AirAsia Expect 12-14% FY09F-11F EPS Dilution

To raise RM505.4m.
The proceeds would likely be mainly used to fund the Group’s working capital and future capex. The placement would enlarge AirAsia’s share base by 16% to 2,756.2m shares and dilute Tune Air’s (AirAsia’s major shareholder) stake to 26.5% from 30.7%. There are no details available on the new shareholders at this juncture but it is understood that the placement offer had received strong demand from foreign investors.

Dilutive to EPS.
Our FY09F and FY10F EPS will be diluted to 15.7sen and 13.6sen respectively (from 18.2 and 15.6 sen) due to larger share base. This raises FY09- 10 PE multiples to 9.0x and 10.4x EPS. However, the deal would also help support AirAsia’s balance sheet. We expect net gearing level to ease to 2.4x from 3.1x by end-FY09F.

Still unattractive.
We maintain our Fully Valued call and lowered TP to RM1.10 (from RM1.25), based on 8x CY10F EPS. This is after taking into account the dilutive impact on EPS following the placement. We remain concerned on the stock given its rapid fleet expansion and current high net gearing of 3.5x. AirAsia is currently trading at 10.4x FY10F EPS (ex-EI) and 1.1x FY10F BV, higher than peers’ 7.8x and 0.9x respectively.

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