|OIL IS CHEAP and airlines would be a prime beneficiary.
But investors are looking beyond cheap oil, according to a CIMB report today.
"Fund managers remain disinterested in full-service carriers (FSCs) despite attractive oil price dynamics, because of fears over excessive competition and declining yields," wrote analyst Raymond Yap after returning from a marketing trip in Kuala Lumpur, Singapore and Hong Kong.
"Questions were very limited, suggesting lack of focus on names like Cathay or SIA. Clients felt that tough stock market conditions meant that investment banks that underpinned demand in business class cabins would scale back demand.
Low-cost carriers (LCCs), however, were a bit more on fund managers' minds with interest in Cebu Air and Asia Aviation (AAV), which were noted as some of the best performers in the LCC space.
Some funds preferred to stay away from AAV because of its expensive valuations.
"We encountered rather apathetic investor sentiment towards AirAsia, with continuing concerns over its ability to turn around Indonesia and Philippines."
In the air transport space, airports stood out and is a favoured sector.
"Investors continued to be interested in airports, with AOT most frequently mentioned, but also Shanghai International Airport and Sydney Airport, all beneficiaries of the boom in Chinese outbound travel. Malaysia Airports, unfortunately, was excluded from this gentleman’s club, due to its poor earnings dynamics.
"One of the conundrums facing investors was how to value AOT and what the appropriate valuation level should be, given how well the stock price has already performed," said Mr Yap.
Full report here.