AirAsia - Fuel Surcharge to Boost Earnings (OSK)

After the drop in AirAsia’s share price since the start of 2011, the announcement of its symbolic maiden dividend and the imposition of a fuel surcharge starting this month (which will lift FY11 earnings by 4.15%) coupled with its encouraging 1Q traffic numbers (Group RPK up by 26% y-o-y) should bring AirAsia back into the limelight of investors. The stock‘s valuations remains attractive, currently trading at a 34% discount against its peers, while the upcoming IPO of its two associates is expected to further crystallize valuations. Following the 4.15% upward revision in FY11 earnings from the fuel surcharge, we continue to retain our BUY recommendation at a higher fair value of RM3.57 premised at 12x FY11 EPS.