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Air Arabia

Source: Taib Bank

Quarterly Update

Air Arabia’s revenues declined 4.5% YoY to AED 1,971.96 million for FY09, 24.1% below our estimate due to a decline in passenger traffic and revenue per passenger.

Net profit was up 26.5% to AED 504.61 million during FY09, which was 19.6% below our estimate, primarily due to lower than anticipated revenues during the period.

We have revised our FY2010E sales estimate downward by 38.7% to factor in the stressed revenue per passenger metric, while revising our net profit estimate downward by 50.6% in line with the change in revenue and anticipation of lower other non-operating income.

We are reiterating our OVERWEIGHT recommendation on Air Arabia with a revised DCF target price of AED 1.14, implying an upside of 22.9%.

Revenues
During FY09, Air Arabia’s revenues decreased 4.5% YoY to AED 1,971.96 million from AED 2,065.79 million in FY08, mainly due to a decline in passenger and service revenues. Furthermore, revenue per passenger was down 18.8% to AED 443.79 from AED 546.31, with total number of passengers increasing 14.2% to 4.07 million from 3.56 million in FY08. Additionally, Air Arabia’s fleet size rose to 21 from 16 in FY08, because of which revenue per fleet was 1.78 during FY09 compared to 1.08 last year. Passenger revenue, accounting for 91.5% of total revenues, fell 7.2% to AED 1,804.46 million from AED 1,945.42 million last year, while service revenue stood at AED 6.30 million, down 32.0% YoY from AED 9.26 million. On the other hand, cargo handling revenue increased 63.1% YoY to AED 35.02 million during FY09 from AED 21.48 million, while revenue from passenger services grew 32.6% to AED 16.40 million from AED 12.37 million in FY08. Freight handling revenue rose 11.7% to AED 18.07 million from AED16.18 million, while cargo revenue more than doubled to 37.39 million from AED 17.36 million in FY08. Catering revenue stood at AED 22.66 million, up 9.1% from AED 20.77 million in FY08. Profit on deposits was down 4.7% YoY to AED 156.27 million, while other income declined 15.8% to 46.84 million.

Expenses
The company’s cost of sales decreased 3.5% YoY to AED 1,613.62 million from AED 1,671.57 million in FY08, helped by a decline in fuel costs, partially offset by a rise in staff costs and air maintenance costs. In tandem, the cost per passenger decreased 15.4% to AED 389.00 from AED 460.00 in FY08.

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