AirAsia potential beneficiary of Malaysia Airlines' suspension of Boeing 737 MAX deliveries

KUALA LUMPUR (Jan 16): MIDF Amanah Investment Bank Bhd Research has maintained its 'Buy' rating on AirAsia Group Bhd at RM1.66 with an unchanged target price of RM2.04 and said the low-cost carrier is a potential beneficiary of Malaysia Airlines' suspension of Boeing 737 MAX deliveries.

In a note today, the research house said Malaysia Airlines decided to suspend the delivery of 25 Boeing 737 MAX jets amidst the aircraft's delayed return to service.

MIDF Research said out of the 25 deliveries of the Boeing 737 Max jets being suspended by Malaysia Airlines, the airline previously planned to have five of the said aircraft delivered in 2020.

"Assuming that Malaysia Airlines will not replace these Boeing 737 MAX deliveries, other airlines particularly AirAsia [are] set to benefit by capturing the capacity.

"Therefore, we believe that AirAsia's fleet plan for Malaysia is poised to grab some market share from Malaysia Airlines, increasing its share of circa 60%.

"Moreover, this will stand well with the expected increase [in] tourism activity in conjunction with the Visit Malaysia Year 2020," it said.

MIDF Research said while AirAsia's earnings in FY19 thus far were below expectations, it was due to the accounting effect of MFRS16.

The research house said it believes that AirAsia's operation will continue to remain sound.

"We continue to like AirAsia as the company continues to enhance its cost structure, along with its efforts of rationalising revenue and cost via digitalisation efforts," it said.

MIDF Research added its positive outlook on AirAsia also hinges on the low-cost carrier's more prudent hedging policy, stable operations with added capacity, and continuous improvement to drive its non-airline ancillary business.

At 10.15am, AirAsia shares were unchanged at RM1.66, valuing it at RM5.55 billion.