Regional Airlines:Selective stock-picking after poor 2Q numbers

类别:行业研究 机构:德意志银行 研究员:Joe Liew,Vincent Ha 日期:2013-09-11

Top buys are Cathay Pacific, Garuda and CSA

    Airlines in the region reported a very poor set of 2Q numbers, hurt bydownward pressure on passenger yields, weak cargo numbers and continuedhigh fuel prices. Furthermore, a stronger USD versus Asian currencies is notgood for airlines. However, there are Buy opportunities: (1) Cathay's pax yieldimprovement in 1H looks encouraging and unique, (2) Garuda's q/qimprovement in 2Q operating profit is notable too, (3) At 0.6x 2013E P/B, ChinaSouthern is the cheapest airline stock in the region and can no longer beignored. All three airlines are expected to report better 2H earnings.

    Two out of three Chinese airlines had core net losses in 1H 2013

    After stripping away forex gains, China Eastern and China Southern lost moneyin 1H 2013. The downward pressure on passenger yield was the main cause.

    However, all this is behind us and acknowledged by the market. 3Q istraditionally the peak season for Chinese airlines and we expect 2H earnings tobe better than 1H. Better economic growth is forecast for China in 2014. CSA’sshare price has fallen 34% over the last six months, and it is trading close to itsGFC trough P/B of 0.57x. As an SOE, it still enjoys government support and thisdoes appear to be a good opportunity to buy the stock.

    Capacity cuts have helped Cathay Pacific

    As a result of the 4.8% y/y decline in passenger capacity in 1H 2013, Cathaymanaged to push up passenger yields by 4.4% y/y. Management said itspassenger business has improved. We expect 2H earnings to be muchstronger than 1H. At 0.9x 2013E P/B, we would Buy the stock. On the otherhand, SIA’s management holds a more cautious outlook on passenger yields,blaming stiff competition. We have a less positive earnings recovery forecastfor SIA.

    Garuda’s 1H earnings tracking in line with expectations

    For Garuda, operating profit turned positive in 2Q (US$34m) versus anoperating loss of US$34m in 1Q13. We expect 2H to be the stronger half. Themain pushback from investors is related to currency and macro country risk,which has caused the stock to languish at 0.8x 2013E P/B. In our opinion, thestock remains under-owned by foreign investors.

    We downgraded Cebu Air to Sell from Buy on 20 August

    Resurgent competition has raised concerns regarding yield pressure andovercapacity in the industry. A re-strategized PAL with a focused LCCoperation in the domestic market and consolidation of JVs betweenAirAsia/Zest Air and Tiger Air/SEAir has made the aviation industry inPhilippines even more competitive. In general, average ticket prices havetrended lower by 5-10% and competitors are adding frequencies.

    AirAsia: worst performing stock in August in our Malaysia coverage universe

    AirAsia fell 18% in Aug 2013, making it the worst performing stock inMalaysia. AirAsia’s share price decline was driven by a weaker ringgit, start-uplosses in India and likely seasonally weaker 3Q results. We have a Holdrecommendation on the stock over a 12-month investment horizon but we donote that on a longer term, a two-year view, the stock looks interesting as it istrading at 1.2x 2013E P/B, which is not far from its 0.9x historical low duringthe 2008-09 GFC. We think structural growth in its business remains exciting.



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