Monday, June 3, 2013

Letting go of Airasia

I have got to sell something. While I must admit, this is one of the company which I admire the most, I looked though my portfolio and I decided to let go Airasia. It is a company which will do well. It will dominate the Asian air space. It will beat Malindo or Lion Air. It is the fastest growing and the leanest.

However, having said that, Airasia will be a company which will use lots of cash. It will buy into lots of capex in the form of planes. The business of airline is a tough one. Singapore Airlines made losses last quarter. MAS will not be able to get into long term consistent profitability - that's my prediction, despite the government will not like to hear this. There will be more rescue going on for MAS in the future.

Because of that, many government will be very protective of their own airlines. Despite that, Airasia will be the model to go for Asia despite it being a privately run company and against all the government coffers can assist.

This is also why I am selling as I want more stability in the investment portfolio that I own.

The update for the portfolio is here.


K C said...

•“Never invest in anything that eats or needs painting.” Billy Rose

I have been reading your articles and found them very useful in my quest of uncovering good investment candidates. Close to all of those stocks you have recommended are good ones, and many of them have proven to be so. But I just could not comprehend your liking on AirAsia, precisely for the reasons you have given for disposing your AirAsia shares in this article. But I am just a small time retail investor and who am I to say AirAsia is not a good company to invest in, while so many other professionals from investment bankers, analysts, people like you etc recommended them strongly, showing all the data and projections and information they have collected.

In this case is a classic return of owner's earnings, where is the return to the shareholders in hard cash (not just accounting number), when all earnings have to go to buying planes, now and in the future and other heavy capital expenses? I am surprised AirAsia even give dividends, quite handsomely recently. Where does this money come from? One must know that without any free cash flow (may year 2011 is the only exception), this dividend has to come from somewhere, whether ask shareholders for more money through right issues, private placement, or borrow more from banks or issue debt securities. One can see the net borrowing of AirAsia has been increasing consistently to 7b + now from just 58m 7 years ago. Of course if one uses some modern financial theory to show that these continuous borrowing can be “converted” to owner’s earnings (not free cash flows of the firm). But that is not according to the book of established and respectable investor like Warren Buffet. I tend to agree with WB more than those financial theorists.

Betronist said...

Not boycotting because of GE13 right? LOL just kidding

I think AA is precisely the type of stocks that favored by Wall Street but not Buffett (which KC made a point).

IP's Guest said...

Definitely not boycotting. I think my rationale for Airasia is that I felt it is Ryanair in the making. Aside from a freer competition in Europe, Ryanair has been consistent performer and investors have been rewarded, if you check on Ryanair's share price.
if one hates, airasia - they would love to hate Ryanair. It is the most hated airline in the world if I can remember.

I had twice experience with Ryanair, yes they are not good, but still it takes us from Point A to B, at a cheap fare.

I would think with that mindset, Airasia will be a great airline for investors, may not be for users but yet again, it is not just the service - it is other things like safety, fare price etc.

On Warren Buffett, while he usually invests into companies that provides good free cashflow, but once a while he invests into moats which provides the extra that other competitors do not provide. One such company is you are not surprise and private jet business - NetJet. It surely is a net debt company, as what it does mainly is the time sharing of private jets. If I am not mistaken, it is the largest time sharing jet rental business in the world.

One day, I tend to think Tony Fernandez will copy that. Of course Buffett did not start the business, he as usual purchased the business.

Another company of his which uses lots of capex is MidAmerican - IPP in Malaysian context. I tend to think YTL guys are following that as well. It is a utility business.

Another one is the railway business, Burlington Northern. They all use quite a bit of cashflows.

DayTrader said...

Can't talk about AA without conjuring the image of TF can we? Malaysians generally don't think much about him but he is revered overseas by governments and businesses. Not for his good looks but for his business acumen and the positive changes he's brought into shaking up the airline industry.

Airline business is tough and tougher when AA tries to expand to other countries but can't discount TF can we?

You just have to wonder how much of Brand Tony is factored into AA's PER. Regardless, AA will be a fun company to watch moving forward.

Unlike the "unsinkable" MAS.

felicity said...

haha "Unsinkable MAS" - like it for its resilience, I would say