AST sustained its net profit of $3m in 1H09 despite the weak travel industry. 1Q09 earnings were in line with our expectation. Despite a revenue growth of 8.7% yoy, earnings turned in flat due to rising cost of services, depreciation and finance costs. The group declared an interim dividend of 0.9 cent per share, which amounts to a 58% payout.

The group’s online sales model has proven to be resilient evident in its improved room nights and airtickets growth. AST has achieved a 6% growth in room nights and 227% growth in air ticket sales in 1H09. In fact monthly room nights has been rising, up 10% in 2Q vesus 3% in 1Q, debunking the trend of weakening tourism. This affirms the resilience of the online travel segment and the appeal of AST’s fully integrated on-line booking engine where customers get to enjoy exclusive promotions.

While the group envisages that demand in the tourism industry could get worse in 2HFY09 amid the possible flu pandemic and political instability in some of its core destinations, it has taken steps to mitigate these adversities. AST will expand its hotel destinations footprint and develop new products. Collaborations with its exclusive hotel partners (near 5000 exclusive hotel contracts) to offer attractive promotions and special rates will also attract visitorships.

The group has recently added a video library of more than 7000 hours of travel programmes and destination footages. With this library, it plans to add and produce mini destination videos from the footages to promote awareness of the destinations and its brand. This could be a good source of income in the long haul. In addition, its collaborations with renowned high traffic websites (such as YaHoo and Jobstreet.com) are cost-efficient means to attract new customers.

We have reduced our earnings estimates by 8% to reflect lower room rates due to promotions. AST’s resilient earnings against the downturn affirm its sound business model that maximises the value of its proprietary, fully-integrated on-line reservation system. In our opinion, AST could be a fantastic recovery play, as its strong online platform is expected to generate significant earnings growth when consumer demand for travel fully recovers. Reiterate Buy!