KUALA LUMPUR: PublicInvest Research is retaining its Neutral recommendation for AirAsia X but at a lower target price of 54 sen from 69 sen previously.
It said on Tuesday it rolled over its discounted cashflow (DCF) valuation and adjusted the fleet size accordingly for FY15 onwards as most aircraft deliveries will be deployed to associates.
“Since the company announced its rights issue plans and released its FY14 results in February, AirAsia X’s share price has been under pressure, plunging 27% from the last price before announcement,” it pointed out.
PublicInvest Research said it recently met with Datuk Kamarudin Meranun, group CEO of AAX to get updates on the airline industry as well as the group’s near to medium term business plans.
AAX expects operating profit by end of FY15 while it is building on ancillary income to boost revenue.
AAX is also improving integration within AirAsia Group to achieve better economies of scale, and it is exploring new routes to drive new sales.
“AAX took initiative to strengthen its charter and wet leases businesses to help improve its revenue. In FY14, the charters/wet leases income was 3x higher than FY13, which mitigated lower income from scheduled flights.
“The group emphasised on its strategy to boost up its ancillary income such as duty free, which has contribute 36% of revenue in FY14. Ancillary income has grown from RM292.8mil in FY10 to RM1.05bil in FY14 (four-year CAGR of 37.5%).
“Nevertheless, we expect 1HFY15 will still be a challenging period for the Group due to seasonality factor. The group is in the midst of streamlining its costs by merging ground operations and engineering within the AirAsia Group, terminating loss-making routes, namely Adelaide and Nagoya and benefiting from lower fuel price,” it said.
AAX is currently exploring new routes to Europe and Hawaii. It was reported recently the routes are expected to commence in December.
According to Tan Sri Tony Fernandes, AAX had started the application process to fly to Hawaii. By having these new routes, “we anticipate AAX to improve its yields, but will incur start-up loss at the early stage”.
PublicInvest Research said AAX has proposed to raise up to RM395mil via rights issue. At this low price level, shareholders will likely subscribe to the rights issue to avoid any dilution of shareholding percentage.