Rising opex expands Capital A’s losses

Rising operating costs weighed on Capital A Bhd’s (Capital A) financial performance with its fourth quarter of the financial year 2023 (4QFY23) and overall FY23 results reaching a loss after tax, amortisation and minority interest(LATAMI) of -RM585.1 million and -RM696 million respectively.

In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that its core losses widened quarter-on-quarter and year-onyear due to increased operating expenses. Nevertheless, it also noted that with 87 per cent of the fleet in operation, capacity rebounded to 76 per cent of 2019 levels.

BigPay remains the sole nonaviation entity facing losses, likely due to investments made for enhancement.

“Despite this, losses have been narrowing, and management foresees it becoming profitable by year-end. Sequentially, revenue increased by +14.8 per cent q-o-q following the reactivation of five additional aircraft,” it said.

Looking ahead, the research team said, the elevated maintenance costs linked to aircraft reactivation could start to normalise later this year.

“Management plans to gradually reactivate 14 more aircraft throughout FY24. Their target is to recover 83 per cent of pre-Covid capacity levels by 1QFY24 and at least 90 per cent by end-FY24.

“The load factor is projected to remain healthy at about 88 per cent or higher, exceeding pre-Covid levels of 84 per cent. The group foresees a favourable competitive environment, with reduced competition in Malaysia following the exit of MyAirline.

“The focus is on scaling up domestic capacity, while internationally, they plan to expand capacity on routes to India and China, capitalising on visa-free arrangements,” it added.

All in, MIDF Research maintained its ‘neutral’ view on the stock. It also made several adjustments to its forecast earnings, primarily by increasing operating costs, updating the full-year figures, and aligning estimates with Capital A’s guidance.

It noted that the primary catalyst remains the potential for a faster-than-expected restoration of network and seat capacity to pre-Covid levels.