Budget carrier AirAsia is expected to make a solid debut on the stock exchange on Monday, with gains to be made from its retail initial public offer (IPO) price of RM1.16 a share, fund managers and analysts said today.

AirAsia will become the first budget carrier listed in Southeast Asia on Nov 22. Its institutional IPO tranche was priced at RM1.25 and the retail tranche at RM1.16, well below the indicative price of RM1.40, to raise raise some RM717.4 million.

Most analysts place AirAsia's fair value between RM1.20 and RM1.50 a share, with crude oil prices seen as the key factor in its pricing.

"At the time of the bidding, oil prices were at US$55 a barrel and now they are trading at around US$49. Chances of the stock trading at around RM1.40 a share are high," said Chong Sui San, chief investment officer of Allianz General Insurance.

"In AirAsia's case, you are really buying into future growth and you have to give them credit for first mover advantage," she said, adding that the stock could trade even higher on more positive news on oil prices.

Room for gains

When the company announced the outcome of the IPO there was some disappointment and concern at the relatively lower pricing achieved but that also means that the stock now has more room for gains, analysts said.

At the same time, the Kuala Lumpur market has been in bouyant mood in the past few weeks and this should help the stock Monday.

One foreign fund manager said AirAsia could see a "10-20 sen margin" on its institutional price of RM1.25 but the upside was likely to be capped at RM1.50.

"AirAsia is an exciting stock but you won't see blue skies all the way," he said. "Although AirAsia has first mover advantage, competition is catching up fast."

OSK Research said it has a fair value of RM1.48 for AirAsia, based on 20 times earnings for the year to June 2006.

Although high jet fuel prices and competition from other budget carriers are major risks to AirAsia, these risks are manageable, it said. The airline still has a lot of room to grow particularly with flights from Thailand to China and India as well as a huge, untapped market in Indonesia, it added.

Mayban Securities also pegged AirAsia's fair value at RM1.48, citing buoyant air travel in the region.

Net profit

In a short span of three years since its launch as a low-cost carrier in December 2001, AirAsia has become one of the largest no-frills airlines in Southeast Asia with a fleet of 24 aircraft servicing destinations in Malaysia and the region, including Singapore, Thailand, Indonesia and Macau, it noted.

The airline earlier this month said it planned to begin flying to China by February from its hub in Bangkok, a move analysts said would boost its revenue given strong trade ties and the 2008 Olympic Games in Beijing.

AirAsia aims to buy 80 new planes over the next few years but says it has still not decided whether to purchase from Boeing or Airbus despite reports that Airbus has won the deal.

For its financial year to June 2005, AirAsia expects net profit to surge threefold to RM160 million on turnover of RM700 million.