AirAsia cut to 'neutral' on fuel derivatives losses risk - CIMB
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Southeast Asia,
AirAsia
(XFN Asia) CIMB Research stated it is downgrading low-cost carrier, AirAsia Bhd, to neutral from outperform as its valuation will likely be capped low, given the carrier's significant exposure to risky fuel derivatives. CIMB has cut its target price for AirAsia to MYR1.65 from MYR2.88.
According to CIMB, AirAsia has hedged 30% of its fuel requirements for 1H08, but as a result of its options positions, its actual coverage is only 15%.
CIMB said "The major issue with this low-cost carrier is its exposure to in-the-money sold call options that pose a significant risk to earnings in 2009 and the first half of 2010," it said.
From Jan-09 to Jun-10, AirAsia is exposed to a total of 2.7 million barrels-of-oil worth of sold call options, which have an exercise price of USD82.60 per barrel.
CIMB stated that if oil prices stay at their current level of around USD100 dollars per barrel, AirAsia could be hit by losses totalling USD47 million from 2009 onwards.
Date posted: 26-Mar-08
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AirAsia cut to 'neutral' on fuel derivatives losses risk - CIMB 
