AirAsia X eyes Hawaii after getting FAA nod to fly to US
CIMB Research upped AirAsia X
target price from 15 sen to 17 but was cautious on outlook. This was also sharply lower than the last traded price of 40 sen.
CIMB Research said after disappointing its expectations last quarter by reporting a 4Q15 core loss of RM108mil (US$26mil), AAX turned the tables by reporting an excellent 1Q16 core profit of RM87mil (US$21mil).
“It is very unusual for the 1Q to do better than the 4Q but AAX did it this time. Half of the on-quarter earnings turnaround can be attributed to lower oil prices (which was anticipated) and the remainder was due to sequentially stronger revenue per km (RPK) demand and yields (which was better than expected),” it said.
AAX’s 1Q16 RPK demand rose 18.8% yoy against ASK capacity growth of just 6.9%, leading to an 8%-pt increase in load factor to 81.7%. In part, AAX was assisted by the low demand base in 1Q15 caused by the QZ8501 crash but there was no mistaking a real sequential recovery in demand. Yields rose 8% yoy while RASK rose an even higher 20% as AAX probably benefited from the lagged impact of the Malaysia Airlines Bhd capacity cuts to Australia and Greater China that took effect in August 2015.
Traffic from China and Australia rose 12-13% yoy during 1Q16 but AAX guided for a 30% rise in Chinese pax for FY16 and a 40% increase in Aussie pax. Chinese tourists are coming in greater numbers after the visa waiver came into effect in March and AAX is aiding the process by increasing Beijing and Shanghai frequencies from seven times to 11 times weekly in July and will launch flights to new secondary Chinese cities in 2H16.
CIMB Research said Perth, Melbourne, and Sydney will see the restoration of double-daily flights and Gold Coast will be increased from 7x to 11x weekly. AAX also noted how flight retimings have helped AAX increase Fly-Thru connecting traffic between ASEAN/China/India and Australia. The target is to increase Fly-Thru traffic by 20% this year.
“We think that the 1Q16 profits should not be extrapolated because AAX only grew its ASK by 6.9% last quarter, which means that capacity growth will be accelerated in the coming months to reach its full-year target of 20% ASK growth. Yields will likely have to be lowered to fill up the available space. Unconventional routes, like to Mauritius (from October) and to Hawaii (launch date undetermined), will have gestation periods. Also, Malindo may launch into Taipei in 2H16, challenging AAX on its most profitable route.
“With high forecast risk and a history of extreme earnings volatility, P/E or EV/EBITDA valuations are difficult to employ so we fall back to one time P/BV as our valuation basis,” said the research house.
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