Why Airasia X IPO doesn't make any sense....

Why Airasia X IPO doesn't make any sense....


Tony Fernandes is god! I have to admit, I am a big fan. Who isn't? What's not to like about this guy? Having been a long time shareholder of Airasia (AA), when you attend the Airasia AGM, you will realize, most people buy the stock, mainly because of him. The Aura is exciting, the aura is contagious, and the aura is dangerous… And that’s why, you should still read the first page of the prospectus of Airasia X (AAX) before writing your cheque.

A simple maths. Airasia X is currently running 11 aircrafts, experimenting with the mid to long haul business model. A model, which most people will agree, less profitable than short haul. After IPO, we can expect AAX to have a market capitalization of around RM 3.5billion

Airasia, currently operates nearly 150 aircrafts, highly profitable, still growing in a business model proven to work. Market capitalization of RM 8.8billion.

So…. A company at 1/14th the size of Airasia, toying with an unproven business model. One would assume the value of the company should also be around 1/14th (even alittle lesser than that I might argue) the size of Airasia. However, the IPO valued AAX to be 40% the size of Airasia.

Which can lead us to a few conclusions.

1) Airasia X is Fairly valued, which means Airasia is wildly undervalued, which means you should buy Airasia!
2) Airasia X is Undervalued, which means Airasia is even more undervalued, which means you should buy Airasia over Airasia X!
3) Airasia X is Overvalued, which mean Airasia might also be overvalued, which means you should not buy either.

None of the conclusions give us a reason to buy AAX, but why is everyone still so excited over it? I am not saying that you will lose money in AAX, market is irrational, and it can stay that way for a long time. But I hope you will not buy AAX and claimed that you have made an investment, you have merely made a gamble.

I will leave you with something to ponder, “If AAX is so amazing, why are they selling?”


* Above article is only an expression of opinion from the writer and not a recommendation or advice on investment. Investment is about making a bet, while knowing your RISK. Gambling is about making a bet, and assume you will win.

Airasia X using 'Other People Money' to expand....

Which public listed company is not using 'other people's money' ?

(16-06-2013, 05:41 PM)LLI Wrote: Why Airasia X IPO doesn't make any sense....


Tony Fernandes is god! I have to admit, I am a big fan. Who isn't? What's not to like about this guy? Having been a long time shareholder of Airasia (AA), when you attend the Airasia AGM, you will realize, most people buy the stock, mainly because of him. The Aura is exciting, the aura is contagious, and the aura is dangerous… And that’s why, you should still read the first page of the prospectus of Airasia X (AAX) before writing your cheque.

A simple maths. Airasia X is currently running 11 aircrafts, experimenting with the mid to long haul business model. A model, which most people will agree, less profitable than short haul. After IPO, we can expect AAX to have a market capitalization of around RM 3.5billion

Airasia, currently operates nearly 150 aircrafts, highly profitable, still growing in a business model proven to work. Market capitalization of RM 8.8billion.

So…. A company at 1/14th the size of Airasia, toying with an unproven business model. One would assume the value of the company should also be around 1/14th (even alittle lesser than that I might argue) the size of Airasia. However, the IPO valued AAX to be 40% the size of Airasia.

Which can lead us to a few conclusions.

1) Airasia X is Fairly valued, which means Airasia is wildly undervalued, which means you should buy Airasia!
2) Airasia X is Undervalued, which means Airasia is even more undervalued, which means you should buy Airasia over Airasia X!
3) Airasia X is Overvalued, which mean Airasia might also be overvalued, which means you should not buy either.

None of the conclusions give us a reason to buy AAX, but why is everyone still so excited over it? I am not saying that you will lose money in AAX, market is irrational, and it can stay that way for a long time. But I hope you will not buy AAX and claimed that you have made an investment, you have merely made a gamble.

I will leave you with something to ponder, “If AAX is so amazing, why are they selling?”


* Above article is only an expression of opinion from the writer and not a recommendation or advice on investment. Investment is about making a bet, while knowing your RISK. Gambling is about making a bet, and assume you will win.

Sorry but I had so many qns when I read this. Here's just a few:
- So did you buy and are you still holding AirAsia cos you're a big fan of Tony Fernandez.
- Care to share your sources for aircraft figures? AirAsiaX is operating 10 aircraft. Number 11 will only operate in July 2013 (source: prospectus). AirAsia is operating 122 aircraft (source: 1Q2013 operating statistics).
- Why use number of aircraft to compare size of airline? If not market-cap, why not revenue (AA fy2012: RM5bn vs AAX RM1.97bn); or net assets (AA fy2012: RM5.4bn vs AAX RM1.4bn)?
- If anyone was to ponder the qn posed on why AAX is being sold, then no one should buy any IPO as the same qn would apply to all IPOs. Did you buy AA at IPO?

(17-06-2013, 12:40 AM)Big Toe Wrote: Which public listed company is not using 'other people's money' ?

Yes. but airlines are worst cash guzzlers...need to capital mkts to support constant capex.

(17-06-2013, 05:41 AM)Muck Wrote:

(16-06-2013, 05:41 PM)LLI Wrote: Why Airasia X IPO doesn't make any sense....


Tony Fernandes is god! I have to admit, I am a big fan. Who isn't? What's not to like about this guy? Having been a long time shareholder of Airasia (AA), when you attend the Airasia AGM, you will realize, most people buy the stock, mainly because of him. The Aura is exciting, the aura is contagious, and the aura is dangerous… And that’s why, you should still read the first page of the prospectus of Airasia X (AAX) before writing your cheque.

A simple maths. Airasia X is currently running 11 aircrafts, experimenting with the mid to long haul business model. A model, which most people will agree, less profitable than short haul. After IPO, we can expect AAX to have a market capitalization of around RM 3.5billion

Airasia, currently operates nearly 150 aircrafts, highly profitable, still growing in a business model proven to work. Market capitalization of RM 8.8billion.

So…. A company at 1/14th the size of Airasia, toying with an unproven business model. One would assume the value of the company should also be around 1/14th (even alittle lesser than that I might argue) the size of Airasia. However, the IPO valued AAX to be 40% the size of Airasia.

Which can lead us to a few conclusions.

1) Airasia X is Fairly valued, which means Airasia is wildly undervalued, which means you should buy Airasia!
2) Airasia X is Undervalued, which means Airasia is even more undervalued, which means you should buy Airasia over Airasia X!
3) Airasia X is Overvalued, which mean Airasia might also be overvalued, which means you should not buy either.

None of the conclusions give us a reason to buy AAX, but why is everyone still so excited over it? I am not saying that you will lose money in AAX, market is irrational, and it can stay that way for a long time. But I hope you will not buy AAX and claimed that you have made an investment, you have merely made a gamble.

I will leave you with something to ponder, “If AAX is so amazing, why are they selling?”


* Above article is only an expression of opinion from the writer and not a recommendation or advice on investment. Investment is about making a bet, while knowing your RISK. Gambling is about making a bet, and assume you will win.

Sorry but I had so many qns when I read this. Here's just a few:
- So did you buy and are you still holding AirAsia cos you're a big fan of Tony Fernandez.
- Care to share your sources for aircraft figures? AirAsiaX is operating 10 aircraft. Number 11 will only operate in July 2013 (source: prospectus). AirAsia is operating 122 aircraft (source: 1Q2013 operating statistics).
- Why use number of aircraft to compare size of airline? If not market-cap, why not revenue (AA fy2012: RM5bn vs AAX RM1.97bn); or net assets (AA fy2012: RM5.4bn vs AAX RM1.4bn)?
- If anyone was to ponder the qn posed on why AAX is being sold, then no one should buy any IPO as the same qn would apply to all IPOs. Did you buy AA at IPO?

Hi,
thanks for the qns
1) Maybe my language skill needs some polishing, I meant MOST ppl buy it because of them.
We bought it because in this commodity business, they are the lowest cost and very focused on being the lowest cost provider. We bought it in 08 during the crisis when people misunderstood their paper loss due to fuel hedging.
We sold out when it reach our target, and bought it again last year when market over reacted to the threat of Malindo Air.

2) My source is given from the AAX roadshow presentation. AA numbers includes their JV business

3) True, we do not need to compare just one matrix, but AA has many associates and JV so revenue is understated.
At the end of it, earnings is what matters but it is not a good comparison at this point. So we use Aircraft as a proxy to the potential of earnings

4) I agree, I would avoid most IPO.