Dubai – Mubasher: MubasherTrade Research said that it raised its fair value (FV) for UAE carrier Air Arabia by 26% to AED 2.06 per share and maintained its ‘Buy’ recommendation, according to a report published late Wednesday.

The low cost carrier’s net profits for Q2-15 stood at AED 146.3 million, marking a 14% year-on-year decline but beat MubasherTrade Research’s estimates (MTRe) of AED 111 million by 32% and consensus estimates of AED 127 million by 15%, the reported showed, adding that revenues were down 6% year-on-year to AED 860.2 million, missing MTRe of AED 963.5 million and market consensus of AED 968 million by around 11% each.

The Dubai-listed airline carried 1.8 million passengers during the quarter, a rise of % year-on-year and 7% below MTRe of 1.9 million. The carrier’s yields (total revenues/PAX) dropped 11% year-on-year to AED 478, 4% below MTRe’s AED 495.

Air Arabia’s management attributed this decline to market conditions coupled with a number of strategic investments made by the airline in H1-15 which will begin to fully deliver value in the near future, the report stated, adding that margins saw significant improvement in Q2-15 due to lower fuel costs.

Gross profit margin (excluding depreciation) jumped to 31.6% (MTRe: 26.7%) against 25.6% in Q2-14 and 26.1% in Q1-15.

In their previous report on the stock, MubasherTrade opted to remain conservative on the margins level owing to the swings prevailing in the last few quarters. However, it maintained its view that margins would continue to improve.

EBITDA jumped 42% year-on-year to AED 214.1 million, up 4% from MTRe of AED 205.8 million, implying an EBITDA margin of 24.9% (MTRe: 21.4%) versus 16.5% in Q2-14.

“On a reported basis, net profit margin (NPM) decreased to 17.0% versus 18.5% in Q2-14. However, excluding the effect of the AED 36.4 million of gains on derivatives recorded in Q2-15 and AED 65.1 million in Q2-14, clean profits would have grown by 6% year-on-year to AED 109.9 (in line with MTRe), implying a wider NPM of 12.8% (MTRe of 11.5%) versus 11.4% in Q2-14,” the research firm stated.

Air Arabia’s cost savings beat MubasherTrade’s estimates due to lower fuel prices and better market conditions with more room for further growth and expansion. This prompted the research firm to reiterate its positive view on the low cost carrier and maintain its ‘Buy/Moderate Risk’ view.