Foreign selling pulls down AirAsia stock

BUY LOW,SELL HIGH

Analysts say the selling may not be done as yet, with some advising value-hunter investors to be on their guard to pick up the stock for long-term investment

Shares of AirAsia Bhd (5099), South-East Asia's biggest low-cost carrier, fell sharply yesterday as foreign funds took profit after recent gains. Analysts said the selling may not be done as yet.

Some advised value-hunter investors to be on their guard to pick up the stock for long-term investment once the selling is done, as they see nothing fundamentally wrong with the company.

The stock fell by as much as 8.5 per cent to RM2.69 before gaining some ground later in the evening to close just 4.1 per cent or 12 sen lower to RM2.82.

The losses were mainly because of foreign selling, said an analyst from RHB Research.
"I would think it's profit-taking. Over the last one or two months when foreign funds were rushing in, the share price went up sharply. So now it's a reversal of this process," he told Business Times.

AirAsia has substantially higher foreign holdings compared to the average company. Foreigners held some 51.55 per cent of the stock as at end-2009 compared with the average holding of about 22 per cent in other stocks.

The RHB analyst believes there may have been a bit of an asset re-allocation in emerging markets, with some of the foreign money moving back to developed markets.

While most analysts have a "buy" on the stock, he kept his "underperform" recommendation and fair value of RM2.10 as he expects competition between AirAsia and the low-cost arm of Malaysia Airlines, Firefly Sdn Bhd, to intensify over the next six to 12 months.

Maybank Investment Bank (MIB) Research said the selling was purely sentiment-driven and followed a selldown in low-cost carriers EastJet and Ryanair in Europe late last week. UK-based EasyJet had said its first-half losses may double from the year before.

While happenings in the European aviation market may not have much to do with AirAsia, the fact is the carriers may share common shareholders.

"These shareholders are possibly common shareholders of EasyJet and Ryanair, and after seeing what happened to their holdings, decided to realise profits and discount accordingly. This is the stock market after all, these things happen," an MIB Research analyst said in a note to clients yesterday.

AirAsia is a "buy", but it is a very volatile stock and so "a strong stomach" is needed to reap rewards, he cautioned. Its volatility has surged by 24 per cent from a year ago, making it one of the most volatile index-linked stocks at home and also the second most volatile LCC stock in the world.

The analyst has a RM3.36 target on the stock , implying a 19 per cent potential upside from yesterday.

"Value hunters, be on your guard. This is a fabulous opportunity to join in the party if you have missed it the first time. There is of course the possibility that the share price will come down more... but on a longer term horizon, we think this is a wonderful opportunity to buy," he said.

AirAsia carried 25.7 million passengers in 2010, 13 per cent more than it did the year before, it said in a statement yesterday. Its load factor increased to 78 per cent from 75 per cent.