Thursday, September 10, 2015

Buy Airasia

A stock which I have been looking at for a long time - have previously purchased and sold cause I felt that others could have gained more.

It has been sold down crazily due to fear as well as foreign selling so much so that many is thinking that it would have collapsed. This is definitely not me chasing the stock. However Airasia has seen substantial rebound from its down previously. If I am not mistaken, it has gone to below RM0.78 - something unthinkable of.

This is a company which has built value over the years and to trade at substantially below its Net Asset Value of RM1.70 is crazy. But the market has been crazy. I definitely have taken some buying position but not in this portfolio.

Globally, economy is not getting better, but essentially that's good for a low costs airline right? I still believe that Low Costs is the way to go. Or shall we say the ways airlines will operate in the future will change - or already on the way. It is not low costs but more like minus the frills.

Southwest Airlines has been benefiting from low prices of oil and so are many other airlines companies especially the Ryanair, Easyjet etc. Airasia, Lion Air, Cebu Air are all going to benefit the same as their model is based on providing less for a lesser fee. Hence it makes the fuel costs to be a significant portion of the costs for these airlines. When fuel price drop by more than 50%, that essentially brings benefits to these players.

For Airasia, the weakening of RM will bring some causes of concern but it has managed to hedge some 52%+ of its exchange risks. I am also seeing that it has managed to build its cash position but delaying or foregoing purchasing of new planes. This is probably due to the glut of planes for lease as well as slowing down of its expansion.

I think the breather is good as it will provide Airasia time and avenue to replan and stabilize. All in all, I am pretty bullish of its future despite it climbing back from its low of RM0.78. At RM1.12, it still has a lot to climb in the short to medium term. Longer term, Airasia is the way and model to go.

Sell Padini

Felt that much more could be gained from some other stocks. Although Padini is a good company, there are others that are getting much more attractive now. In the future, costs is playing a big role despite prices of commodities like cotton is already substantially down.

Economy is definitely slowing as we can see in Malaysia and regionally.

Hence decided to sell all of Padini at RM1.41. It is sold at a loss despite the company providing consistent dividend. I am definitely selling to buy something else.

Friday, July 31, 2015

Keuro: Audited Accounts mistake

Just had a quick run through of Keuro's audited account put up today. I believe there is a mistake on the total assets for Radiant Pillar's net assets (page 64).

If the amount is actually RM1.94 billion would have been fantastic.

Thursday, July 23, 2015

Airasia's comparisons against others

I am wary of the fear in investing into an airline given the past experiences of many collapses - and Malaysia Airlines has been our closest example. Thai Airways did not fare well either. The list goes on and on. But those are the traditional airlines and their possible collapse could be due to the proliferation of low costs model. Airasia's drop however warrant me to look deeper into the company as I feel that it is managed by people who are capable.

Let's look at comparison of Airasia's successful peers (except for Tiger) than look at the non-performing ones. I have taken some examples of Ryanair, Easyjet, Cebu Air (Airasia's top furious competitor in Philippines) and Tiger Airways. Why did I chose those?

Ryanair - model low costs airline operating only in Europe
Easyjet - second to Ryanair and hugely successful as well
Cebu Air - as mentioned, Airasia's top competitor in Philippines. It is dominant there and Airasia is having a tough competitor. But it is predominantly a Philippines airline.
Tiger - well, nearest financially available competitor to Airasia. Not very successful and it needed injection of capital last year.

The significant names that are not here - Southwest (largest low costs in the world and operating only in US) and Lion Air (not listed). I did not pick up Southwest because over the last year, non-US airlines have suffered from the appreciation of US Dollar but benefited from the huge drop in oil price. US Dollar of course appreciated against many currencies and Malaysian Ringgit suffered the most. However, if one is to believe that USD could not appreciate much further, this forex losses will stop. No single currency will appreciate the way USD appreciated in the last few months and continue to appreciate. Think of what the consequences would be to US economy if that happens.

Anyway on the numbers, I have picked up revenue operating gain / loss, GP and shareholders funds. Why I did not use Net Profit is due to the forex loss that some of the companies experienced including Airasia which I do not think will be a long term thing. Fundamentally it is how well the company manages the gross margin as well as the fuel hedges.

The accounting policy for foreign exchange for Airasia is as below.


As below are the important numbers for the list of companies.

Airasia's of course is the Malaysian operation only where it can consolidate the numbers. Others are based on equity accounting.
While one can understand that Airasia's balance sheet is not that strong as compared to its stronger peers like RyanAir and Easyjet, I do not think that it is cashflow starved. One should note that Airasia's business model is to collect cash upfront and pay later. There is a period where it is benefiting from customer financing and that business model is great especially if applied to one's advantage. Airasia, to some extent have managed to use that to its advantage.

And based on its market value to its book value, would it be a reason to buy? Personally, I would say yes, especially for an airline which is still growing. There should be continuous competition but gone are the days where "everyone wants to own a low costs airline" as the barriers of entry is getting much much tougher.

Remember, the stock market in the short run is a voting machine, but in the long term is a weighing machine. What's substance is more important. Think of Airasia's substance.