AIRASIA X BHD

PUBLICINVEST Research makes target price amendments to reflect limited yield growth and higher US dollar-related operational cost due to the weakening ringgit, while maintaining a hold position.

Although AirAsia X’s (AAX) preliminary operating statistics were within PublicInvest Research expectations, due to a seasonally weaker quarter, the research firm believes the coming quarter results will not be on par with the first quarter of 2017’s (1Q17). This is reflected in PublicInvest numbers: financial years 2017-2019 forecast (FY17-19F) earnings are cut by an average of 23%, average fare estimate is reduced, aircraft operating lease expenses are increased by an average of 2.2% for FY18-19F. The cumulative effect is lowering the target price from 53 to 41 sen, based on 8 times the FY18F’s earnings per share.

However, this is not to say that AAX has made no cost efficiency changes. AAX Malaysia’s (MAAX) available seat km (ASK) slightly increased by 1.5% quarter-on-quarter to 8.45 million, attributable to the increased frequency in two routes (KL-Shanghai and Osaka) during 1Q17. It also added a new route to Honolulu towards the end of the quarter. For the first half of the financial year 2017 (1H17), these operational numbers came in within PublicInvest expectations. MAAX load was at a commendable level of 80.5%, compared to 75.3% in 2Q16.

On the associates, AAX Thailand reported strong load of 92% in 2Q17 (vs 2Q16: 89%).

Despite no new aircraft delivery until end2018, AAX plans to expand further into China markets to support its capacity growth. Malaysia Airlines recently citing its hopes to expand to new routes to China and North Asia, resulting in PublicInvest believing that AAX’s yield growth going forward could be limited. Nevertheless, it is predicted that the impact will be lower than in previous years as Malaysia Airlines is also in the midst of restoring profitability. Therefore, PublicInvest Research maintains its neutral position.