Airlines

Airlines: Morgan Stanley downgraded their ASEAN airline industry view from In-line to Cautious, arguing that ASEAN airlines are in the middle of an operating profit downturn, plagued by declining margins and rising net gearing as a result of overcapacity. The issue is more pronounced on short-haul than long-haul routes. The house reiterated Overweight on SIA (TP $12.18), Equal-weight on Tiger Airways (TP $0.45) and Malaysia Airlines (RM0.27), and Underweight on AirAsia (TP RM1.99) and AirAsiaX (TP RM0.63). Recall, the house initiated on Airports of Thailand a week ago with Underweight and TP BT192, along with expectations for earnings CAGR to slow from 64% in 2009-2013 to 8.5% in 2014-2018. Historical tailwinds driving earnings growth and ROA expansion will fade, and capex expansion will kick in. Also, the counter’s valuation premium over global peers is at a historical high, making it highly susceptible to downside risks.