This is somewhat a difficult question to me. All the while, I am a supporter of a well-managed, strong brand, low priced or maybe fair priced company - and Airasia meets that criteria. What more it is perhaps one of the the best Malaysian run company (I know, I know many would not concur with what I said, but let's answer my question - tell me any other company in Malaysia, which does not have government backing but well-run or let's turn the question around - tell me any government backed company that is as well-run as Airasia...). I can assure you there are not many names that can pop-up in your mind because the keywords here are "government" and "Malaysian-run". Again, another camp will ask, "Airasia, government backed?" Answer is it is. Government should back them!
The fact is if I am government, I would also back Airasia. This company caused some nervy sensation out of probably the most well-run airline in the world - Singapore Airline. The fact that until today Tiger Airways (partly owned by SIA) is still losing (by far) to Airasia speaks volumes on the management of Airasia. This is a company, whom as a Malaysian I can see the eyes of a Singaporean and say - look at Tony Fernandes and Airasia (and have a wily little smile) to show that we Malaysian can be better. Not all aspects but do not look down at us. We can kick your butt if we want to.
Anyway, back to my question - why buying Airasia is tricky? Does these three things caused you to think twice:
- airline industry
- price of oil
- security
One of the most famous sayings in investment is, "Buy any industry but an airline". Why? High capex. Difficult to manage. Unfair competition as airline is an industry which is government-backed due to national interest. Look at MAS. How many times it could have gone bankrupt.
Oil - I do not have to go there as almost everyone know that oil prices is moving upward due to demand and lack of new supplies. Only how much more the increase and to what price will be the question. This is a question nobody can answer. This is also a factor that causes some government to fall. The higher the price of oil, the less attractive the airline industry becomes. No single airline company has a competitive advantage on this.
The third one - security. A 9/11 or SARS again can cause panic to the airline industry. The fact that Airasia is privately owned means that it does not have the immunity that MAS or SIA or better still Emirates Air enjoy.
Airasia - at current price of RM2.61, it is trading at around 7x PE of its FY2010 numbers. But what makes me little bit cautious is - net profit margin is at 26.72% (RM1.067B / RM3.992B). As a comparison, a similarly well-managed Ryanair (in Europe) was having a 10.2% net profit margin at the same time. Does this brilliant and cunning Tony guy play with numbers, accounting wise?
However at the same time Ryanair is currently trading now at around 16.7x. Yes, Ryanair is better established and just as controversial (maybe even more) as Airasia's Tony, but it has far tougher competition that Airasia. Note that Micheal O'Leary is one of the most hated person in UK besides Alex Ferguson. Both run their companies well as they only have one thing in mind - winning!
Looking at the potential of the Asian airline industry with which there are going to be more people travelling and the possible relaxing of the open-skies regulation, perhaps Airasia may not be that bad an investment - even if they do play a bit with numbers. And the way I look at things is no matter how brilliant Tony can be, I noticed he is still learning (hey, he only has 8-9 years experience in the airline industry!) He is still learning from hedging the oil prices, negotiating with each government for routes etc. And the fact is, he is winning while still learning.
Perhaps, this is not a bad stock after all. Go with your first instinct. Don't think too much.
Serious Investing!
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