Quarterly Result Update

• Air Arabia reported 5.5% YoY increase in revenue to AED 2,080.3 million in 2010, up from AED 1,972.0 million in 2009.
• Net profit declined 32.4% YoY to AED 305.8 million from AED 452.2 million.
• We have revised our 2011E top-line estimate downwards by 10.7% because of ongoing political unrest and stiff price competition. Our 2011E bottom-line estimate stands revised 18.6% lower, factoring in lower profit on bank deposits and higher fuel costs.
• We are reiterating our OVERWEIGHT rating on Air Arabia with a revised DCF target price of AED 1.00, implying an upside of 35.4%.

Profitability
Gross profit fell 20.7% YoY to AED 311.7 million in 2010. Consequently, gross margin dropped to 15.0% from 19.9% in 2009. Similarly, EBITDA plunged 22.0% YoY to AED 255.1 million in 2010. As a result, EBITDA margin narrowed 431 bps YoY to 12.3%. Overall, net profit slipped 32.4% YoY to AED 305.8 million in 2010, due to lower operating profit as well as profit on bank deposits. Accordingly, net profit margin dipped to 14.7% from 22.9% in 2009. Adjusted EPS stood at AED 0.07 in 2010 vis-à-vis AED 0.10 in 2009. Profit from bank deposits declined 26.0% YoY to AED 115.6 million in 2010 from AED 156.3 million a year-ago.


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