Company Reports

ANA’s March-quarter results were somewhat disappointing, in our view, leading to fiscal 2023 (ending March 2024) net profit that fell 5% short of our estimate. The March quarter saw a lesser disruption to capacity from the Pratt & Whitney GTF engine-related groundings, but lower yield and higher maintenance, personnel, and contract costs led to an operating loss of JPY 23.8 billion for the quarter. Overall, we raise our cost assumptions, leading to respective cuts of 8% and 6% to our fiscal 2024-25 net profit estimates. We now expect operating margin to average 9% over the two years, down from 10% in fiscal 2023, as costs catch up and operating leverage benefits abate. Our fair value estimate is reduced to JPY 3,290 per share from JPY 3,450, leaving the airline's stock in 4-star territory. Dividend per share of JPY 50 is positive, and above the JPY 30 originally targeted.

ANA Holdings’ full-service passenger airline operations should continue to dominate and underpin the group’s revenue and profit. Management is focused on expanding its international passenger services as it reestablishes its international trunk routes post-coronavirus. It expects Japan’s inbound tourism to continue to outpace outbound growth and anticipates that it will also need to provide services to inbound tourists to secondary locations in Japan beyond the current key portals of Tokyo and Osaka. To capture demand growth from inbound travel to Japan from Southeast Asia, ANA is launching the Air Japan brand. Air Japan is expected to compete with Singapore Airlines’ Scoot and Japan Airlines’ Zipair.

ANA's December-quarter results revealed robust yields with international passenger travel still recovering to the pre-COVID level. We raise our fiscal 2023 ending March 2024 net profit estimate by 9% to JPY 166 billion, which is 27% above ANA's revised guidance. After fiscal 2023, our projections are little changed. We still forecast a gradual decline in yields as global capacity normalizes, although inbound travel to Japan from China and Southeast Asia may help buffer the impact of increasing competition elsewhere. We think fiscal 2023 profitability represents peak profit for ANA these next few years. Our fair value estimate stays at JPY 3,450. We think ANA is still attractive at the current share price but the outlook for lower profits for the next few years limits positive reaction to the stellar results.

ANA Holdings’ full-service passenger airline operations should continue to dominate and underpin the group’s revenue and profit. Management is focused on expanding its international passenger services as it reestablishes its international trunk routes post-coronavirus. It expects Japan’s inbound tourism to continue to outpace outbound growth and anticipates that it will also need to provide services to inbound tourists to secondary locations in Japan beyond the current key portals of Tokyo and Osaka. To capture demand growth from inbound travel to Japan from Southeast Asia, ANA is launching the Air Japan brand. Air Japan is expected to compete with Singapore Airlines’ Scoot and Japan Airlines’ Zipair.

We initiate coverage of ANA Holdings with a no moat rating and fair value estimate of JPY 3,450. We expect ANA to post a strong recovery in earnings as passenger air travel continues to recover from coronavirus disruptions. However, we see this year as likely a peak-profit one given unusually high passenger yields as international passenger capacity and routes haven't fully recovered. As capacity normalizes, we expect yields to decline. As such we see earnings post-fiscal 2023 (ending March 2024) to hover around JPY 130 billion-JPY 144 billion. We think ANA is undervalued currently.

ANA Holdings’ full-service passenger airline operations should continue to dominate and underpin the group’s revenue and profit. Management is focused on expanding its international passenger services as it reestablishes its international trunk routes post-coronavirus. It expects Japan’s inbound tourism to continue to outpace outbound growth and anticipates that it will also need to provide services to inbound tourists to secondary locations in Japan beyond the current key portals of Tokyo and Osaka. To capture demand growth from inbound travel to Japan from Southeast Asia, ANA is launching the Air Japan brand. Air Japan is expected to compete with Singapore Airlines’ Scoot and Japan Airlines’ Zipair.