back of lower fuel prices

EPS (sen) 8.7 13.2 (33.8) 62.7 14.1 18.2 (22.6) 11.8 offset by lower fuel surcharges, and the appreciation of the US$.

Core EPS (sen) (3.5) (6.5) (45.9) 32.3 (6.2) (10.7) (41.8) 15.5

SOURCE: CIMB, COMPANY REPORTS

AirAsia Bhd│Malaysia

August 21, 2015

2

Rationale for recommendation and target price computation

We are maintaining our Add call on AirAsia, because the stock price has been sold off intensely, and we do expect an improvement in the operating performance of the AirAsia group in the quarters to come as a result of lower oil prices, and the onset of the traditional 2H peak. However, upside is likely to be capped as AirAsia is battling the ringgit and rupiah depreciation, and probably facing some difficulties garnering new investors for the proposed convertible bond issues of Indonesia AirAsia (IAA) and AirAsia Philippines (AAP).

It is on the latter issue that primarily determines the movement of AirAsia’s share price. Investors are less concerned with the nitty-gritty of the operating performance of Malaysia AirAsia (MAA), which is traditionally where the attention had been focused. Instead, investors are now more concerned than ever, about whether IAA can fundamentally turn around, and if IAA can secure investors for a proposed convertible bond (CB) issue worth US$150m that will ease the demands for cash working capital support from AirAsia. The same concerns apply to AAP as well.

On this count, back in our 29 May note, we had flagged to investors our belief that AirAsia targets to successfully conclude the capital raising exercises for both IAA and AAP within six months; the funds will then be used to repay half of the balances owed to AirAsia. On this basis, we had upgraded our call from Hold to Add. In hindsight, this upgrade was premature and we may have been too optimistic on AirAsia’s ability to find investors for the CBs. More on this later.

The operational turnaround at IAA is premised on the following strategies:

1. Four aircraft will be transferred out of IAA during 2H15 (two to MAA, one to AAP and one to AirAsia India); these four planes are currently deployed on the domestic routes, and IAA plans to further reduce its exposure to the domestic markets which earn revenue in the depreciating rupiah. This will reduce IAA’s fleet from 29- to 25-strong.

2. IAA will build exposure to the international markets where it can earn revenue in foreign currencies. For instance, strong international routes like Surabaya-Kuala Lumpur and Surabaya-Johor Bahru may see increased frequencies, while new routes to Singapore (from various Indonesian bases) and new routes from Bali to Australia may also be opened up.

On the balance of probabilities, we do expect IAA’s losses to narrow in the quarters ahead, and AirAsia even forecasted IAA to earn a net profit of Rp500bn in 2H15, against 1H15’s net loss of Rp1,016bn. This is possible because the 2H is seasonally stronger anyway, and IAA will benefit from the lower oil price and the removal of some domestic capacity. However, international routes have their challenges as well, as the much weaker rupiah may impact demand for outbound Indonesian travel, and international tickets sold in Indonesia are also priced in rupiah. And once IAA moves back into 1H16, it is unclear if it will fall back into the red without the benefit of stronger 2H seasonality.

Financial Summary

Dec-13A Dec-14A Dec-15F Dec-16F Dec-17F

Revenue (RMm) 5,181 5,409 5,626 5,887 6,065

Operating EBITDA (RMm) 1,541 1,454 1,725 1,696 1,758

Net Profit (RMm) 444.0 83.8 (223.9) 594.6 722.1

Core EPS (RM) 0.13 (0.07) 0.04 0.09 0.15

Core EPS Growth (52%) (149%) NA 148% 66%

FD Core P/E (x) 7.64 NA 27.85 11.21 6.78

DPS (RM) 0.040 0.030 0.040 0.040 0.050

Dividend Yield 3.96% 2.97% 3.96% 3.96% 4.95%

EV/EBITDA (x) 7.52 9.76 7.40 7.57 7.30

P/FCFE (x) NA 19.39 2.19 9.13 6.77

Net Gearing 175% 250% 236% 213% 190%

P/BV (x) 0.56 0.62 0.67 0.60 0.53

ROE 7.10% (3.79%) 2.30% 5.62% 8.30%

% Change In Core EPS Estimates (76.6%) (56.2%) (44.5%)

CIMB/consensus EPS (x) (0.36) 0.83 0.87

50

68

86

104

122

140

0.80

1.30

1.80

2.30

2.80

3.30

Price Close Relative to FBMKLCI (RHS)

Source: Bloomberg

50

100

150

200

Aug-14 Nov-14 Feb-15 May-15

Vo

l m

1.01

1.14

1.01 2.94

Target

52-week share price range

Current

SOURCE: CIMB, COMPANY REPORTS

https://brokingrfs.cimb.com/BarF3CTISy8-JQFWM49E9sD_zyFmKj-u38n8RbrHyTNe0zbVHDWaZzUHx4TQGMeN1lM1.pdf


August 21, 2015

3

At the very least, we expect IAA to do less poorly in FY16, after the cancellation of loss making routes, the fleet reduction of four aircraft, and the healing power of time one year after QZ8501.

Regarding IAA’s attempt to seek investors for its CBs, we understand that the CBs will be marketed primarily to foreign investors, suggesting perhaps that local interest in the CB is lacking. It had originally been targeted at local investors. We see increased risk that IAA’s CBs may struggle to be issued. The original plan was for IAA to use the proceeds from the CBs to pay back part of the enormous carried-forward balances owed to AirAsia (estimated RM1.8bn at end-June), and so if the CB issue is in doubt, AirAsia may not get back its cash anytime in the near future.

There is also another reason why AirAsia will not be getting repayment from IAA soon. It will soon have to convert about RM1bn (US$250m or Rp4.2tr) of the RM1.8bn owed to it by IAA into Redeemable Convertible Preference Shares (RCPS). This RCPS is treated as equity on IAA’s balance sheet, and will help address the government’s requirement for IAA to have positive shareholders funds. This essentially means that the RM1bn that AirAsia is investing in IAA’s RCPS is stuck in Indonesia to fulfill regulatory requirements, and cannot be released until new investors are found or until such a time when IAA accumulates sufficient revenue reserves.

Finally, AirAsia may also convert another RM160m (US$40m) of its receivables from IAA into new IAA shares, to match the potential “indicative” equity injection from local shareholders.

The progress in the Philippines is apparently better, with “strong” interest by existing shareholders to inject US$50m in additional share capital, which AirAsia will participate by converting some RM132m (US$33m) of its RM1bn of receivables from AAP in order to preserve its 40% stake. Discussions are also ongoing with “prominent Filipino investors” to invest in a US$150m CB issue. We believe there is a higher probability that the AAP initiatives will see success, compared to the IAA efforts.

From the way the funding of the operations of IAA and AAP has been executed over the past few years, we can see that AirAsia is assuming the lion’s share of the risks of IAA and AAP because it has already offered a cumulative RM2.8bn in working capital loans to IAA and AAP. If either IAA or AAP fails to repay those balances, AirAsia bears the full brunt, and not the respective airlines’ local partners whose liabilities are limited to their relatively small equity investments. Conversely, if IAA and AAP eventually succeeds, the fruits of their success need to be shared with the local partners in proportion to their equity stakes, even though the local partners did not proportionately share the risks of the airlines when they were going through a long gestation period.

This stark reality has caused us to reevaluate the way we have calculated AirAsia’s group core net profit. In the past, we have taken MAA’s profits and added to them MAA’s equity share of the profits and losses of the individual associates (regardless of whether they are equity accounted on the face of the P&L). Hence, we added in 45% share of Thai AirAsia (TAA)’s profits, deducted 49% share of IAA’s losses, deducted 40% share of AAP’s losses, etc.

However, given that AirAsia is effectively assuming the lion’s share of the risks of both IAA and PAA, we have revised our computation of AirAsia’s group core net profit by including 100% share of IAA’s and PAA’s losses. We think this reflects the true economic reality, though not the legal reality, of AirAsia’s exposure to IAA and PAA when the two airlines are still in the red.

This new method of computing AirAsia’s group core net profit is reflected throughout this report. So, for 2Q15, our new method yields a group core net loss of RM98.4m (as seen on the front page), but our old method would have churned out a group core net profit of RM8.8m instead.


August 21, 2015

4

We have typically valued AirAsia’s stock on the basis of the sector average CY16 P/E multiple of 11x. If we use this method, and on the basis of a much lower CY16 group core net profit figure of RM250.6m (core EPS of 9 sen), the target price would drop to RM0.99.

Figure 1: Core Net Profit - AirAsia group

2012 2013 2014 2015F 2016F 2017F

M'sia pax airline core net profit ^ 728.7 434.7 175.5 340.7 356.0 423.5

+ Share of Thai AA (45%) * 99.1 104.6 39.6 206.2 224.9 277.0

+ Share of Indo AA (100%) * 65.0 -69.1 -187.5 -312.0 -229.7 -198.7

+ Share of AA Philippines (100%) * -83.0 -85.9 -222.1 -136.0 -60.5 -60.5

+ Share of AA Japan (49%) * -49.5 -56.9 -9.7 -19.4 -88.8 -78.2

+ Share of AA India (49%) * 0.0 0.0 -30.0 -34.9 -17.9 -16.7

Group pax airlines core net profit 760.3 327.3 -234.2 44.5 184.0 346.3

+ Non-group leasing profits # 17.8 27.0 31.9 43.4 52.7 54.5

+ Share of AACOE (50%) 9.0 8.9 11.2 12.0 13.0 13.0

+ Share of Expedia (25%) -11.8 8.1 20.4 10.0 10.0 10.0

+ Share of BIG (50%) -5.4 -3.8 -10.7 -5.0 -5.0 -5.0

+ Share of Tune Money (40%) 0.0 0.0 0.0 -4.0 -4.0 -4.0

Group core net profit 769.9 367.6 -181.3 100.9 250.6 414.8

Add: Exceptional gains/(losses) 212.3 -156.8 -317.5 -774.4 2.9 84.9

Less: Deferred taxes -156.7 19.8 85.8 -108.6 -41.9 -129.6

Add: Unrecognised associate losses 9.7 213.4 496.8 558.2 382.9 352.0

Reported attributable profit 835.2 443.9 83.8 -223.9 594.6 722.1

Wtg avg no of shares (m) 2,777.9 2,779.4 2,781.0 2,782.0 2,783.0 2,783.0

Group Core EPS (sen) 27.7 13.2 -6.5 3.6 9.0 14.9

P/E target (x) 11.0

Share price target (RM) 0.99

^ Excludes estimated aircraft leasing profits.

* Leasing profits attributable to the AirAsia stake in each associate, e.g. 45% of Thai AA, has been added

back to the individual associate line. Assume 15% leasing profit net margin. Exception is made for IAA and

AAP, where we incorporate 100% share of gains and losses, and hence, 100% of the leasing profits are

added back into the IAA and AAP lines.

# Leasing profits earned from the non-AirAsia shareholder in each associate, e.g. 55% of Thai AA, included here. SOURCES: CIMB, COMPANY REPORTS

However, we think that the SOTP of AirAsia should give the share price some support, so we have switched the valuation method from CY16 P/E of 11x, to end-CY15 SOTP, which we calculate at RM1.14.

In our 9 July report, we calculated AirAsia’s end-March 2015 SOTP as RM1.67, but the end-CY15 SOTP is only RM1.14, as we reflect larger negative shareholders’ equity at IAA and AAP due to continuing losses, as well as the impact of a stronger US$ which augments the ringgit value of AirAsia’s US$ debt. As with the calculation of group core net profit, we have assumed 100% share of the IAA and AAP negative book value.


August 21, 2015

5

Figure 2: SOTP of the AirAsia group

RM m RM/share Notes

A AirAsia group's BV (RM m) - as at end-Dec 2015 4,221.8

Less: Investments in associates -312.0

Malaysia AirAsia's NTA (RM m) 3,909.8 1.40

B AAV - No of shares (m) 4,850

Current target price (THB) 4.72

AAV's market cap (THB m) 22,892.0

Exchange rate (THB:RM1) 8.94

AAV's market cap (RM m) 2,560.6

Implied TAA value (RM m) 4,655.7

AirAsia's stake in TAA (%) 45%

AirAsia's share of TAA's market value (RM m) 2,095.1 0.75

C AirAsia-Expedia value (RM m) 350.0 0.13

D IAA's BV (Rp bn) - as at end-Dec 2015 -4,452.5

Exchange rate (Rp:RM1) 3,350

AirAsia economic stake in IAA (%) 100% AirAsia only owns 49% of IAA, but we have used 100%

AirAsia's share of IAA's book value (RM m) -1,329.1 -0.48 since the risks are on AirAsia's shoulders.

E AAP's BV (Php m) - as at end-Dec 2015 -20,854.9

Exchange rate (Php:RM1) 11.32

AirAsia's economic stake in AAP (%) 100% AirAsia only owns 40% of AAP, but we have used 100%

AirAsia's share of AAP's book value (RM m) -1,842.3 -0.66 since the risks are on AirAsia's shoulders.

Total SOTP value (RM m) 3,183.4 1.14

AirAsia - No of shares (m) 2,783

Per share SOTP value (RM) 1.14

Current share price (RM) 1.01

Upside (%) 13.3%

Note: AAV - Asia Aviation; AAX - AirAsia X; IAA - Indonesia AirAsia; AAP - AirAsia Philippines SOURCES: CIMB, COMPANY REPORTS


August 21, 2015

6

Domestic capacity review

After growing 9.3% yoy as at July 2015, forward airline schedules suggest that domestic seat capacity ex-Kuala Lumpur (KUL) and ex-Subang Airport (SZB) will drop a slight 2% yoy by January 2016. This is not a reason to rejoice, because the drop is driven by an expected 10% decline in capacity to Kota Kinabalu as a result of the recent earthquake, so this is only reflecting reduced travel demand to KK. Capacity to Kota Bahru is the standout, increasing at 14-15% yoy. Firefly and Malindo continue to expand domestically from the SZB base, but MAS and AirAsia are cutting down in the mid-to-low single digits.

From the capacity point-of-view, we see no rationalisation and airlines are largely happy to keep their domestic deployments intact (with the exception of KK). Therefore, domestic yields are unlikely to become stronger, especially since fuel surcharges have been cut or removed.

Figure 3: Domestic capacity ex-KUL/SZB

Flights from KUL/SZB to

Jan-12 Jan-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul 2013 to

Jul 2014

Jan 2014 to

Jan 2015

Jul 2014 to

Jul 2015

Jan 2015 to

Jan 2016

Kota Kinabalu 26,220 30,139 34,264 26,860 33,476 30,028 30,107 -23.9% -2.3% 11.8% -10.1%

Kuching 22,830 24,896 31,320 26,876 29,120 28,798 28,882 -20.3% -7.0% 7.2% -0.8%

Penang 26,642 27,648 33,840 33,044 38,332 37,346 36,404 7.3% 13.3% 13.0% -5.0%

Langkawi 19,059 19,888 26,720 25,560 28,488 26,457 27,727 16.3% 6.6% 3.5% -2.7%

Kota Bahru 17,092 17,600 20,212 24,656 25,340 28,512 28,990 27.4% 25.4% 15.6% 14.4%

Miri 8,295 8,240 10,648 8,960 11,548 10,256 10,745 -16.2% 8.5% 14.5% -7.0%

Other domestic cities 47,592 53,128 66,288 71,320 77,860 76,183 76,450 4.2% 17.5% 6.8% -1.8%

Total 167,730 181,539 223,292 217,276 244,164 237,580 239,305 -1.4% 9.3% 9.3% -2.0%

BREAKDOWN BY AIRLINE


Jul 2014

Jan 2014 to

Jan 2015

Jul 2014 to

Jul 2015

Jan 2015 to

Jan 2016

MAS 58,590 67,155 74,156 75,112 82,164 81,826 79,381 1.5% 10.8% 8.9% -3.4%

AirAsia 91,980 93,960 109,080 98,640 109,260 104,580 103,500 -9.6% 0.2% 6.0% -5.3%

Firefly 16,488 16,128 17,280 20,448 22,896 24,768 24,624 19.8% 32.5% 21.1% 7.5%

Malindo 0 0 19,656 22,356 29,844 26,406 31,800 43.1% 51.8% 18.1% 6.6%

Berjaya Air 672 4,296 3,120 720 0 0 0 -84.0% -100.0% -100.0% nm

Total 167,730 181,539 223,292 217,276 244,164 237,580 239,305 -1.4% 9.3% 9.3% -2.0%

MAS group 75,078 83,283 91,436 95,560 105,060 106,594 104,005 4.9% 14.9% 11.5% -1.0%

Growth in industry seats


Total seat capacity/week


SOURCES: CIMB, CAPA


August 21, 2015

7

ASEAN capacity review

In the ASEAN space, forward airline schedules indicate that capacity will drop by some 5.7% yoy in January 2016. MAS has announced a 15% cut in its capacity to the ASEAN region from KUL/SZB effective August, with frequency reductions to Medan, Ho Chi Minh, Manila, Siem Reap, and Yangon, on top of the cancellation of Krabi route earlier. As such, we do anticipate an improvement in the industry’s profitability on the ASEAN routes, particularly on the routes that have seen capacity reductions. However, as only a small number of routes are affected by MAS service reductions, the overall impact on the broader ASEAN market may not be very large.

Figure 4: ASEAN capacity ex-KUL/SZB

Flights from KUL/SZB to


Jul 2014

Jan 2014 to

Jan 2015

Jul 2014 to

Jul 2015

Jan 2015 to

Jan 2016

Thailand 37,667 42,223 48,289 49,923 58,648 49,995 54,858 5.1% 21.5% 0.1% -6.5%

Singapore 46,156 52,235 48,664 44,477 56,748 55,141 59,223 -13.6% 16.6% 24.0% 4.4%

Indonesia 62,351 64,569 85,953 83,697 89,241 82,379 78,779 5.3% 3.8% -1.6% -11.7%

Philippines 5,480 10,529 11,405 9,801 12,138 13,072 12,229 -14.5% 6.4% 33.4% 0.7%

Myanmar 3,150 4,767 5,626 4,569 5,541 5,597 4,313 -1.8% -1.5% 22.5% -22.2%

Vietnam 13,877 15,844 16,508 17,227 17,456 17,197 16,708 7.7% 5.7% -0.2% -4.3%

Cambodia 5,595 6,500 6,732 6,912 7,944 7,923 7,434 -12.2% 18.0% 14.6% -6.4%

Total 174,276 196,667 223,177 216,606 247,716 231,304 233,544 -0.8% 11.0% 6.8% -5.7%

BREAKDOWN BY AIRLINE


Jul 2014

Jan 2014 to

Jan 2015

Jul 2014 to

Jul 2015

Jan 2015 to

Jan 2016

MAS 35,124 39,670 50,690 49,696 58,888 53,939 49,878 6.5% 16.2% 8.5% -15.3%

AirAsia 67,500 71,460 77,400 76,320 89,460 84,420 88,920 -2.1% 15.6% 10.6% -0.6%

Firefly (SZB) 5,256 4,536 4,896 4,752 4,968 4,176 4,392 8.2% 1.5% -12.1% -11.6%

Malindo 0 0 2,520 1,944 10,710 8,792 12,468 nm 325.0% 352.3% 16.4%

Thai AirAsia 3,780 3,600 5,040 6,120 6,300 5,040 5,040 61.9% 25.0% -17.6% -20.0%

Thai Airways 5,534 5,644 5,461 5,436 5,464 4,604 5,024 -3.6% 0.1% -15.3% -8.1%

Indonesia AirAsia 16,380 16,920 22,500 21,240 21,420 19,800 18,360 -6.3% -4.8% -6.8% -14.3%

Lion Air 2,982 4,389 6,222 5,796 4,333 4,333 4,333 -2.8% -30.4% -25.2% 0.0%

Garuda Indonesia 2,296 2,184 2,184 2,198 3,276 3,140 3,297 0.6% 50.0% 42.9% 0.6%

Singapore Airlines 4,845 4,845 3,420 4,845 4,845 4,845 4,845 0.0% 41.7% 0.0% 0.0%

SilkAir 4,892 5,670 5,140 6,980 7,842 8,138 8,200 7.5% 52.6% 16.6% 4.6%

Tiger Airways 4,500 5,400 5,040 3,384 4,860 4,500 5,040 -32.9% -3.6% 33.0% 3.7%

Jetstar Asia 4,500 9,180 8,820 5,400 5,580 5,400 5,400 -33.3% -36.7% 0.0% -3.2%

Zest Air 0 672 3,240 2,520 2,520 2,520 2,520 114.3% -22.2% 0.0% 0.0%

Cebu Pacific Air 1,980 2,806 2,506 1,969 2,506 2,327 2,506 -29.8% 0.0% 18.2% 0.0%

Myanmar International Airways 785 1,127 810 473 725 795 - -2.1% -10.5% 68.1% -100.0%

Vietnam Airlines 3,612 3,864 3,864 4,355 3,864 3,864 3,864 12.7% 0.0% -11.3% 0.0%

Cambodia Angkor Air - - - - - - - -100.0% nm nm nm

Others 10,310 14,700 13,424 13,178 10,155 10,671 9,457 -12.8% -24.4% -19.0% -6.9%

Total 174,276 196,667 223,177 216,606 247,716 231,304 233,544 -0.8% 11.0% 6.8% -5.7%

MAS group 40,380 44,206 55,586 54,448 63,856 58,115 54,270 6.7% 14.9% 6.7% -15.0%

AirAsia group 87,660 92,652 108,180 106,200 119,700 111,780 114,840 0.6% 10.6% 5.3% -4.1%

SIA group 14,237 15,915 13,600 15,209 17,547 17,483 18,085 -7.1% 29.0% 15.0% 3.1%

Lion Air group 2,982 4,389 8,742 7,740 15,043 13,125 16,801 29.8% 72.1% 69.6% 11.7%





SOURCES: CIMB, CAPA


August 21, 2015

8

Additional information on the results

Figure 5: Malaysia AirAsia's core net profit - excluding est. leasing profits (RM m)

41

16 9

51

14 13 11

92

18

50 47

111

24

-4

-77

124

166

128

34

122107

165

209

348

112131

158

269

145

117

155

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139

82104

109

76

-2

66

36

81

56

-100

-50

0

50

100

150

200

250

300

350

400

1Q 05

2Q3Q4Q1Q 06

2Q3Q4Q1Q 07

2Q3Q4Q1Q 08

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2Q3Q4Q1Q 10

2Q3Q4Q1Q 11

2Q3Q4Q1Q 12

2Q3Q4Q1Q 13

2Q3Q4Q1Q 14

2Q3Q4Q1Q 15

2Q

SOURCES: CIMB, COMPANY REPORTS

Figure 6: Country breakdown of core net profit

FYE Dec (RM m) 2QFY15 2QFY14 yoy % qoq % 2QFY15 2QFY14 yoy %

chg chg Cum Cum chg Comments

MAA airline core profit # 56.2 -2.0 nm (30.6) 137.2 73.9 85.7 MAA's core earnings recovered from a loss in the year before due to lower

fuel prices, partially offset by lower yields as fuel surcharges cancelled.

+ Share of Thai AA (45%) * 25.5 (7.5) 440.2 (42.5) 69.7 9.5 633.7 TAA's earnings also recovered from a loss in the year before that was

affected by the military coup. Tourists have since swarmed back.

+ Share of Indo AA (100%) * (121.9) (81.6) 49.3 (10.5) (258.1) (196.8) 31.2 IAA's losses were higher yoy despite lower jet fuel prices, because of the

rupiah depreciation and lower yields & loads post-QZ8501.

+ Share of AA Php (100%) * (60.6) (94.8) (36.1) (8.9) (127.1) (195.3) (34.9) AAP's losses narrowed on the back of cutbacks of loss-making routes, and

a reduction of the fleet from 19 to 15-strong.

+ Share of AA Japan (49%) * (6.3) - nm 26.0 (11.3) 0.0 nm Small loss incurred for AAJ in preparation for launch later this year or

early next year.

+ Share of AA India (49%) * 0.4 (6.5) 106.7 109.6 (4.1) -10.8 (61.9) AAI was essentially breakeven in 2Q15.

Group passenger airlines (106.7) (192.4) (44.6) 22.7 (193.7) (319.4) (39.4) The AirAsia group's passenger airline business posted a core net loss,

although the size of the loss reduced on lower jet fuel prices.

+ Non-group leasing profits ** 10.2 8.0 27.2 5.6 19.8 15.8 25.5 Leasing profits earned from non-AirAsia shareholders of the associates

rose, mainly because of the US$ appreciation against the ringgit.

+ Share of AACOE (50%) 5.0 2.0 150.0 78.6 7.8 5.7 36.8

+ Share of Expedia (50%) 0.6 3.0 (80.0) (81.8) 3.9 5.1 (23.5)

+ Share of BIG (50%) (3.1) (2.4) 28.0 45.5 (5.2) (4.0) 27.8

+ Share of Tune Money (40%) (4.4) - nm 340.0 (5.4) 0.0 nm

Group core net profit (98.4) (181.8) (45.9) 32.3 (172.7) (296.8) (41.8) Group core net loss narrowed on lower fuel prices, offset by lower yields

at MAA and IAA.

# Profits from the leasing business are removed from the Malaysia profits and allocated back to the individual airline associates based on AirAsia's equity share (*).

Exception is made for Indo AA and AA Php, where 100% of the gains/losses have been allocated to the AirAsia group, since AirAsia has been assuming all the risks of both.

** The leasing profits earned from the non-AirAsia shareholders of the individual airline associates are separately classified here. SOURCES: CIMB, COMPANY REPORTS


August 21, 2015

9

Figure 7: Revenue metrics - Malaysia AirAsia only

2QFY15 2QFY14 yoy % qoq % 2QFY15 2QFY14 yoy %


Revenue (RM m) 1,342.8 1,310.9 2.4 3.5 2,639.7 2,613.4 1.0 MAA's revenue was flat yoy, with increases in lease income (due to US$

- Underlying fare 838.3 876.8 (4.4) 0.4 1,673.2 1,758.6 (4.9) appreciation), offset by a drop in passenger flight revenue. The latter

- Ancillary income 252.2 236.0 6.9 6.2 489.7 462.3 5.9 was caused by a drop in yields (due to cancellation of fuel surcharges),

- Lease income & others 234.3 198.2 18.2 4.4 458.7 392.5 16.9 which overwhelmed an increase in RPK demand.

ASK (m) 9,100 8,535 6.6 0.9 18,117 16,800 7.8 AirAsia increased ASK capacity by 6.6%, and this was matched by RPK

RPK (m) 7,263 6,799 6.8 7.1 14,042 13,463 4.3 demand growth of 6.8%, keeping PLF steady yoy. We view this as

Load factor (%) 79.8% 79.7% 0.2% 4.6% 77.5% 80.1% -2.6% disappointing because the yield decline failed to generate an increase in

the PLF, probably due to the lingering effects of QZ8501 crash.

Pax carried (000) 5,952 5,573 6.8 7.5 11,491 10,946 5.0

Pax yield (sen/RPK) 15.01 16.37 (8.3) (5.1) 15.40 16.50 (6.6) Passenger yields dropped 8.3%, as fuel surcharges were cut in order

- Underlying fare 11.54 12.90 (10.5) (6.3) 11.92 13.06 (8.8) to stimulate demand post the QZ8501 crash in late-December 2014.

- Ancillary income 3.47 3.47 0.0 (0.9) 3.49 3.43 1.6 Ancillary income per RPK was unchanged yoy.

Pax RASK (sen/ASK) 11.98 13.04 (8.1) 0.8 11.94 13.22 (9.7) Passenger RASK declined at a rate fairly similar to the yield drop, as the

- Underlying fare 9.21 10.27 (10.3) (0.5) 9.24 10.47 (11.8) lower ticket prices failed to stimulate an increased take-up of seats.

- Ancillary income 2.77 2.77 0.2 5.2 2.70 2.75 (1.8)

Avg rev / pax (RM) 183 200 (8.2) (5.4) 188 203 (7.2)

- Underlying fare 141 157 (10.5) (6.6) 146 161 (9.4)

- Ancillary income 42 42 0.1 (1.2) 43 42 0.9

No of aircraft @ end 80.0 80.0 - (2.4) 80.0 80.0 -

Avg no of aircraft 81.0 76.0 6.6 (0.6) 81.3 74.0 9.8 MAA has on average 5 more planes in its fleet yoy. SOURCES: CIMB, COMPANY REPORTS

Figure 8: MAA - RPK vs ASK growth (%) and PLF yoy change (% pts)

0%

10%

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30%

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1Q 06

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MAA PLF yoy change (% pts) - LHS

RPK yoy growth (%)

ASK yoy growth (%)



August 21, 2015

10

Figure 9: MAA - Passenger load factor and yoy change (%)

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-5%

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MAA PLF yoy change (LHS)

Passenger load factor (%)


Figure 10: MAA - Overall yield (sen/RPK) and change (%)

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Change (LHS) MAA - Overall yield (sen/RPK)


Figure 11: MAA - Overall RASK (sen/ASK) and change (%)

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Change (LHS) MAA - Overall RASK (sen/ASK)



August 21, 2015

11

Figure 12: Cost metrics - Malaysia AirAsia only

FYE Dec (RM m) 2QFY15 2QFY14 yoy % qoq % 2QFY15 2QFY14 yoy %


Operating costs (RM m) 883.1 936.0 (5.6) 7.4 1,705.4 1,818.5 (6.2) Operating costs fell 5.6% mainly due to the decline in fuel costs.

- Fuel cost 476.5 581.7 (18.1) (1.1) 958.5 1,112.3 (13.8) Staff costs rose due to bonus provisions.

- Staff cost 192.6 153.9 25.2 12.0 364.6 309.9 17.6 Maintenance and user charges rose at a faster pace than ASK growth.

- Maint, user & station, etc. 188.0 169.3 11.0 (2.6) 381.0 333.9 14.1 This may be partially because of the appreciation of the US$, which

- Others 26.0 31.1 (16.5) 205.6 1.4 62.4 (97.8) impacted US$-denominated costs like maintenance, spare parts, and

overflying charges.

Asset-related costs (RM m) 383.6 368.8 4.0 (1.6) 773.5 701.4 10.3

- Depreciation 165.6 190.2 (12.9) (10.8) 351.3 354.3 (0.8) Depreciation declined as 10 aircraft were sold and leased back during 2Q,

- Leasing of aircraft 68.8 50.6 36.0 30.8 121.5 101.0 20.2 with another 6 to go during 2H15.

- Interest expense 149.2 128.0 16.6 (1.6) 300.8 246.1 22.2 Interest expense rose because of the appreciation of the US$, as most of

AirAsia's debt is US$-denominated.

UNIT COST ANALYSIS

Cost / ASK (sen) 9.70 10.97 (11.5) 6.4 9.41 10.82 (13.0)

- Fuel cost 5.24 6.82 (23.2) (2.0) 5.29 6.62 (20.1) Unit fuel costs dropped because of the decline in the jet fuel price.

- Non-fuel costs 4.47 4.15 7.6 18.3 4.12 4.20 (1.9)

- Staff cost 2.12 1.80 17.4 11.0 2.01 1.84 9.1

- Maint, user & station, etc. 2.07 1.98 4.1 (3.5) 2.10 1.99 5.8

- Others 0.29 0.36 (21.7) 204.6 0.01 0.37 (98.0) Other costs declined, but no explanation was offered.

- Other costs 4.22 4.32 (2.4) (2.5) 4.27 4.17 2.3

- Depreciation 1.82 2.23 (18.3) (11.7) 1.94 2.11 (8.0)

- Leasing of aircraft 0.76 0.59 27.5 29.6 0.67 0.60 11.5

- Interest expense 1.64 1.50 9.4 (2.5) 1.66 1.46 13.3 SOURCES: CIMB, COMPANY REPORTS

Figure 13: Fuel cost analysis - Malaysia AirAsia only

2QFY15 2QFY14 yoy % qoq % 2QFY15 2QFY14 yoy %


Net jet fuel price (US$/bbl) 85.0 129.0 (34.1) (3.4) 86.5 125.6 (31.1) The net jet fuel price declined to US$85/bbl, from US$129/bbl.

Barrels consumed (m) 1.53 1.39 9.9 2.2 3.03 2.71 11.6 Barrels consumed rose faster than the ASK growth.

ASK / barrel used 5,943.6 6,126.3 (3.0) (1.2) 5,980.5 6,191.6 (3.4)

Average RM:US$ 3.66 3.23 13.1 1.1 3.64 3.27 11.4 The US$ appreciated 13% against the ringgit yoy.

Cost of fuel (US$ m) 130.1 179.7 (27.6) (1.3) 262.0 340.8 (23.1) The cost of fuel in US$ terms fell 28%, but in ringgit terms fell only 18%

Cost of fuel (RM m) 476.5 581.7 (18.1) (1.1) 958.5 1,112.3 (13.8) as the US$ appreciated 13% yoy. SOURCES: CIMB, COMPANY REPORTS

Figure 14: Average jet fuel price (US$/barrel)

57

6863

5864

73

96

77 77

86 84

99

110

143

162

104

62 60

79 80

90

100

90 88

117

140132135

126133

129

148

134

124132

131

122129

117120

8885

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180

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August 21, 2015

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Thai AirAsia (TAA) and Indonesia AirAsia (IAA)

Figure 15: TAA - Core net profit (US$ m) - 100% basis Figure 16: IAA - Core net profit (US$ m) - 100% basis

-4

-14

-7

2

8

-2

-12

1012

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13

33

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24 24

14 14

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2Q

-7 -8

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14 5

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-4

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96

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-29

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2Q3Q4Q1Q 12

2Q3Q4Q1Q 13

2Q3Q4Q1Q 14

2Q3Q4Q1Q 15

2Q

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

Figure 17: TAA - RPK vs ASK growth (%) and PLF yoy change (% pts)

Figure 18: IAA - RPK vs ASK growth (%) and PLF yoy change (% pts)

Title:

Source:

Please fill in the values above to have them entered in your report

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TAA PLF yoy change (% pts) - LHS

RPK yoy growth (%)

ASK yoy growth (%)

Title:

Source:

Please fill in the values above to have them entered in your report

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IAA PLF yoy change (% pts) - LHS

RPK yoy growth (%)

ASK yoy growth (%)


Figure 19: TAA - Passenger load factor and yoy change (%) Figure 20: IAA - Passenger load factor and yoy change (%)

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TAA PLF yoy change (% pts)


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IAA PLF yoy change (% pts)




August 21, 2015

13

Figure 21: TAA yield (US cts/RPK) Figure 22: IAA RASK (US cts/ASK)

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Change (LHS) IAA RASK (US cts/ASK)


Appendix: Sequential quarterly tables

Figure 23: Quarterly results

FYE Dec (RM m) 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15

Revenue 1,246.3 1,280.3 1,354.0 1,302.4 1,310.9 1,317.0 1,478.2 1,296.8 1,342.8

Operating costs (892.1) (891.7) (954.8) (933.0) (986.6) (932.9) (1,102.0) (875.0) (951.9)

EBITDA 354.2 388.6 399.2 369.4 324.3 384.1 376.2 421.8 390.9

EBITDA margin (%) 28.4 30.4 29.5 28.4 24.7 29.2 25.5 32.5 29.1

Depn & amort. (155.2) (164.8) (160.5) (164.1) (190.2) (180.4) (184.8) (185.7) (165.6)

EBIT 198.9 223.8 238.7 205.4 134.2 203.7 191.4 236.1 225.3

Interest expense (109.4) (106.3) (110.3) (118.1) (128.0) (135.4) (153.9) (151.6) (149.2)

Interest & invt inc 14.3 16.4 13.7 20.9 24.8 37.9 37.4 39.5 29.7

Associates' contrib 12.9 23.9 28.7 16.4 (8.8) 1.0 12.3 37.2 13.0

Exceptionals (4.1) (132.6) 2.7 9.3 233.1 (80.7) (479.2) 32.1 (70.1)

Pretax profit 112.6 25.1 173.5 133.8 255.3 26.5 (392.0) 193.3 48.8

Tax (54.3) 10.4 71.8 5.9 111.8 (21.1) (36.5) (44.0) 194.3

Tax rate (%) 48.2 (41.3) (41.4) (4.4) (43.8) 79.6 (9.3) 22.7 (398.4)

Minority interests - - - - - - - - -

Net profit 58.3 35.5 245.4 139.7 367.2 5.4 (428.5) 149.3 243.0

Core net profit 83.2 133.1 21.5 (115.0) (181.8) 70.1 45.3 (74.3) (98.4)

EPS (sen) 2.1 1.3 8.8 5.0 13.2 0.2 (15.4) 5.4 8.7

Core EPS (sen) 3.0 4.8 0.8 (4.1) (6.5) 2.5 1.6 (2.7) (3.5)

Reconciliation to core net profit

Net profit 58.3 35.5 245.4 139.7 367.2 5.4 (428.5) 149.3 243.0

- Associates (12.9) (23.9) (28.7) (16.4) 8.8 (1.0) (12.3) (37.2) (13.0)

- Exceptionals 4.1 132.6 (2.7) (9.3) (233.1) 80.7 479.2 (32.1) 70.1

+ Deferred tax/(income) 48.0 (13.6) (77.1) (9.0) (115.1) 10.5 27.9 35.5 (208.7)

- Leasing profits (CIMB est) # (15.5) (26.4) (27.8) (29.1) (29.7) (29.6) (30.7) (34.6) (35.1)

MAA airline core net profit 82.1 104.2 109.1 75.9 (2.0) 66.0 35.6 81.0 56.2

+ Share of Thai AA (45%) * 25.6 19.7 24.1 17.0 (7.5) (11.0) 41.1 44.3 25.5

+ Share of Indo AA (100%) * 21.9 10.9 (106.9) (115.1) (81.6) 12.4 (3.2) (136.2) (121.9)

+ Share of AA Php (100%) * (23.3) (20.2) (22.9) (100.4) (94.8) (10.8) (16.0) (66.5) (60.6)

+ Share of AA Japan (49%) * (25.7) 1.2 0.4 - - (2.6) (7.1) (5.0) (6.3)

+ Share of AA India (49%) * - - - (4.3) (6.5) (7.4) (11.8) (4.5) 0.4

Group passenger airlines 80.6 115.8 3.8 (127.0) (192.4) 46.6 38.6 (87.0) (106.7)

+ Non-group leasing profits ** 5.0 8.2 7.8 7.8 8.0 7.9 8.2 9.7 10.2

+ Share of AACOE (50%) 2.5 2.8 1.7 3.7 2.0 3.0 2.5 2.8 5.0

+ Share of Expedia (25%) (3.7) 7.1 8.9 2.1 3.0 15.2 0.1 3.3 0.6

+ Share of BIG (50%) (1.3) (0.9) (0.8) (1.7) (2.4) (2.5) (4.1) (2.1) (3.1)

+ Share of Tune Money (40%) - - - - - - - (1.0) (4.4)

Group core net profit 83.2 133.1 21.5 (115.0) (181.8) 70.1 45.3 (74.3) (98.4)

# Profits from the leasing business are removed from the Malaysia profits and allocated back to the individual airline associates based on AirAsia's equity share (*).

Exception is made for Indo AA and AA Php, where 100% of the gains/losses have been allocated to the AirAsia group, since AirAsia has been assuming all the risks of both.

** The leasing profits earned from the non-AirAsia shareholders of the individual airline associates are separately classified here. SOURCES: CIMB, COMPANY REPORTS


August 21, 2015

14

Figure 24: Breakdown of exceptional items

FYE Dec (RM m) 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15

Total exceptionals -4.1 -132.6 2.7 9.3 233.1 -80.7 -479.2 32.1 -70.1

- Exchange gain / (loss) -179.5 -260.1 -45.5 12.8 144.4 -159.6 -558.8 -447.0 -160.1

- Effective forex derivative gain/(loss) 63.3 85.3 12.2 -0.3 45.2 52.5 77.8 169.3 134.3

- Ineffective derivative gain/(loss) 33.8 27.4 26.8 -3.2 1.4 7.4 0.0 23.4 13.1

- AAJ 49% stake disposal gain 78.3 0.0 0.0 0.0 0.0 25.5 0.0 0.0 0.0

- Asset disposal gains 0.0 14.8 9.2 0.0 42.1 -6.5 1.8 286.4 -57.3 SOURCES: CIMB, COMPANY REPORTS

Figure 25: Quarterly operating metrics - Malaysia AirAsia only

2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15

Revenue (RM m) 1,246.3 1,280.3 1,354.0 1,302.4 1,310.9 1,317.0 1,478.2 1,296.8 1,342.8

- Underlying fare 875.7 888.8 934.1 881.8 876.8 890.0 1,013.2 834.9 838.3

- Ancillary income 215.1 215.6 234.6 226.3 236.0 234.3 259.7 237.5 252.2

- Lease income & others 155.5 175.9 185.3 194.3 198.2 192.7 205.3 224.4 234.3

ASK (m) 8,303 8,443 8,577 8,265 8,535 8,521 9,269 9,017 9,100

RPK (m) 6,640 6,417 7,261 6,664 6,799 6,524 7,287 6,779 7,263

Passenger load factor (%) 80.0% 76.0% 84.7% 80.6% 79.7% 76.6% 78.6% 75.2% 79.8%

Passengers carried (000) 5,510 5,263 5,913 5,373 5,573 5,289 5,903 5,539 5,952

Passenger yield (sen/RPK) 16.43 17.21 16.10 16.63 16.37 17.23 17.47 15.82 15.01

- Underlying fare 13.19 13.85 12.86 13.23 12.90 13.64 13.90 12.32 11.54

- Ancilliary income 3.24 3.36 3.23 3.40 3.47 3.59 3.56 3.50 3.47

Pax RASK (sen/ASK) 13.14 13.08 13.63 13.41 13.04 13.19 13.73 11.89 11.98

- Underlying fare 10.55 10.53 10.89 10.67 10.27 10.44 10.93 9.26 9.21

- Ancillary income 2.59 2.55 2.74 2.74 2.77 2.75 2.80 2.63 2.77

Avg rev / pax (RM) 198 210 198 206 200 213 216 194 183

- Underlying fare 159 169 158 164 157 168 172 151 141

- Ancillary income 39 41 40 42 42 44 44 43 42

No of aircraft @ end 66 66 72 72 80 81 81 82 80

Avg no of aircraft 66.0 66.0 69.0 72.0 76.0 80.5 81.0 81.5 81.0

2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15

Operating costs (RM m) 846.0 842.9 905.0 882.6 936.0 883.2 1,054.4 822.4 883.1

- Fuel cost 498.6 538.1 573.0 530.6 581.7 521.1 620.9 482.0 476.5

- Staff cost 161.4 137.3 161.8 156.0 153.9 158.6 198.8 172.0 192.6

- Maint, user & station, etc. 159.2 171.9 158.9 164.7 169.3 180.3 184.5 193.1 188.0

- Others 26.8 -4.4 11.3 31.3 31.1 23.3 50.3 -24.6 26.0

Other costs (RM m) 310.7 319.9 320.6 332.6 368.8 365.5 386.2 389.9 383.6

- Depreciation 155.2 164.8 160.5 164.1 190.2 180.4 184.8 185.7 165.6

- Leasing of aircraft 46.1 48.8 49.9 50.4 50.6 49.7 47.5 52.6 68.8

- Interest expense 109.4 106.3 110.3 118.1 128.0 135.4 153.9 151.6 149.2

UNIT COST ANALYSIS

Cost / ASK (sen) 10.19 9.98 10.55 10.68 10.97 10.36 11.38 9.12 9.70

- Fuel cost 6.01 6.37 6.68 6.42 6.82 6.12 6.70 5.35 5.24

- Non-fuel costs 4.18 3.61 3.87 4.26 4.15 4.25 4.68 3.78 4.47

- Staff cost 1.94 1.63 1.89 1.89 1.80 1.86 2.14 1.91 2.12

- Maint, user & station, etc. 1.92 2.04 1.85 1.99 1.98 2.12 1.99 2.14 2.07

- Others 0.32 -0.05 0.13 0.38 0.36 0.27 0.54 -0.27 0.29

- Other costs 3.74 3.79 3.74 4.02 4.32 4.29 4.17 4.32 4.22

- Depreciation 1.87 1.95 1.87 1.99 2.23 2.12 1.99 2.06 1.82

- Leasing of aircraft 0.55 0.58 0.58 0.61 0.59 0.58 0.51 0.58 0.76

- Interest expense 1.32 1.26 1.29 1.43 1.50 1.59 1.66 1.68 1.64 SOURCES: CIMB, COMPANY REPORTS


August 21, 2015

15

Balance Sheet

(RMm) Dec-14A Dec-15F Dec-16F Dec-17F

Total Cash And Equivalents 1,338 2,004 1,691 1,469

Total Debtors 953 974 999 1,016

Inventories 18 18 18 18

Total Other Current Assets 0 0 0 0

Total Current Assets 2,309 2,996 2,708 2,503

Fixed Assets 12,536 10,551 10,574 10,665

Total Investments 0 0 0 0

Intangible Assets 474 366 324 194

Total Other Non-Current Assets 5,124 5,425 6,017 6,629

Total Non-current Assets 18,134 16,342 16,915 17,488

Short-term Debt 2,275 2,275 2,275 2,275

Current Portion of Long-Term Debt

Total Creditors 601 593 637 655

Other Current Liabilities 1,009 1,009 1,009 1,009

Total Current Liabilities 3,885 3,877 3,921 3,939

Total Long-term Debt 10,453 9,692 9,449 9,217

Hybrid Debt - Debt Component

Total Other Non-Current Liabilities 1,548 1,548 1,548 1,548

Total Non-current Liabilities 12,001 11,240 10,997 10,764

Total Provisions 0 0 0 0

Total Liabilities 15,886 15,117 14,918 14,703

Shareholders' Equity 4,557 4,222 4,705 5,288

Minority Interests 0 0 0 0

Total Equity 4,557 4,222 4,705 5,288

Profit & Loss


Total Net Revenues 5,409 5,626 5,887 6,065

Gross Profit 1,454 1,725 1,696 1,758

Operating EBITDA 1,454 1,725 1,696 1,758

Depreciation And Amortisation (719) (704) (644) (648)

Operating EBIT 735 1,021 1,052 1,110

Financial Income/(Expense) (503) (605) (610) (598)

Pretax Income/(Loss) from Assoc. 21 175 124 186

Non-Operating Income/(Expense) 89 100 100 100

Profit Before Tax (pre-EI) 341 690 665 798

Exceptional Items (317) (774) 3 85

Pre-tax Profit 24 (84) 668 883

Taxation 60 (140) (74) (161)

Exceptional Income - post-tax

Profit After Tax 84 (224) 595 722

Minority Interests 0 0 0 0

Preferred Dividends 0 0 0 0

FX Gain/(Loss) - post tax

Other Adjustments - post-tax

Net Profit 84 (224) 595 722

Recurring Net Profit (181) 101 251 415

Fully Diluted Recurring Net Profit (181) 101 251 415

Key Ratios

Dec-14A Dec-15F Dec-16F Dec-17F

Revenue Growth 4.39% 4.02% 4.63% 3.02%

Operating EBITDA Growth (5.6%) 18.6% (1.7%) 3.6%

Operating EBITDA Margin 26.9% 30.7% 28.8% 29.0%

Net Cash Per Share (RM) (4.10) (3.58) (3.61) (3.60)

BVPS (RM) 1.64 1.52 1.69 1.90

Gross Interest Cover 1.37 1.63 1.66 1.80

Effective Tax Rate 0.0% 0.0% 11.0% 18.2%

Net Dividend Payout Ratio 26.4% 16.9% 17.6% 18.1%

Accounts Receivables Days 60.50 34.67 34.67 34.84

Inventory Days 2.20 1.70 1.59 1.54

Accounts Payables Days 76.9 55.9 53.7 54.7

ROIC (%) 3.92% 4.38% 5.01% 5.11%

ROCE (%) 4.72% 6.22% 6.59% 6.80%

Return On Average Assets 3.68% 5.60% 5.60% 6.14%

Cash Flow


EBITDA 1,454 1,725 1,696 1,758

Cash Flow from Invt. & Assoc.

Change In Working Capital 832 (602) (449) (427)

(Incr)/Decr in Total Provisions

Other Non-Cash (Income)/Expense

Other Operating Cashflow (2,075) (55) 0 0

Net Interest (Paid)/Received 0 0 0 0

Tax Paid (15) (31) (32) (31)

Cashflow From Operations 196 1,037 1,215 1,300

Capex (1,945) (825) (1,485) (1,555)

Disposals Of FAs/subsidiaries (101) 2,448 820 902

Acq. Of Subsidiaries/investments 0 0 0 0

Other Investing Cashflow 0 0 0 0

Cash Flow From Investing (2,045) 1,623 (665) (653)

Debt Raised/(repaid) 1,995 (1,376) (243) (232)

Proceeds From Issue Of Shares 0 0 0 0

Shares Repurchased 0 0 0 0

Dividends Paid (83) (111) (111) (139)

Preferred Dividends

Other Financing Cashflow (136) (505) (510) (498)

Cash Flow From Financing 1,775 (1,993) (864) (869)

Total Cash Generated (74) 667 (313) (222)

Free Cashflow To Equity 145 1,283 308 415

Free Cashflow To Firm (1,850) 2,660 551 647

0

5

10

15

20

25

30

35

40

45

50

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

12-month Forward Rolling FD P/E (x)

AirAsia Bhd Asia Aviation PCL Cebu Air Tiger Airways

Key Drivers

Dec-14A Dec-15F Dec-16F Dec-17F

Av. Seat Km (ASK, Yoy Chg %) 3.6% 8.4% 0.0% 3.2%

Rev. Psg Km (RPK, Yoy Chg %) 2.5% 8.6% 1.3% 3.2%

Passenger Load Factor (%) 78.8% 79.0% 80.0% 80.0%

Pax yld per RPK (RM) 0.2 0.2 0.2 0.2

Pax rev. per ASK (RM) 0.1 0.1 0.1 0.1

Total Cost Per ATK (RM) - - - -

Fuel Cost Per ATK (RM) - - - -

Non-fuel Cost Per ATK (RM) 3,426.3 3,715.1 3,715.1 3,832.5

Jet Fuel Price (US$/barrel) 122.0 86.5 90.0 90.0

Fleet Size (no. Of Planes) 171 170 179 188


August 21, 2015

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DISCLAIMER #01

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August 21, 2015

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August 21, 2015

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Section 27 of the FAA.

CIMB Research Pte Ltd ("CIMBR"), its affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities. Further, CIMBR, its affiliates and its related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report.

As of August 20, 2015, CIMBR does not have a proprietary position in the recommended securities in this report.

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Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China.

Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (“CIMBS”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CIMBS has no obligation to update its opinion or the information in this research report.

If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient are unaffected.

CIMB Securities (Thailand) Co., Ltd. may act or acts as Market Maker and issuer including offering of Derivative Warrants Underlying securities of the following securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions.

AAV, ADVANC, AMATA, ANAN, AOT, AP, ASP, BA, BANPU, BBL, BCH, BCP, BDMS, BEAUTY, BEC, BECL, BH, BJCHI, BLAND, BMCL, BTS, CBG, CENTEL, CK, CPALL, CPF, CPN, DELTA, DEMCO, DTAC, EARTH, EGCO, ERW, GFPT, GLOBAL, GLOW, GUNKUL, HANA, HMPRO, ICHI, INTUCH, IRPC, ITD, IVL, JAS, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LOXLEY, LPN, M, MAJOR, MC, MINT, MONO, NOK, PACE, PS, PSL, PTT, PTTEP, PTTGC, QH, RATCH, RCL, ROBINS, RS, S, SAMART, SAPPE, SAWAD, SCB, SCC, SF, SGP, SIRI, SOLAR, SPALI, SPCG, STEC, STPI, SVI, TCAP, THAI, THCOM, TICON, TISCO, TMB, TOP, TPIPL, TRC, TRUE, TTA, TTCL, TTW, TUF, U, UNIQ, UV, VGI, WHA

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result

Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to


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lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (“CIMB UK”). CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom, or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.

Where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “investment research” under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. Any such non-independent report must be considered as a marketing communication.

United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc.

CIMB Securities (USA) Inc does not make a market on the securities mentioned in the report.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Rating Distribution (%) Investment Banking clients (%)

Add 56.5% 6.7%

Hold 30.7% 4.5%

Reduce 12.6% 1.7%

Distribution of stock ratings and investment banking clients for quarter ended on 30 June 2015

1508 companies under coverage for quarter ended on 30 June 2015

Spitzer Chart for stock being researched ( 2 year data )

AirAsia Bhd (AIRA MK)

0.80

1.30

1.80

2.30

2.80

3.30

Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15

Price Close

4.0

0

3.4

5 3.0

5

2.5

5

2.5

5

2.4

0

2.8

8

3.2

5

3.3

5

3.5

0

3.2

0

2.5

0

2.5

0

2.2

6

Recommendations & Target Price

Add Outperform Hold Neutral Reduce Underperform Trading Buy Trading sell Not Rated


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Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2014.

AAV – Very Good, ADVANC – Very Good, AEONTS – not available, AMATA - Good, ANAN – Very Good, AOT – Very Good, AP - Good, ASK – Very Good, ASP – Very Good, BANPU – Very Good , BAY – Very Good , BBL – Very Good, BCH – not available, BCP - Excellent, BEAUTY – Good, BEC - Good, BECL – Very Good, BGH - not available, BH - Good, BIGC - Very Good, BJC – Good, BLA – Very Good, BMCL - Very Good, BTS - Excellent, CCET – Good, CENTEL – Very Good, CHG – not available, CK – Very Good, CPALL – not available, CPF – Very Good, CPN - Excellent, DELTA - Very Good, DEMCO – Good, DTAC – Very Good, EA - Good, ECL – not available, EGCO - Excellent, GFPT - Very Good, GLOBAL - Good, GLOW - Good, GRAMMY - Excellent, HANA - Excellent, HEMRAJ – Very Good, HMPRO - Very Good, ICHI - not available, INTUCH - Excellent, ITD – Good, IVL - Excellent, JAS – not available, JUBILE – not available, KAMART – not available, KBANK - Excellent, KCE - Very Good, KGI – Good, KKP – Excellent, KTB - Excellent, KTC – Good, LH - Very Good, LPN – Very Good, M - not available, MAJOR - Good, MAKRO – Good, MBKET – Good, MC – Very Good, MCOT – Very Good, MEGA – Good, MINT - Excellent, OFM – Very Good, OISHI – Good, PS – Very Good, PSL - Excellent, PTT - Excellent, PTTEP - Excellent, PTTGC - Excellent, QH – Very Good, RATCH – Very Good, ROBINS – Very Good, RS – Very Good, SAMART - Excellent, SAPPE - not available, SAT – Excellent, SAWAD – not available, SC – Excellent, SCB - Excellent, SCBLIF – Good, SCC – Very Good, SCCC - Good, SIM - Excellent, SIRI - Good, SPALI - Excellent, STA – Very Good, STEC - Good, SVI – Very Good, TASCO – Good, TCAP – Very Good, THAI – Very Good, THANI – Very Good, THCOM – Very Good, THRE – not available, THREL – Good, TICON – Good, TISCO - Excellent, TK – Very Good, TMB - Excellent, TOP - Excellent, TRUE – Very Good, TTW – Very Good, TUF - Good, VGI – Very Good, WORK – not available.

CIMB Recommendation Framework

Stock Ratings Definition:

Add The stock’s total return is expected to exceed 10% over the next 12 months.

Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.

Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition:

Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.

Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.

Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition:

Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.

Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.

Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

*Prior to December 2013 CIMB recommendation framework for stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange were based on a stock’s total return relative to the relevant benchmarks total return. Outperform: expected to exceed by 5% or more over the next 12 months. Neutral: expected to be within +/-5% over the next 12 months. Underperform: expected to be below by 5% or more over the next 12 months. Trading Buy: expected to exceed by 3% or more over the next 3 months. Trading Sell: expected to be below by 3% or more over the next 3 months. For stocks listed on Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Outperform: Expected positive total returns of 10% or more over the next 12 months. Neutral: Expected total returns of between -10% and +10% over the next 12 months. Underperform: Expected negative total returns of 10% or more over the next 12 months. Trading Buy: Expected positive total returns of 10% or more over the next 3 months. Trading Sell: Expected negative total returns of 10% or more over the next 3 months.

Air asia cimb recommendation

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