AIRASIA X BHD
Impact on CPO price to be offset by higher crude oil prices
By MIDF Research
Neutral (downgrade)
Target price: 26 sen (from 40 sen)
AIRASIA X Bhd’s (AAX) net profit slumped into the red in the first half of the financial year 2018 (1H18) as a result of elevated fuel cost. Fuel price came in, on average, 33.7% year-on-year (y-o-y) higher from US$54.6bil since December 2017. This was largely attributed to the anticipated US sanctions on Iranian oil exports, shale bottlenecks and Venezuelan turmoil.
“As such, we are expecting the price remain volatile,” the research house said.
Fuel consumption accounted for the largest portion of the group’s overall expenses at 35%-38%.
AAX’s cost structure remains a challenge due to the fact that despite its attempt to further squeeze out savings from ex-fuel costs, fuel price increase remains a major encumbrance to earnings.
Analysts expect the group to remain under pressure in the near term as the move to increase yield continues to be challenging.
New routes are also given allowance by the research house, as fare prices are typically given heavy discounts.
“Although this is positive to enhance presence and connectivity, we have to be cognizant of the short-term pressure it has on seat sales revenue,” analysts said.
The current environment serves as a proving ground for AAX to firm up its long-haul low-cost business model.
Its ability to sustain earnings in the long run would be largely driven by the continuous improvement in cost structures and the to Target price: LPI Capital staged a rebound in the third quarter of the financial year 2018 (3Q18) net profit, rising by almost 40% quarter-on-quarter (q-oq) though on a year-on-year (y-o-y) was flat.