Aras Sejagat Sdn Bhd - Initial - 2008 |
||||||||
| Report ID | 2841 | Popularity | 1667 views 124 downloads | |||||
| Report Date | Mar 2008 | Product | ||||||
| Company / Issuer | Aras Sejagat Sdn Bhd | Sector | Trading/Services - Transportation | |||||
| Price (RM) |
|
|||||||
| Rationale |
MARC has assigned a rating of AA+ID(bg) to Aras Sejagat Sdn Bhd’s (“ASSB”) Bank Guaranteed Islamic Medium Term Notes (“BG IMTN”) of up to RM500.0 million. ASSB is a wholly-owned subsidiary of AirAsia Berhad (“AirAsia” or “the company”) and is a special purpose vehicle created to facilitate the issuance of the BG IMTN. The rating of the BG IMTN programme reflects the AA+ rating assigned by MARC to Kuwait Finance House (Malaysia) Berhad (“KFHMB”) which will be guaranteeing up to RM420 million of the BG IMTN. Further IMTN issuances under the programme beyond the initial RM420 million will carry an unconditional and irrevocable guarantee from KFHMB and/or a financial institution(s) with a minimum long term rating of AA+. The minimum specified long-term rating of AA+ for any subsequent participating guarantor(s) provides assurance that the strength of the credit support will not be diluted with the participation of financial institutions with credit ratings lower than KFHMB’s. The stable rating outlook presently mirrors that of KFHMB’s and will be driven by the outlook of the guarantor(s). On a standalone basis, the rating of the issuer and its parent is lower than the published AA+ID(bg) rating. Nevertheless, AirAsia exhibits a strong financial profile, underpinned by the following credit strengths: · Strong market position in its domestic market and most extensive network relative to other Asian low cost carriers (“LCC”); · Sustained demand for air travel in the budget segment; and · Good earnings performance and cash flow generation. Offsetting these strengths somewhat are the: · Cyclical and seasonal nature of air travel; · High fuel prices and increasing competition from other Asian LCCs; and · Significant capital expenditures over the next several years will reduce free cash flow generation and its capacity to rapidly de-gear. AirAsia is currently Asia’s largest LCC. It possesses the most comprehensive regional network which encompasses 100 routes as of April 2008. AirAsia’s market share of domestic travel was 51% in FY2007. AirAsia has aggressively expanded its fleet to 67 aircraft as of April 2008 and added new hubs to its networks. Strategically located hubs across Peninsular and East Malaysia, Jakarta and Bangkok enable the airline to achieve higher load factors and lower costs per enplaned passenger. For the six months ended December 2007, AirAsia’s load factor dropped marginally to 78.4% (FY2007: 80%) mainly as a result of 19 immature new routes but remains comparable to that of well established operating LCCs such as Southwest Airlines Co. and Ryanair Ltd, which recorded load factors of 72.6% and 82.0% in 2007. Similar to other LCCs, AirAsia aims to minimise its cost whilst maximising operational efficiency as reflected in its lean operations. Despite this, AirAsia’s total cost/ASK (cost per available seats kilometers in US¢) increased to 3.16¢/ASK in FY2007 (FY2006: 2.95¢) mainly attributed to higher jet fuel cost and change in accounting treatment. However, other main operating costs such as maintenance and staff, improved to 0.33¢/ASK (FY2006: 0.35¢/ASK) and 0.28¢/ASK (FY2006: 0.34¢/ASK) respectively and are expected to remain stable in view of AirAsia’s tight rein on costs. AirAsia’s strong operating profit margin of 17.4% in FY2007 is attributed to its stable operating cost and higher load achieved during the period. Moving forward, the company’s B737s replacement program coupled with its A320s fleet expansion are expected to improve its profit margin by virtue of higher fuel efficiency, lower maintenance cost, greater seating capacity and higher load factor on matured routes. Notwithstanding, AirAsia’s profit margin may be impacted by rising energy cost, lower load factor common to immature routes, additional cost from capacity expansion and infrastructure constraints currently faced by its Kuala Lumpur LCC terminal. MARC is of the view that AirAsia will need to grow its ancillary businesses to support profit margins going forward in light of competitive and cost pressures on existing core operations. AirAsia’s historical cash flows from operations (“CFO”) were more than adequate to service its borrowings as indicated by its CFO interest and debt coverage ratios, registered at 6.5 times and 2.1 times respectively in FY2007. As of December 2007, AirAsia’s liquidity position appears relatively strong, evidenced by unaudited cash and bank balances of RM425.2 million, excluding aircraft deposits amounting to RM318.3 million. As with most expanding airline operators, AirAsia is highly leveraged with a debt to equity ratio of 1.8 times as of December 2007. AirAsia’s plans to grow its international operations are expected to exert upward pressure on debt leverage. KFHMB, the sole guarantor bank at present, is a wholly-owned subsidiary of Kuwait Finance House KSC (“KFH”). The rating of KFHMB reflects KFHMB’s strategic importance to KFH, the second largest Islamic bank in the world. KFH is 49% owned by the Kuwait government and is the country’s second largest bank. KFHMB benefits from an explicit intent of support in respect of liquidity from its parent. |
|||||||
| Related | ||||||||
