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Brokerage upgrades rating on TransAsia shares to 'buy'

2012/06/02 19:25:54

Taipei, June 2 (CNA) Jih Sun Securities Investment Consulting Co. has raised its recommendation on shares of TransAsia Airways, 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 is benefiting from sharp declines in international crude oil prices due to the world's sluggish economic fundamentals.

Crude prices for July delivery in New York have fallen about 24 percent from this year's closing high seen Feb. 24 to US$83.23 (NT$2,488) per barrel, while crude prices for July settlement in London 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 could rise about NT$0.26.

In addition, Jih Sun said the carrier will 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 business across the Taiwan Strait and 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 2012, from 17 aircraft at the end of 2011, according to the broker.

TransAsia is expected to swing to profit in the second quarter of this year and post NT$0.21 in EPS after a loss per share of NT$0.04 recorded in the first quarter, Jih Sun said.

For 2012, the brokerage said, TransAsia is expected to post NT$570 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 Friday.

(By Chao Hsiao-hui and Frances Huang)