I was just amazed when I read in this mornings paper regarding AirAsia quarterly earnings report: More passengers lift AirAsia Q1 profit
Yeah, not too happy at how and what is happening here and the core of my displeasure is simply at how our IPO is marketed.
When AirAsia made its IPO last Oct 2004, there were indications that perhaps their IPO projection earnings was simply too optimistic.
The following is a snippet from one our local newspaper business section.
AirAsia expects profit to soar
By ALICE CHIA
BUDGET carrier AirAsia Bhd expects net profit for the financial year ending June 30 2005 to more than triple to RM159.9 million compared with RM49.1 million before. Revenue is also expected to jump 90.1 per cent to RM746.6 million from RM392.7 million, according to its prospectus.
Yup. AirAsia expects its net profit to triple the very year its stock will be listed!
Very rosy isn't it?
And needless to say a year later, on Aug 2005, AirAsia simply missed its overly optimistic earnings forecast. Here's another business article snippet.
Monday August 29, 4:09 PM
Malaysia's Airasia Misses Yr Net Profit Forecast
KUALA LUMPUR, Aug 29 Asia Pulse - AirAsia Berhad (KLSE:5099) has reported group profit after tax and minority interest of RM111.635 million (US$29.6 million) for its financial year ended 30 June 2005, up 127.5 per cent year-on-year.
However, the net profit was 30.2 per cent below the RM159.9 million forecast for the year in the prospectus issued in relation to its initial public offering [IPO] last year, the budget airline said in a filing to Bursa Malaysia on Friday.
Let me work out what it means. When it AirAsia made its IPO prospectus, the total number of shares for AirAsia was 2,335 million shares.
Now based on AirAsia meeting its rosy IPO earnings projection of 160 million, an IPO investor investing in AirAsia was investing in a stock which promised to earn around 6.9 sen earnings per share. The IPO price was priced at 1.40, which meant that the IPO investors assumed that they were investing in AirAsia at an earnings multiple of 21 times fy 2005 earnings. Which is probably ain't too shabby if and if AirAsia delivers what its IPO earning promises.
However... AirAsia failed.
When AirAsia only managed a distance earnings of only 111 million for fy 2005, this totally changed the whole picture lor. This meant that AirAsia only made an earnings per share of only 4.8 sen.
Instead of 6.9 sen.
Which ultimately meant that based at a price of 1.40, these IPO investors invested in a stock trading at an earnings multiple of 29x.
In investing, whether if one is investing in a stock or a property, one's investment goal is to simply to get our investment purchase right. When we buy right, the chances of us achieving success in our investment simply increases mah. Tiok boh?
In simple, whenever we pay less, we should be getting more.
So at 29x earnings multiple... do you think the IPO investor got a fair deal?
Yeah, yeah, yeah... them smartie alecs would be saying no one forced us to invest in this stock mah.
True. So very true.
However, here's another food for thought.
This AirAsia IPO was to raised a whopping RM1.04 billion.
If the retail shares are priced at the maximum MYR1.40 each and institutional shares at MYR1.51, as AirAsia assumes in its prospectus, the IPO will raise about MYR1.04 billion, surpassing KLCC Property oldings Bhd.'s (5089.KU) MYR766 million offering in August.
Now for me, would it be wrong to say that this is a whopping lot of moolah to be parked at a stock at a high earnings multiple? A huge drain of market capital? Am i wrong to put it that way?
Now here's another food for thought. After missing its earnings forecast, there were brokerage houses still expecting rosy earnings numbers from AirAsia. One broker had their earnings estimate set at around 170 million for its fiscal year 2006. Some even had it around 180 million.
All expecting and assuming that AirAsia will deliver such rosy earnings.
Well, well, well.. AirAsia announced its first quarterly earnings for its fiscal 2006 yesterday.
AirAsia only made a net profit of 11 .67 million.
So when the business article today posted that more passengers lifted AirAsia earnings, it just simply amuses me.
Put it this way.... 11.67 million ar? At an annualised basis (err assuming that AirAsia will make lebih kurang the same amount of net profit per quarter for the remaining of its fy 2006) AirAsia will make around 46 million.
Ahem.. that's an eps of only 2 sen lor.
Also... at this rate of earnings... do you think AirAsia can make more moolah this fiscal year compared to last year total of 111 million?
Soooooo based at current price of 1.61, AirAsia is trading at a whopping earnings multiple of 80.5x its annualised 2006.
Sibeh geng leh?
So u want to buy this discounted budget Airline stock onot?
Oh, another food for thought..
We have seen two of our recent biggest IPO, Titan and AirAsia, making overly optmistic earnings projection in their IPO prospectus.
Yes, earnings projections is never easy. It is very understandable that companies will miss their projections but when their earnings projections misses by miles, it really makes me wonder the quality of our Malaysian Talk.
Is all our corporate talk so cheap?
I really wonder.