AirAsia X eyes Hawaii after getting FAA nod to fly to US
KUALA LUMPUR: Public Invest Research has downgraded AirAsia X
to neutral due to limited upside to its revised target price of 36 sen.
It said on Wednesday the target price was based on 1.6 times price-to-book value (P/BV) as it rolled forward to FY17 valuations.
“We met with the investor relations team of AAX to discuss on its turnaround progress for FY16. We expect AAX to have a good start for its 1QFY16 due to seasonally stronger quarter. However, its share price has surged by 67.4% since our upgrade on Jan 28, 2016,” it said.
Public Invest Research said although it anticipates the low-cost medium haul carrier to turn around by this year attributable to operational efficiency and lower fuel cost, “we believe this has already been priced in”.
Despite lower seats capacity (ASK) in FY15 following its strategy to avoid overcapacity and aggressive fare competition from Malaysia Airlines, AAX recorded a stronger yields in the 2H of the year, which is an indication of a more rational pricing in the industry.
Apart from Malaysia Airlines cutting capacity in 3QFY15 onwards, recent move by Malindo Air to KLIA terminal as a full service airline is benefitting AAX and suggesting a yields upside improvement going forward.
“AAX expects to have 4 aircraft delivery in FY16, which two of the aircraft was deferred from last year. Three of the aircraft are expected to be allocated to Malaysia (MAAX), and one will be for Thailand (TAAX).
“There will be no aircraft delivery expected for FY17, to improve their cash flow position and capacity management, and the new A330 NEOs will only be delivered in the 2HFY18,” it said.
During the first quarter, AAX launched two new routes, the first was to New Delhi, India in February 2016 and Auckland, New Zealand in March 2016.
“AAX is also looking at adding capacity in China, Tehran and plans to increase frequencies in its Australian market in 2HFY16, taking advantage from the peak season in China and Australia.
“Meanwhile, the Hawaiian route is expected to be operational in FY17, as the route is still in the midst of acquiring approval. By having these new routes, we anticipate AAX to have some growth in its yields and at the same time improving its connectivity to AirAsia short-haul operations,” it said.
Public Invest Research said AAX has hedged 100% of its fuel cost for FY16 at an average of US$54 a barrel.
“We believe this strategy will help AAX to effectively control and manage the fuel costs in its attempt to turnaround.
“Compared to an average fuel cost of US$75 in FY15, we expect AAX to improve its operational profits in FY16 as 32% of its operating expenses is related to aircraft fuel expenses,” it said.
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