AirAsia set to make solid debut on stock exchange

AirAsia set to make solid debut on stock exchange

Agence France-Presse, Kuala Lumpur

Malaysia's budget carrier AirAsia is expected to make a solid debut on the stock exchange on Monday, with gains to be made from its retail initial public offer (IPO) price of 1.16 ringgit (31 U.S. cent) a share, fund managers and analysts said on Friday.

AirAsia will become the first budget carrier listed in Southeast Asia on Nov. 22. Its institutional IPO tranche was priced at 1.25 ringgit and the retail tranche at 1.16 ringgit, well below the indicative price of 1.40 ringgit, to raise some 717.4 million ringgit.

Most analysts place AirAsia's fair value between 1.20 and 1.50 ringgit a share, with crude oil prices seen as the key factor in its pricing.

"At the time of the bidding, oil prices were at US$55 a barrel and now they are trading at around $49. Chances of the stock trading at around 1.40 ringgit a share are high," said Chong Sui San, chief investment officer of Allianz General Insurance.

"In AirAsia's case, you are really buying into future growth and you have to give them credit for first mover advantage," she said, adding that the stock could trade even higher on more positive news on oil prices.

When the company announced the outcome of the IPO there was some disappointment and concern at the relatively lower pricing achieved but that also means that the stock now has more room for gains, analysts said.

At the same time, the Kuala Lumpur market has been in buoyant mood in the past few weeks and this should help the stock on Monday.

OSK Research said it has a fair value of 1.48 ringgit for AirAsia, based on 20 times earnings for the year to June 2006.

Although high jet fuel prices and competition from other budget carriers are major risks to AirAsia, these risks are manageable, it said.

The airline still has a lot of room to grow particularly with flights from Thailand to China and India as well as a huge, untapped market in Indonesia, it added.

Mayban Securities also pegged AirAsia's fair value at 1.48 ringgit, citing buoyant air travel in the region.

In a short span of three years since its launch as a low-cost carrier in December 2001, AirAsia has become one of the largest no-frills airlines in Southeast Asia with a fleet of 24 aircraft servicing destinations in Malaysia and the region, including Singapore, Thailand, Indonesia and Macau, it noted.

The airline earlier this month said it planned to begin flying to China by February from its hub in Bangkok, a move analysts said would boost its revenue given strong trade ties and the 2008 Olympic Games in Beijing.

AirAsia aims to buy 80 new planes over the next few years but says it has still not decided whether to purchase from Boeing or Airbus despite reports that Airbus has won the deal.

For its financial year to June 2005, AirAsia expects net profit to surge threefold to 160 million ringgit on turnover of 700 million ringgit.