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Malaysia's aviation sector kept 'overweight,' AirAsia still 'outperform' - CIMB

29-Oct-2007

Kuala Lumpur (Thomson Financial) - CIMB Research said Friday

it is keeping both its "overweight'' call on the Malaysian aviation sector

and its "outperform'' rating on budget carrier AirAsia given the positive

outlook for the sector after the Malaysian government decided to allow AirAsia

to fly to Singapore from the beginning of next year.

It is also keeping its target price of 3.0 ringgit for AirAsia.

AirAsia on Friday closed unchanged at 2.10 ringgit.

Hopes were also raised for an even more robust outlook for the sector when the Singapore government announced it plans to fast-track and expand an open skies policy between the two countries.

The Singapore government said Thursday it remains "fully committed" to liberalizing air services between Singapore and Malaysia as soon as possible.

"This includes not only the Singapore-Kuala Lumpur route, but also between Singapore and additional cities in Malaysia," the Ministry of Transport said.

"Officials from the two countries are planning to meet soon to discuss the expansion of the air services agreement," it said.
AirAsiasaid it now hopes that more routes aside from Kuala Lumpur-Singapore, such as Penang-Singapore, Kuching-Singapore and Kota Kinabalu-Singapore, will also be opened up before the Asean open skies policy is implemented by 2009.

AirAsia, which received the green light from the government to fly the Kuala Lumpur-Singapore route on Wednesday, expects "the big missing link" to contribute significantly to its bottom line by 2008.

"I am thrilled that we have secured the blessing of our government. They have closed the loop so that we now have the potential to really build the largest low-cost carrier hub in Asia ... it was a very big missing link," national news agency Bernama quoted AirAsia chief executive officer Tony Fernandes as saying.

"AirAsia (is) the clear winner,'' said CIMB Research in a note to clients.

In addition to the direct benefits of new route development, AirAsia could benefit from increased traffic flow to its key Kuala Lumpur hub as a point for interconnection to other regional destinations, it said.

"We also expect average fares to Singapore to be higher than AirAsia's current average,'' the research house said, estimating that AirAsia will earn around 30 million ringgit in revenue from the KL-Singapore route.

"Because of competition from road transport, we think the prize for AirAsia is not KL-Singapore, but rather routes between Kuching and Kota Kinabalu to Singapore,'' CIMB said.

The research house said airport operator Malaysia Airports Holdings Bhd (MAHB) is another winner fom the move as Malaysia benefits from higher tourist arrivals.

"This is the first time that low-cost carriers are permitted to fly between Singapore and Malaysia. As cheaper seats proliferate, we expect Malaysia's tourism industry in particular to benefit given the higher purchasing power of Singaporeans. Higher tourist arrivals will result in more revenue for Malaysia Airports,'' it said.

CIMB said it is also maintaining its "outperform'' call on Malaysian Airline System (MAS) with an unchanged target price of 13 ringgit as it sees limited impact on the national carrier, which caters to a different class of air travellers.


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