Just How Profitable Is AirAsia Since Listing?

Some comments from the posting: Review Of AirAsia Earnings

• I don’t understand the business model of Air Asia. I am not sure whether it declares any dividend to its shareholders since the IPO in November 2004. It keeps expanding the business through borrowing. I really admired the patient of the shareholders for looking forward good future of the company and hope it will become cash cow. :D
• ROI of (Profit after tax / Share Capital) 200% couple with EPS 22cents seems very impressive for year 2009. If I were the long term shareholder, I would ask for dividend. No point for investing a company for more than 5 years without receiving a single cent of dividend. What I am concerned is…..how the company distributes profit in cash to its shareholders given highly committed capital expenditure? Sigh.

Here's AirAsia numbers.

One thing that needs to be remembered is that AirAsia raised some 717.439 million from their IPO.

c.c stands for total capital commitment.

* for the record: AirAsia became the world's biggest customer for the Airbus A320-200 after placing an order for 175 aircraft in December 2007, with an option for 50 more. *

* fy 2007 numbers is a mess because AirAsia changed its financial year end *

Now I may be wrong but I would NOT discount the following from AirAsia earnings. Yes, the earnings table above includes all of these...

1. Forex translation gains
2. Derivative gains/losses in oil hedges
3. deferred tax benefit granted to AirAsia
4. I am lazy! :P

Why? Why? Tell my why? :D

Won't the earnings tables be distorted.

Well, not really.

1. Like it or not, the debts are here to stay. AirAsia debts is not going to vanish into thin air anytime soon and most importantly, the debts are in foreign currencies. It's embedded into AirAsia business fundamentals and given the volatility of the forex market, forex translational gains and losses is part and parcel of the business. So yes, some years AirAsia will see huge gains and some years AirAsia will see huge losses.

2. Oil hedges. Discount what the boss have saying (like no more oil hedges etc etc), oil hedges is part of AirAsia business fundamentals too! And again yes, some years AirAsia will see huge gains and some years, AirAsia will see huge losses.

3. the massive tax benefited granted to AirAsia. (Again On AirAsia's Deferred Tax Iss, according to research reports, AirAsia stands to benefit 18 BILLION in deferred taxes! ) Well, I could argue and you argue and we all argue on that 18 billion deferred tax issue but it makes no difference now. It's part of the business.

4. LOL! yes, I am lazy at times. :P

Now that table.

Now it's interesting. You could call me wrong but for me, I would treat the IPO money raised as funds raised by AirAsia. So AirAsia raised some 717.439 million from the equity market. From its Fy 2005 balance sheet, AirAsia showed a bank borrowing of a mere 0.230 million. Five and a half year later, AirAsia carries a debt of 7.586 Billion.

And needless to say it's mind boggling.

And I for one, will call it a debt bubble!

And it's worth noting that AirAsia raised some 509.217 million from its share placement sale done end FY 2009.

Anyway... during this period, since listing, AirAsia 'made' some 1.4111 Billion.

Now consider this small exercise. ( I am aware some factors are not too just! )

Say I had 7.586 Billion to invest. In 5 1/2 years my investment grew to 8.997 Billion. Yeah, I made 1.411 Billion from my investment. Investments, like fixed deposits rates are compounded annually. And if I use my annual compounded rate calculator, and compute my return rate, do you know that I am getting a mere 3.15% compounding rate? (you can use this website http://www.moneychimp.com/calculator/discount_rate_calculator.htm to confirm the result)

So if I had 7.586 Billion (LOL! I wish I had that much! :P ), and if I invest in a money market rate giving me a return of 3.15% compounded rate per year, after 5 1/2 years, I could make 1.411 billion.

Now of course, many would say.... what? Am I nuts? 3.15% only? Am I a water fish or what?

:P

Back to AirAsia. Since listing, it went from a company with practically zero borrowings to a company with 7.586 Billion borrowings.

And during this period, it only made some 1.411 billion.

Ok, I am aware that I discounted the money raised from IPO (717.349 million) and the money raised from recent share placement sale ( 509.217 million) and I am also aware that AirAsia did not borrow all these money at one go.

How?

How would judge AirAsia profitability since listing?