Fundamental Analysis for AIRASIA BERHAD

Date of Analysis:
Company Name:
Stock Code (Bursa):
Stock Code (Bloomberg):
Stock Code (Reuters):
Price as of Analysis:
Stock Grade

25-May-11
Board:
FBMKLCI:
Sector:

AIRASIA BERHAD
AIRASIA
AIRA:MK
AIRA.KL
3.06

Industrial PE:
Rolling EPS:

Main
N
TRADING SERVICES
14.44
0.39

Fast Growers

Financial Statements:
Although debt as a percent of total capital decreased at AirAsia Bhd over the last fiscal year to 68.91%, it is still
in-line with the Airlines industry's norm. Additionally, there are enough liquid assets to satisfy current
obligations. Accounts Receivable are among the industry's worst with 7.94 days worth of sales outstanding.
This implies that revenues are not being collected in an efficient manner. Last, AirAsia Bhd is among the least
efficient in its industry at managing inventories, with 3.32 days of its Cost of Goods Sold tied up in Inventories.

1 - History of Consistently Increasing Earnings, Sales & Cash Flow

1.1. Income Statement -> Sales Revenue & Net Income After
Tax increasing in the past 4 years.
1.2. Cash Flows -> Net Cash from Operations increasing in the
past 4 years.
1.3. Growing/consistent revenue in EPS, revenue and net profit
in the last 4 quarters.
1.4. The current quarter's EPS is up more than 15% from the
same quarter the year before.

2 - Sustainable Competitive Advantage

2.1. Strong brand, monopoly or barriers to entry
2.2. Gross Profit Margin (> 40%) & Net Profit Margin (> 10%)
high & consistent
2.3. Consistently high ROE > 15%

3 - Strong Future Growth Drivers

3.1. Able to deliver double-digit growth in next 3-5 years
3.2. LT Growth Rate is positive

4 - Conservative Debt
4.1. Long term debt < 4 times Net Profit
4.2. Debt/Equity Ratio < 1
4.3. Current Ratio > 1

5 - Positive Accounting KPI & Ratios

5.1. DUE-D Basic > 70%

Expansion by buying new aircraft.

Expansion by buying new aircraft.

5.2. FQA Score > 60%

5.3. SWC Score > 7% p.a.

5.4. ROIC > 15%

6 - Healthy Cash Flow

6.1. Working capital increase slower than sales
6.2. Short & declining "Cash Conversion Cycle"
6.3. Free Cash Flow / Sales > 5%

7 - Management is Holding/Buying Stock

7.1. Is key management holding/buying large proportion of
stock.

8 - Risks are Managed

8.1. Understand the risks of the company and how it is
managed.

9 - Price is below Intrinsic Value

9.1. Price is below Intrinsic Value (Bonus: Price can double
within 3 years)

10 - Stock Price Breaks out of Consolidation/Dip on an Uptrend

10.1. Stock price breaks out of consolidation/dip on an
uptrend and above 20 and 50 moving averages on monthly
chart.

1 - History of Consistently Increasing Earnings, Sales & Cash Flow

1.1. Income Statement -> Sales Revenue & Net Income After Tax increasing in the past 4 years.
RM ('000)
TOTAL REVENUES
NET INCOME

2006
862,880
88,414

2007
2,188,800
851,400

2008
2,634,688
-496,563

2009
3,132,901
506,267

0.523076923 0.784615385

1.569230769

2010
3,948,095
1,061,411

4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000

TOTAL REVENUES

1,500,000

NET INCOME

1,000,000
500,000
0
2006

-500,000

2007

2008

2009

2010

-1,000,000

1.2. Cash Flows -> Net Cash from Operations increasing in the past 4 years.
RM ('000)
NET CASH FROM
OPERATIONS

2006
835,886

2007
511,500

2008
-416,061

2009
783,619

2010
1,619,163

2,000,000
1,500,000
1,000,000
500,000

NET CASH FROM OPERATIONS

0
2006
-500,000
-1,000,000

2007

2008

2009

2010

1.3. Growing/consistent revenue in EPS, revenue and net profit in the last 4 quarters.
1400000
1200000
1186467

1000000
800000

878041

940656

1047941

987558

Turnover Trend

600000

Net Profit Trend

400000
200000
0
3/1/2010

6/1/2010

9/1/2010

12/1/2010

3/1/2011

EPS Trend
15
10
5

11.9

11.5

9.1
7.2

6.2

0
Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Quarter

1.4. The current quarter's EPS is up more than 15% from the same quarter the year before.
EPS Growth:

-32%

2 - Sustainable Competitive Advantage

2.1. Strong brand, monopoly or barriers to entry
1. Does it have a monopoly situation ?
2. Does it have a strong leading brand?
3. Does it have a high barriers to entry?
4. Does it have market leadership?

NO
Very Strong
Very High
Very Strong

2.2. Gross Profit Margin (> 40%) & Net Profit Margin (> 10%) high & consistent

Gross Profit:

1,835,400

Sales Revenue:

Profit After Tax:

1,061,411

Minority Interest:

Gross Profit Margin:

46%

Net Profit Margin:

2.3. Consistently high ROE > 15%

ROE
35
30
25
20
15
10
5
0
2004

2005

2006

2007

2008

2009

2010

3,948,095
0
27%

3 - Strong Future Growth Drivers

3.1. Able to deliver double-digit growth in next 3-5 years
Summary of analyst reports on company and industry projections:
http://www.airasia.com/iwovresources/my/common/pdf/AirAsia/IR/AA_4Q10_Analyst_Presentation.pdf
http://www.reuters.com/finance/stocks/analyst?symbol=AIRA.KL
http://www.centreforaviation.com/profiles/airlines/airasia-ak

Summary of CEO message on future prospects:

http://www.airasia.com/my/en/corporate/ircompanypoverview.html

3.2. LT Growth Rate is positive

LT Growth Rate:

35.38

4 - Conservative Debt
4.1. Long term debt < 4 times Net Profit
6,637,400

Long Term Debt:

Long Term Debt < 4 times Current Net Earnings (After Tax):
4.2. Debt/Equity Ratio < 1

Debt/Equity Ratio:

2.64

4.3. Current Ratio > 1

Current Ratio (MRQ):

1.56

6.25

5 - Positive Accounting KPI & Ratios

5.1. DUE-D Basic > 70%
DUE-D Basic:

70%

5.2. FQA Score > 60%

FQA Score:

43%

5.3. SWC Score > 7% p.a.

SWC Score:

13.20%

5.4. ROIC > 15%

EBIT (1-Tax
rate%)
Total Equity
Short Term Debt

2007
562,125

2008
-330,668

2009
912,754

2010
1,066,961

2,099,000
49,600

1,605,000
47,000

2,621,000
0

3,641,000
0

Long Term Debt

Cash & Equiv
ROIC

3,093,300
1,402,762
14.64%

4,968,300
153,762
-5.11%

6,036,400
746,312
11.54%

6,637,400
1,753,301
12.52%

20.00%

15.00%

10.00%

5.00%

ROIC

0.00%
2007
-5.00%

-10.00%

2008

2009

2010

6 - Healthy Cash Flow

6.1. Working capital increase slower than sales
2007
2,188,800

Sales Revenue
Sales Growth YOY
Inventory
Accounts Receivable
Accounts Payable
Working Capital
Working Capital Growth YOY
Inventory Days
Days Receivable
Days Payable
Cash Conversion Cycle

17,600
1,519,806
1,203,929
333,477
2.93
253.44
200.76
55.61

2008
2,634,688
20%
20,700
1,422,706
1,220,494
222,912
-33.16%
2.87
0.52
169.08
-165.69

2009
3,132,901
19%
20,900
1,453,796
1,159,652
315,044
41.33%
2.43
0.78
135.11
-131.89

2010
3,948,095
26%
17,600
1,103,310
1,287,992
-167,082
-153.03%
1.63
1.57
119.07
-115.88

100%
50%
0%
2007

2008

2009

Sales Growth YOY

-50%
Working Capital Growth YOY
-100%
-150%
-200%

6.2. Short & declining "Cash Conversion Cycle"

100.00
50.00
0.00
-50.00

2007

2008

2009

-100.00
-150.00
-200.00

6.3. Free Cash Flow / Sales > 5%

Free Cash Flow/Sales:

-6%

2010

Cash Conversion Cycle

7 - Management is Holding/Buying Stock

7.1. Is key management holding/buying large proportion of stock.
Shareholding Analysis:
TUNE AIR SDN BHD is the major shareholder. EMPLOYEES PROVIDENT FUND BOARD is holding 6.14%.

8 - Risks are Managed

8.1. Understand the risks of the company and how it is managed.
Risk Management:
Page 8 in http://www.airasia.com/iwovresources/my/common/pdf/AirAsia/IR/AA_4Q10_Analyst_Presentation.pdf

9 - Price is below Intrinsic Value

9.1. Price is below Intrinsic Value (Bonus: Price can double within 3 years)
Growth Rate
Remark
5Y - 35.38 3Y - 43.79
Discounted Cash
7.18
8.79 Cash flow growth rate is
Flow
not consistent, thus not
applicable.
0/3
0/2
Dividend Discounted
3.40
3.16 No history of dividend, thus
not applicable.
PE
39.5
12.32
6.6 Sector Avg. PE
PE Model
15.41
4.80
2.57
5.63
PEG
0.20
0.64
1.19
0.54
Valuation Method

Estimated IV:
Discount from IV:

From
From

2.5 To
-22.4% To

Discount from IV is more than 20%

Based on PEG, it is currently undervalued.

4.8
36.3%

10 - Stock Price Breaks out of Consolidation/Dip on an Uptrend

10.1. Stock price breaks out of consolidation/dip on an uptrend and above 20 and 50 moving averages on monthly char