Air Arabia Co.

AIR ARABIA (AIRA.DU)

12-Month Fair Value: AED 1.00
Recommendation: Buy – Risk Level: 4
Last Close (21 February 2011): AED 0.83

Air Arabia posted 4Q2010 results that are better-than-our expectations at the operating level and compare well with the company’s performance in 3Q2010 (the company’s strongest quarter). This better-than-expected performance came as a result of a stronger yield and a lower-than-expected fuel expense for the quarter.

Overall. Air Arabia’s performance in 4Q2010 was well ahead of our forecast, but this is mostly due to the fuel expense being lower than anticipated. We will be reviewing our fuel cost assumptions for Air Arabia following the company’s conference call on February 23, 2011. However, this does not indicate a downward revision as oil prices have been very volatile lately and are currently around 18% above the average for FY2010. For the time being, we maintain our fair value target for Air Arabia of AED 1.00 per share, which represents an upside potential of 20% from the closing price o February 21, 2011. Our recommendation on the stock is a “Buy”.