What AirAsia Said About Its Earnings Performance

Of course I was rather anxious to read what AirAsia had to say to the local press in regards to its earnings performance announced last night.

I, for one, was Massively Disappointed With AirAsia's Earnings.

Excluding the forex gains, AirAsia's core profit was only a mere 33.834 million. Which is never going to be enough when one put into consideration that AirAsia has a total mind boggling debt of 7.215 BILLION!

Let's do the math. At 33.834 million per quarter, one year's total operating profit would only be less than 150 million.

Is that enough?

Let's be kind. Let's top it up to 200 million per year.

Hey... I will also ass-u-me that one day, don't know when, AirAsia will have to repay back these loans, yes?

So at 200 million per year, how many years would it take to repay that 7.215 Billion back?

Try 36 years!

And our poor government had granted (AirAsia) to date a whopping 930.591 million in deferred taxes!

Not in my flawed opinion it isn't! ( See past posting also: Just How Good Is AirAsia Earnings Performance Since Listing? )

Anyway on Business Times this morning.

• AirAsia swings to Q3 profit
  
  By Jeeva Arulampalam Published: 2009/11/21
  
  Low-Cost carrier AirAsia Bhd (5099) swung to a third quarter net profit of RM130.1 million on better passenger numbers and ancillary income.
  
  In comparison, it posted a net loss of RM465.5 million a year ago due to one-off provisions for contracts tied to fuel hedging and trades held by now-bankrupt investment bank Lehman Brothers.
  
  "Despite the third quarter traditionally being our weakest quarter, we did well and our Indonesian operation has turned profitable," said AirAsia group chief executive officer Datuk Seri Tony Fernandes.
  
  Speaking to analysts during a conference call yesterday, Fernandes said the airline was looking at a strong fourth quarter as underlying passenger demand remained positive.
  
  "We are well-placed and have seen good sales, especially with the latest one million free seats campaign. We are almost up 40 per cent each day since the campaign," he added.
  
  However, ticket prices for the fourth quarter are expected to be lower than the same period last year due to the challenging global economy.
  
  For the three months to September 30 2009, the airline's revenue grew 4 per cent to RM740 million driven by higher ancillary and other operating incomes.
  
  Fernandes said the airline's ancillary income would grow further in the next six to 12 months, having jumped some 57 per cent to RM36.2 per passenger for the third quarter.
  
  While passenger volume increased 19 per cent to 3.59 million passengers, AirAsia's load factor remained the same at 75 per cent from a year ago.
  
  The average fare was lower by 27 per cent at RM142 compared with RM195 in the third quarter 2008.
  
  If fuel prices continue to rise, AirAsia expects to be impacted negatively in the fourth quarter.
  
  It has taken partial fuel hedges to mitigate the volatility, with 20 per cent of the group's fuel (jet kerosene) requirement in the fourth quarter hedged at a fixed swap rate of US$75 (RM255) per barrel.
  
  Fernandes added that the group may reimpose a fuel surcharge if prices escalate above US$100 (RM340) per barrel.
  
  Meanwhile, AirAsia Indonesia posted a profit after tax of RM21.2 million compared with a loss of RM4.3 million from a year ago. The unit performed well due to its international routes to Australia and Singapore and utilisation of new fuel-efficient aircraft.
  
  However, AirAsia Thailand saw its losses widening to RM40.4 million from RM24.6 million a year ago, due to weaker consumer sentiment and lower fares.
  
  "We are confident of the Thai operations' ability to produce profits and its fourth quarter looks good," said Fernandes.

Hmmm... no mention of AirAsia forex gains of 102 million.

You would imagine that if one has an operating gain of 136.260 million and forex gains accounts for 102 million of the gains, or 74% of AirAsia's operation gains came from forex gains, you would assume that such an information is significant enough!

Apparently it isn't!

Here's the Edge Financial Daily version, AirAsia records net profit of RM130m in 3Q, which at least acknowledged the existance of the forex gains.

• KUALA LUMPUR: AIRASIA BHD posted net profit of RM130.07 million in the third quarter ended Sept 30, 2009 (3Q09) a turnaround from the net loss of RM465.53 million a year ago (3Q08) as revenue improved and it also benefited from a foreign exchange (forex) translation gain.

Just a plain mention that AirAsia benefited from a forex gain. Did not bother to mention how much!

74% of its gains was boosted by forex gain.

Surely that's a rather significant issue?

In regards to AirAsia Indonesia and AirAsia Thailand. I would assume that these two represented AirAsia so-called 'jointly controlled entity and associates'.

So why is AirAsia Indonesia and AirAsia Thailand owing AirAsia some 911.061 million in small change???

Why?

I was also thinking about AirAsia's balance sheet issue this morning and as many are aware I had posted many articles on AirAsia (clickable link to past postings) before.

Back in Aug 2009, I wrote It's A 20% Placement For AirAsia!

• AirAsia sees more than RM1b in coffers
  By Jeeva Arulampalam Published: 2009/08/04
  
  Low-cost carrier AirAsia Bhd (5099) expects to have more than RM1 billion in its coffers by the end of the year, as it grows its profits and undertakes a private placement, says its chief.
  
  “The cash will be used to lower the group’s gearing,” group chief executive officer Datuk Seri Tony Fernandes told reporters after the airline’s annual and extraordinary general meetings in Sepang yesterday

Compare that statement to what I wrote last night Massively Disappointed With AirAsia's Earnings

• Cash balances then was 231 million ( See here ) and total borrowings as at Aug 2009 were some 6.957 billion ( see here )

So after the stock sale (which raised some 508 million) and after the 'good earnings report', AirAsia's cash balances reported yesterday was 527 million. Total debts increased to 7.215 billion.

Makes you wonder doesn't it?

Massively Disappointed With AirAsia's Earnings

AirAsia announced its earnings tonight.

I saw the link and I took a guess of what to expect.

1. I expected them to show some earnings. Why? The USD had weaken a lot against the ringgit and this would translate to forex gains.
2. I expected some improvement in the balance sheet. Why? AirAsia sold shares to raise funds. If not mistaken the share sale would bring in some 500 million in cash.

Those were my humble expectations and since I had blogged quite often on AirAsia, I only thought it was correct that I made an update on its earnings.

I quickly look at the summary from DJ.

A net profit of only 130 million? Only 130 million?

This simply isn't enough! That was my first reaction. No joke!

I opened the pdf file attached and looked for its core operating profits.

Page 10.

That screen shot spoke everything about AirAsia.

Taking out the forex gain, core operating profits were only 33.834 million.

Is it enough?

Consider all the investment outlay that AirAsia had taken. Consider the mountain of debt AirAsia is in.

Is a core operating return of 33.834 million enough?

Point 2 or expectation number 2.

Firstly on Aug 2009, I wrote the following: A Quick Look At AirAsia's Latest Earnings

Cash balances then was 231 million ( See here ) and total borrowings as at Aug 2009 were some 6.957 billion ( see here )

Today, November 2009.


Cash balances has increased to a nice 527 million.

But is this enough?

100 PERCENT NOT!

Why? Because AirAsia cash balances were boosted by some 508 million from their share placement sale. Minus this out, AirAsia cash balances is only left with 19 million! Remember in Aug 2009, cash balances were some 231 million!

Where all the money go?

Then let's look at their borrowings.


Omigosh! Total debts is now 7.2 Billion!

How?

So despite raising some 508 million from a share placement sale, AirAsia balance sheet continued to weaken!

Back in Aug, I mentioned in the posting A Quick Look At AirAsia's Latest Earnings on the amount due to AirAsia from its associates.

I wrote the following.

• Look at the amount due from the 'jointly controlled entity and amount due from associates' which stands at 410.408 mil and 479.593 mil respectively. The amount totals 890.001 million.

Now if you look back at the earlier table which showed AirAsia cash balances, the "Amount due from a jointly controlled entity" totals 438.339 million and the "Amount due from associates" totals 472.722 million. Adding both totals, we get 911.061 million!

Holy cow!

Why is this happening?

With the mountain of debt AirAsia is in, should AirAsia allow its associates to owe them so much million? 911.061 million is one mountain of small change!

What on earth is happening with this company???

Regarding Aircel and Maxis

Flashback:

30th April 2007: How Much For Maxis?

• Recently there was an article on Star Bix, New chapter at Maxis.
  This line is most interesting.
  
  To grow in India, Indonesia and locally in broadband and 3G, the funding requirements are huge, but that is not really an issue, said Jamaludin. This year alone, the company needs RM2.77bil (of which RM1.57bil is for India and RM1.2bil for Malaysia) and in India alone..

And as argued ..

• If you are a current shareholder of Maxis, your share of this 2.725 Billion has already being invested in India and Indonesia by Maxis.
  
  How? Should there be a value placed on these investments?

May 1st 2007: Maxis Again

• Proposal to take Maxis private
  
  “Yes, we are shocked with the takeover plan but it does make a lot of sense to take it private, given that the current major shareholders see huge value in Maxis that the market does not. Maxis’ India unit, Aircel Inc, for one is a brilliant asset and the market is not valuing it,” an analyst said.

I was shocked. What about the minority shareholders interests? For sure the current major shareholders saw a huge value at Maxis. Hence the privatisation!

• “Taking Maxis private also allows the major shareholders to restructure it without having to deal with the minority shareholders. That gives them the flexibility of doing what they need to do with the group and some private equity investors may emerge to nurture the companies within Maxis.
  
  “At some point, we will not be surprised if Maxis makes its way back to the Malaysian bourse but it is expected to also have a dual listing somewhere on an international bourse and its units will also be listed separately,” he added.

Restructure because the major shareholders saw value, right?

And best of all by taking Maxis private, the major shareholders DOES NOT have to deal with the minority shareholders.

Anyway let's look at Aircel.

Here is the link to Maxis last quarterly announcement before it was taken private. click here for the pdf file

Page 18.

Back then, in 2007, revenue increased by rm 53 million in just one quarter. Net additions of 1 million subscribers for just one quarter.

Now during Maxis got relisting exercise, on 29th Oct 2009, OSK wrote the following:

Given what had transpired in 2007, I was not shocked at all that the Maxis overseas operations are not included in the relisting.

Hmmm.... got me thinking.

Maxis had a nice overseas operation. Its Aircel unit was declared to be a BRILLIANT ASSET back in 2007 and the growth in revenue and subcribers shown by 2007 data proved so.

But I am surprised by the statement by OSK: " Maxis will be listed without its loss-making overseas operations." Loss making? Hmmm...

Anyway on today's Business Times:

• Aircel to invest US$5.5b in India
  By Goh Thean EuPublished: 2009/11/20
  
  MOBILE phone firm Aircel Ltd, a sister company of Maxis, will spend US$5.5 billion (RM18.6 billion) over three to five years to expand its network and cover most parts of India.
  
  It already has US$3.5 billion (RM11.8 billion) in US dollar and Indian rupee loans. The rest will come from shareholders like Binariang GSM Sdn Bhd, which owns 74 per cent of Aircel.
  Binariang also owns stakes in Indonesia's PT Natrindo Telepon Selular and Maxis Communications Bhd.
  
  Countries like India and Indonesia are where growth will come from for Bina-riang. The group has just spun off Maxis Bhd in Malaysia, raising some US$3.3 billion (RM11.1 billion) in Southeast Asia's biggest initial public offering.
  
  "Aircel has really grown over the past few years, from a small company two years ago to the third most admired telecom brand. It is still growing at a healthy pace," said Aircel director Sandip Das, also the chief executive officer of Maxis Bhd, in an interview on Wednesday.
  
  Aircel now covers 18 circles in India and is expected to launch its services to all 23 circles by the middle of next year. In India, licences are given out for areas known as circles.
  
  "We are now adding one million new subscribers every month. We now have about 26 million subscribers," he said.
  

The last statement caught my attention!

• "We are now adding one million new subscribers every month. We now have about 26 million subscribers,"

OMIGOSH!

Aircel is now adding in ONE MILLION new subscribers every month!

Back in 2007, it was ONLY (what an understatement) doing 1 million per quarter!

And Aircel has 26 million subscribers.

WOW!

Now this got me thinking.

Assume, yeah ass-u-me, that I am a Maxis fanboy, and despite what had happened before, I am now a Maxis shareholder again. (Ass-u-me lah! ). Yeah, assume I had the share before, share got delisted and now I buy back again to be a shareholder again.

Now I wonder how would I feel to read about all this.

Maxis of old used to include all Maxis overseas operations. Yeah, the brilliant Aircel was included. Maxis of today is just a plain Maxis. No Aircel!

Yeah no Aircel.

A telco company that has a growth of 1 million new subscribers per month!

How lah?

On the Edge Financial Daily: Bold IPO bet pays off for Ananda Krishnan

• .......... Ananda's privatisation of Maxis angered investors, who had accepted RM15.60 a share. Ananda soon sold a 25% stake to Saudi Telecom at RM16.40 apiece.
  
  "It's a masterstroke — he forked out money to privatise, and then made more selling it to the Arabs," said the person with knowledge of the billionaire.

Poor minority shareholders... !!!

• The relisting of Maxis comes after the prime minister called for firms to list in a bid to boost Malaysia's sluggish and illiquid stock market.
  
  Ananda obliged — but this time, he is listing only the Malaysian operations, leaving the fast-growing Indian and Indonesian businesses with the parent Maxis Communications Bhd.

China's Empty City!

Highlighted by T&T::

YTL E-Solutions Should Not Be Considered Anymore As A Wimax Play

For prophet.

This is from YTL Communications home page here

• Our Background
  YTL Communications is a subsidiary and the communications utility of YTL Power International, a utility group active across key segments of the utility industry worldwide.
  
  Headquartered in Malaysia, YTL Power International operates in Malaysia, the United Kingdom, Singapore, Australia and Indonesia. Its core businesses include: power generation, retail and transmission, and water supply and wastewater services.
  
  YTL Power International is a subsidiary of YTL Corporation, a leading integrated infrastructure developer in Malaysia with global investments in utilities, cement manufacturing, construction, property development and investment, hotel management and development, as well as information technology serving over 12 million customers on three continents.
  
  Both YTL Power International and YTL Corporation are listed on Bursa Malaysia (the Kuala Lumpur Stock Exchange). Both companies are component stocks of the FTSE Bursa Malaysia composite index which comprises 30 of the largest companies based on market capitalisation.

And just how did this came about?

The following is a screen shot from a CIMB report back in Sep 2009.

See also this older posting: Comments On YTL's RM3 Billion Broadband Venture

So what about YTL E-Solutions now? Here are some comments from the same CIMB report.

Yeah Lloyd Blankfein Should Just Shut Up!

On CNN Money: Shut up, Lloyd Blankfein!

• Shut up, Lloyd Blankfein!
  
  The Goldman Sachs CEO is trying to portray the Wall Street titan as a paragon of virtue. But Blankfein should stop pretending that the bank is a charity.
  
  By Paul R. La Monica, CNNMoney.com editor at large
  Last Updated: November 18, 2009: 12:22 PM ET
  
  NEW YORK (CNNMoney.com) -- The public relations gurus who are advising Goldman Sachs Chief Executive Officer Lloyd Blankfein might want to give him some new advice. Shut up!
  
  Blankfein made a startling confession Tuesday. He apologized for Goldman's role in the financial crisis, saying that the bank "participated in things that were clearly wrong and have reason to regret."
  
  But it's tough to take Blankfein at his word. This mea culpa came a little more than a week after he made an embarrassing comment in an interview with the Financial Times, saying that he was just "doing God's work." Interesting. I don't believe there are any references to credit default swaps in the Bible, Torah, Koran or any other religious text.
  
  While Blankfein might have made the "God's work" comment in jest, it still goes to show that he needs to tread carefully if he really wants to prove to taxpayers that Goldman is not really the blood-sucking parasite that many are now making it out to be.
  
  Goldman is facing a populist backlash because it was one of the original nine firms to receive bailout funds last fall. But it is now all of a sudden generating gigantic profits again and putting away large wads of cash for employees in its bonus pool.
  
  Goldman has earned $8.4 billion in the first nine months of 2009. The company has already set aside $16.7 billion for compensation expenses, putting it on track to have a bonus pool of about $21 billion at year's end.
  
  So it's no wonder that Blankfein has turned the spin cycle on over the past few months to try and send the message that Goldman Sachs (GS, Fortune 500) is the Wall Street equivalent of Google, i.e. it won't do evil.
  
  On Tuesday, Goldman announced that it, along with investing legend Warren Buffett, is launching a $500 million program geared toward helping small businesses.
  
  That's certainly admirable even though it's fair to cynically point out that Buffett's Berkshire Hathaway (BRKA, Fortune 500) investment firm is Goldman's largest shareholder. So I don't think I am going out on a limb to guess that the idea for this largesse probably had its roots in Omaha as opposed to the corner offices on Broad Street.
  
  And if Blankfein is really sorry about the mistakes Goldman made, here's a thought: Instead of contributing a meager $500 million to help get small businesses back on track, maybe he could kick in $14 billion instead.
  
  That's the amount of money Goldman received from AIG (AIG, Fortune 500) (courtesy of the U.S. taxpayer-funded bailout of the insurer) because of the so-called counterparty risk.
  The small business program is Blankfein's latest attempt to try and prove that what's good for Goldman is good for America.
  
  Last month, Blankfein told Fortune managing editor Andy Serwer that the company contributes to the nation's growth. "Once the economy starts to turn, we get very involved," he said.
  
  Back in July, Goldman went out of its way to pat itself on the back for paying $1.1 billion to the government to redeem warrants that Uncle Sam got as part of last fall's $10 billion bailout of the firm.
  
  Goldman deemed the payment "full and fair," and in a statement Blankfein gushed that Goldman was "pleased that this additional money can be used by the government to revitalize the economy, a priority in which we all have a common stake."
  
  None of this is technically wrong. It's, of course, better for Goldman to be back in the black as opposed to bleeding red ink.
  
  But has Blankfein blanked out and mistaken himself for former Goldman chief (and soon to be former governor of the Garden State) Jon Corzine? It almost sounds as if Lloyd is running for public office. What's next? Kissing babies and train rides all across America?
  
  Blankfein shouldn't feel the need to constantly remind us of how Goldman is an important cog in the GDP growth machine and engage in excessive self-flagellation just because business is booming again.
  
  It's actually an encouraging sign that banks like Goldman, JPMorgan Chase (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500) and U.S. Bancorp (USB, Fortune 500) -- to name a few -- are this strong only a few months after many thought the financial system was doomed.
  
  The notion that Goldman's good fortune is a problem is silly. Even though many average Americans are still struggling financially, it's misguided to suggest that everybody should be suffering and that the nation would have been better off if Wall Street went under. We shouldn't be demonizing success.
  
  And let's not forget that Goldman has paid back taxpayers not just for the warrants but the full $10 billion in TARP money. There's a big difference between Goldman and Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500), which still don't seem to be healthy enough to return bailout funds.
  
  But Goldman Sachs is a bank. It's supposed to make money. It's supposed to take risks. Lloyd isn't exactly running the March of Dimes.
  
  Blankfein is fighting a battle he can't win. He can't come out and bluntly state that his company's return to prosperity should be applauded because it proves that his firm's employees are more competent than Goldman's rivals. That's why he should just keep quiet.
  
  The problem is that Blankfein is trying to dupe people into thinking that he's had his Ebenezer Scrooge moment and that Goldman is now more interested in serving the public than making a buck.
  
  Apologizing for the credit bubble and claiming that Goldman has the best interests of the people at heart just makes Blankfein look foolish, not sympathetic.
  
  Come on. We all know how Wall Street works. The fact that Goldman hotshots are set to make big bonuses this year isn't nearly as insulting as the fact that Blankfein wants us to believe that investment bankers and traders are really nothing more than highly compensated social workers.

Well said.

In an another article on Reuters, highlighted by TT, Goldman was exposed to AIG losses: government report

• NEW YORK (Reuters) - Goldman Sachs Group Inc could have suffered dramatic losses if the federal government had not intervened to prop up American International Group Inc, according to a government report.
  
  The report by the special inspector general for the government bailout program raises doubts about Goldman's previous claims that it was hedged against potential AIG losses.
  
  Last fall, as the financial services industry stood on the brink of collapse, the government stepped in with an unprecedented effort to rescue the system. AIG was among the companies that received billions of dollars from the U.S. Treasury's Troubled Asset Relief Program.
  
  If AIG had collapsed, it would have made it difficult for Goldman to liquidate its trading positions with AIG, even at discounts, the report said. It also would have put pressure on other counterparties that "might have made it difficult for Goldman Sachs to collect on the credit protection it had purchased against an AIG default."
  
  Finally, the report said, an AIG default would have forced Goldman Sachs to bear the risk of declines in the value of billions of dollars in collateralized debt obligations.
  
  A Goldman spokesman called the risks discussed in the report a "moot point."
  
  "Goldman Sachs has consistently said its exposure with AIG was collateralized and hedged and therefore we had no direct credit exposure," Goldman Spokesman Michael DuVally said. "Given the hedges, collateral, and government backing as a result of the bailout, the additional risks of declining market values in the event of an AIG default are a moot point."
  AIG has received pledges of up to $180 billion in taxpayer aid since last fall to help save it from collapse. It was revealed in March that Goldman received $12.9 billion in payments and collateral from AIG.
  
  David Viniar, Goldman's chief financial officer, in March told reporters that the Wall Street bank did nothing wrong when it accepted payments to close out trades with AIG.
  
  The full report can be viewed at: here

Me?

I think them guys on Wall Street should get a real job. Get a life!