By Chan Quan Min
Investors should accumulate AirAsia shares on price weakness, according to a report by CIMB Research. AirAsia Bhd fell 23 sen or about 8% by value this morning following the disappearance of an aircraft en route to Singapore from the Indonesian city of Surabaya.
CIMB Research called AirAsia a “high-quality airline company” and said that now is a “good opportunity” for investors to accumulate the stock.
Calling the incident, which took place on Sunday morning, a “heart-wrenching tragedy,” the aviation analyst at CIMB said any negative impact on demand for Indonesia AirAsia flights would be felt most sharply in the first three months.
The missing airliner, Indonesia AirAsia flight QZ8501, lost contact with local air traffic control in Indonesian waters off Sumatra at 7:24 am on Sunday with no sign or signal detected from the plane since.
The aircraft belongs to an affiliate airline of Kuala Lumpur-based AirAsia.
Sunday’s loss is the first serious aviation incident reported by the regional budget airline. Aside from a few incidents where planes have overshot runways, AirAsia has an unblemished safety record.
Indonesia AirAsia profits are reported in the financial statements of AirAsia Bhd.
“Given the thin margin nature of the airline business, our calculations suggest that a 1% decline in Indonesia AirAsia, Malaysia AirAsia, and Thai AirAsia’s 2015 passenger traffic will result in a 13% reduction to AirAsia’s 2015 net profit,” said CIMB.
Separately, an Alliance DBS report downgraded AirAsia Bhd because the weaker ringgit is expected to lead to a swing to a foreign exchange loss in the airlines financial statement. AirAsia finances the bulk of its aircraft purchases in US dollar terms.
This despite AirAsia and other airlines looking to benefit from lower crude oil prices in recent months, by as much as 40% down from the start of the year.
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