ANA Holdings Earnings: Higher Costs Are Eating Into Recovery; Fair Value Cut 5% to JPY 3,290

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.