AirAsia (KLSE: AIRASIA) stock faced its worst drop in over three years after the crash of flight QZ8501 that was en-route from Indonesia to Singapore caused investors to flee.
Shares plummeted by 8.5% from RM2.94 to RM2.69 on December 29th, the day after the incident. While fluctuating within a range of RM2.72 to RM2.75 for the rest of that week, it continued with a decline of around 5% after the weekend break.
“The AirAsia incident is worrying,” Alan Richardson, an investment manager at Samsung Asset Management Co. in Hong Kong. “Investor sentiment toward Malaysian aviation has been hurt by the unfortunate incidents”.
Investors in AirAsia had a good year in general, and the stock’s 34% rise from the beginning of 2014 until the crash allowed the year to end on a bittersweet note for shareholders.
Some analysts are still bullish on AirAsia. Raymond Yap and Gan Jian Bo at CIMB Group stated in a report saying that investors should accumulate shares during its current weakness because Indonesian demand will not be too “adversely affected”.
The majority of analysts maintained a “buy” rating for AirAsia, citing reasons such as lower fuel costs which allow greater profitability. However, Hong Leong Investment Bank and AllianceDBS downgraded the stock.
Hong Leong Investment Bank expects lower yields in 2015, so that the company can cut prices for air travelers.
“We have cut our assumed yields for financial year ending Dec 31, 2015, (FY15) and FY16 by 5% and 1%, respectively, to account for the weakening demand. As a result, FY15-16 earnings have been cut by 17.6% and 3.8%, respectively,” said the investment bank’s research division.
Similarly, AllianceDBS is bearish on AirAsia. It explained that around 86% of the company’s debt is denominated in U.S. Dollars, which will lead to more expensive borrowing costs due to the currency’s recent strength.
“AirAsia may recognize up to RM490mil in translation losses in FY14 as a profit and loss charge, but the street will likely regard this as a non-core expense and exclude it from the calculation of core net profit”, said AllianceDBS Research.