AirAsia X downgraded after share price rally

CIMB Research reduced its target price for AirAsia X from 17 sen to 15 sen

KUALA LUMPUR: Affin Hwang Capital Research has downgraded long-haul budget carrier AirAsia X from Buy to Hold after the share price rally recently.

It said on Wednesday the airline remained in the black in 2Q16, primarily boosted by higher average fare and cheaper fuel price. Passenger growth also improved on stronger traffic from China and Australian markets.

“No change to our earnings forecast and target price of 47 sen, based on 10 times CY16 EPS. Key risk is sustained recovery in oil price,” it said. 

Affin Hwang Research said in 2Q16, AAX remained in the black, registering a core net profit RM20.9mil, a reversal from core net loss of RM105mil in 2Q15. 

“This takes 1H16 core net profit to RM106.5mil, accounting for 28% of our full year forecast. Our core net profit excludes forex losses/gain. This is mainly due to higher- than- expected increase in average fare (+34% on-year to RM526) as well as cheaper average fuel cost of US$59 a barrel (vs US$72 barrel),” it said.

The research house said AAX’s revenue in 2Q16 rose 35% on-year driven by: i) 71% increase in scheduled flight – passenger carried grew 27% on-year (frequency increase to Australia and commencement of new routes), load factor improved seven percentage points to 75% and base fare was up 34% on-year, (ii) 31% increase in ancillary revenue. 

As for ancillary revenue/passenger, it rose 2% on-year to RM134. AAX’s Revenue/ASK (RASK) grew by 15% on-year while cost/ASK (CASK) fell by 2% on-year on cheaper fuel. However, CASK (ex-fuel) grew by 1% on-year mainly on higher aircraft operating lease expense. 

“No change to our earnings forecast as we expect earnings in 2H16 to be seasonally stronger. However, given the recent rally in share price, we downgrade AAX to HOLD (from Buy previously) with an unchanged target price of 47 sen (based 10 times CY16EPS (industry average) 

“AAX has hedged 100% of its remaining quarters (2Q-4Q) in 2016 fuel consumption at US$54 a barrel and 28% of 2017 consumption at US$57 a barrel. Key risk to recommendation is sustained increase in jet fuel price,” it said.