The story of Airlines investing in each other

Air China (753:HK) Fair value: HK$11.5
Air China (753:HK) Rating: Outperform

AirAsia (AIRA:MK) Fair value: M$4.20
AirAsia (AIRA:MK) Fair value: Outperform

ANA Holdings (9202:JP) Fair value: JPY5200
ANA Holdings (9202:JP) Fair value: Outperform

Cathay Pacific (293:HK) Fair value: HK$14
Cathay Pacific (293:HK) Rating: Outperform

Singapore Airlines (SIA:SP) Fair value: S$12
Singapore Airlines (SIA:SP) Rating: Outperform

22nd January 2018, Asia Pacific – Asian airlines have stepped up their investments in other listed carriers and related businesses and non-Asian airlines have also invested in a handful of them in recent years. We review how much these stakes in listed companies are worth based on their current share prices.

CATHAY PACIFIC, AIRASIA BERHAD AND SINGAPORE AIRLINES HAVE THE MOST SUBSTANTIAL LISTED EQUITY INVESTMENTS

Overall, Cathay Pacific’s stake in Air China has been the most valuable so far, amounting to half of its market cap. This is followed by AirAsia Berhad and Singapore Airlines whose investments amount to one quarter of their market cap.

Air China, ANA Holdings, Thai Airways also have airline investments but they amount to less than 10% of these carriers’ own market cap.

Last but not least, the Gulf carriers Etihad and Qatar Airways as well as the US carriers Delta Air Lines and American Airlines have invested in a number of listed Asian airlines and we also assess the current valuation of these stakes in our report below.

 

CATHAY PACIFIC LOOKS UNDERVALUED CONSIDERING ITS STAKE IN AIR CHINA IS WORTH US$3.5B – HALF OF CATHAY’S OWN MARKET CAP

Cathay Pacific’s (293:HK) stock is looking undervalued considering the market valuation of its stake in Air China (753:HK). Following Air China’s 90% share price surge in the past year, Cathay Pacific’s 18.13% stake in Air China is now worth US$3.5B based on Air China’s current H share price. This amounts to 54% of Cathay Pacific’s own current market capitalisation of US$6.5B or HK$6.94 per Cathay Pacific share. See our report below for more details:

Air China surge adds US$1.6 Billion to Cathay Pacific valuation

Chart: Cathay Pacific’s current market capitalisation versus the value of its investment in Air China (US$B)

Chart: Cathay Pacific’s current market capitalisation versus the value of its investment in Air China (US$B)

 

THE IMPLIED MARKET VALUATION OF AIRASIA BERHAD’S STAKES IN THAI AIRASIA AND AIRASIA INDONESIA AMOUNTS TO US$887M – 27% OF AIRASIA BERHAD’S OWN MARKET CAP

AirAsia Berhad (AIRA:MK) owns a 45% and 47.71% stake in Thai AirAsia and AirAsia Indonesia respectively. The implied market valuation of AirAsia Berhad’s stakes in Thai AirAsia and AirAsia Indonesia are worth US$723m and US$164m based on our estimates and the current share prices of Asia Aviation (AAV:TB) and PT AirAsia Indonesia Tbk (CMPP:IJ).

Chart: AirAsia Berhad’s current market capitalisation versus the implied value of its investments in Thai AirAsia and AirAsia Indonesia (US$B)

Chart: AirAsia Berhad’s current market capitalisation versus the implied value of its investments in Thai AirAsia and AirAsia Indonesia (US$B)

 

SINGAPORE AIRLINES’ STAKES IN SIA ENGINEERING AND VIRGIN AUSTRALIA ARE WORTH US$2.5B – 25% OF SIA’S OWN MARKET CAP

Singapore Airlines (SIA:SP) has stakes in two listed aviation companies – a 77.8% stake in SIA Engineering (SIE:SP) and 20% stake in Virgin Australia (VAH:AU). Based on these two listed companies’ current share prices, Singapore Airlines’ stakes are worth US$2.1B and US$359m, amounting to 21% and 4% of Singapore Airlines’ own current market cap of US$9.9B.

Chart: Singapore Airlines’ current market capitalisation versus the value of its investments in Virgin Australia and SIA Engineering (US$B)

Chart: Singapore Airlines’ current market capitalisation versus the value of its investments in Virgin Australia and SIA Engineering (US$B)

 

AIR CHINA’S STAKES IN CATHAY PACIFIC AND SHANDONG AIRLINES ARE WORTH US$2.3B – SLIGHTLY BELOW 10% OF AIR CHINA’S OWN MARKET CAP

Air China (753:HK) owns a 29.99% stake in Cathay Pacific (293:HK) as well as a 22.8% stake in Shandong Airlines (200152:CH) and 49.4% stake in Shandong Aviation Group Corporation. These stakes are worth US$1.9B and US$348m respectively, amounting to slightly less than 10% of Air China’s own current market cap of US$24B.

Chart: Air China’s current market capitalisation versus the value of its investments in Cathay Pacific and Shandong Airlines (US$B)

Chart: Air China’s current market capitalisation versus the value of its investments in Cathay Pacific and Shandong Airlines (US$B)

 

ANA HOLDINGS AND THAI AIRWAYS HAVE ALSO INVESTED MINORITY STAKES IN OTHER SOUTH EAST ASIAN CARRIERS, AMOUNTING TO 2% OF THEIR OWN MARKET CAP

ANA Holdings (9202:JP) has an 8.77% stake in Vietnam Airlines (HVN:VN) which is worth US$269m, amounting to 2% of ANA Holdings’ own market cap of US$15B. Thai Airways (THAI:TB) has a 10.78% stake in Nok Airlines (NOK:TB) which is worth US$24m, amounting to 2% of Thai Airways’ own market cap of US$1.2B.

Chart: ANA Holdings’ current market capitalisation versus the implied value of its investment in Vietnam Airlines (US$B)

Chart: ANA Holdings’ current market capitalisation versus the implied value of its investment in Vietnam Airlines (US$B)

Chart: Thai Airways’ current market capitalisation versus the implied value of its investment in Nok Airlines (US$B)

Chart: Thai Airways’ current market capitalisation versus the implied value of its investment in Nok Airlines (US$B)

 

GULF CARRIERS ETIHAD AND QATAR AIRWAYS HAVE SIGNIFICANT INVESTMENTS IN ASIAN AIRLINES, AMOUNTING TO US$1.3B IN TOTAL

Etihad Airlines owns a 20.9% stake in Virgin Australia (VAH:AU) and 24% stake in Jet Airways (JETIN:IN) in the Asia Pacific region which are worth US$375m and US$339m respectively based on their current market cap. Qatar Airways, on the other hand, has a 9.61% stake in Cathay Pacific (293:HK) which is worth US$621m.

Chart: Value of Qatar Airways’ investment in Cathay Pacific and Etihad’s investments in Virgin Australia and Jet Airways (US$B)

Chart: Value of Qatar Airways’ investment in Cathay Pacific and Etihad’s investments in Virgin Australia and Jet Airways (US$B)

 

US CARRIERS HAVE ALSO INVESTED SMALL STAKES IN THE CHINESE AIRLINES, AMOUNTING TO ONLY 1% OF THEIR OWN MARKET CAP

Delta Air Lines (DAL:US) has a 3.22% stake in China Eastern Airlines (670:HK) which is worth US$379m based on China Eastern Airlines’ current H share price. This amounts to 1% of Delta Air Lines’ own market cap of US$43B. Meanwhile, American Airlines (AAL:US) has invested in a 2.76% stake in China Southern Airlines (1055:HK) which is worth US$304m based on China Southern Airlines’ current H share price. This amounts to 1% of American Airlines’ own market cap of US$28B.

Chart: Value of Delta Air Lines’ investment in China Eastern Airlines and American Airlines’ investment in China Southern Airlines (US$B)

Chart: Value of Delta Air Lines’ investment in China Eastern Airlines and American Airlines’ investment in China Southern Airlines (US$B)

Chart: Delta Air Lines and American Airlines’ current market capitalisation (US$B)

Chart: Delta Air Lines and American Airlines’ current market capitalisation (US$B)

Note: Stocks with upside of more than 10% based on our fair value are assigned an Outperform rating. Stocks with downside of more than 10% based on our fair value are assigned an Underperform rating. Stocks with upside or downside of less than 10% based on our fair value are assigned an In-line rating. These are Crucial Perspective’s proprietary rating classifications and by no means serve as investment recommendations.

 

Related Reports:

Cathay Pacific Airways (293:HK) Initiation Research Report 2017 – Cathay Pacific outlook to stay gloomy?

Cathay Pacific (293:HK) upgraded to Outperform: Takeover by Air China (753:HK) likely

Research Report: Japan Airlines (9201:JP) offers more upside than ANA (9202:JP)

Singapore Airlines Initiation Research Report 2017: Will SIA be a “sexy” stock again?

Air China Initiation Research Report 2017: Top choice among the Chinese airlines

China Eastern Airlines Initiation Research Report 2017: Rapid improvement but aggressive expansion risk abounds

China Southern Airlines Initiation Research Report 2017 – Strong domestic drivers tempered by funding needs

AirAsia (AIRA:MK) Initiation Research Report 2017 – Cost Leadership, Extensive Network & Strong Branding

 

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