Jih Sun Securities Investment Consulting Co (日盛投顧) has raised its recommendation on shares of TransAsia Airways Corp (復興航空), a Taiwan-based mid-sized international carrier, to “buy” from “neutral” on expectations of an improving bottom line.
In a recent research note, the brokerage said TransAsia was benefiting from sharp declines in international crude oil prices because of the world’s sluggish economic fundamentals.
Crude prices for delivery next month in New York have fallen about 24 percent from this year’s high in February to US$83.23 per barrel, while crude prices for settlement in London next month have declined to a 16-month low of US$98.43.
According to Jih Sun, fuel costs account for about 30 percent of TransAsia’s total operating costs and whenever crude prices fall by US$10 per barrel, the carrier’s earnings per share rise by about NT$0.26. In addition, Jih Sun said the carrier would reap benefits from a recovery in its load factor after an expansion of services and from an upgrade of its fleet, which is expected to improve efficiency.
The brokerage said TransAsia is gearing up to increase the number of destinations it serves in China to tap the booming tourism market across the Taiwan Strait and to add routes to Japan, which should push the carrier’s sales higher in the second half of this year.
Currently, TransAsia operates 10 regular international routes and the number is expected to rise to 18 later this year, according to the carrier. The brokerage said TransAsia’s average load factor rose to 74.8 percent and 80.9 percent in March and April respectively, from 65 percent recorded in the first two months of this year, on the back of increasing traffic across the Taiwan Strait.
TransAsia will also expand its fleet to 19 aircraft by the end of this year, from 17 aircraft at the end of last year, according to the brokerage. TransAsia is expected to swing to profit in the second quarter of this year and post NT$0.21 in earnings per share after a loss per share of NT$0.04 in the first quarter, Jih Sun said.
For this year, the brokerage said, TransAsia is expected to post NT$570 million (US$19.04 million) in net profit, or NT$1.03 per share. Jih Sun’s target price for TransAsia shares is currently NT$20.3. TransAsia closed down 1.17 percent at NT$16.85 on the Taiwan Stock Exchange on Friday.