CIMB Research reduced its target price for AirAsia X from 17 sen to 15 sen
KUALA LUMPUR: CIMB Equities Research forecasts AirAsia X
(AAX) group’s losses to decline further to RM175mil in FY16, due to even lower oil prices, the beneficial full-year impact of the Malaysia Airlines Bhd capacity cuts, and the improving flow of Chinese tourists into Malaysia.
However, the research house had on Thursday cautioned that several headwinds could prevent recovery to profits.
“We are worried about Malindo’s planned expansion into medium-haul routes, despite operating only narrow body planes. It is already flying to Delhi and Perth, in competition with AAX, and is planning to fly to Taipei, which is AAX’s most profitable route.
“In addition, one-stop flights to South Korea and Japan via Taipei, and one-stop flights to Brisbane and Melbourne via Bali are being planned for 2H16,” it said.
CIMB Research said the full-year impact from Malindo’s expansion in 2H16 will be felt by AAX in FY17.
AAX is planning ASK expansion in excess of 20% this year, including the recently launched Gold Coast-Auckland route and a possible Osaka-Hawaii route from 2Q, which will likely require promotional fares in the 12-18 month gestation period.
AAX will also scale back low-risk wet-leasing operations, which was used in FY15 to absorb excess capacity, by expanding its scheduled flights this year, which are inherently more risky.
“We view AAX’s aggressive ASK growth this year with some trepidation,” it said as it reduce its target price from 17 sen to 15 sen. The last traded price was 31 sen.
CIMB Research pointed out AAX’s business model which relies on medium- to long-haul flying, was always a much riskier one compared to AirAsia’s short-haul model.
Even so, AAX had experienced substantially more difficulties than anticipated at the time of its IPO in 2013. This included heavy competition from MAS on Australian routes from late-2013 to Aug 2015, the MH370 and QZ8501 accidents in 2014, and unfavourable macro factors such as the weakening of the ringgit from 2H14 onwards.
The AAX group’s core net loss (including TAAX and IAAX) rose from RM38mil in FY13 to a staggering RM704mil in FY14, before shrinking to a still-significant loss of RM512mil in FY15.
The FY15 improvement was due to lower oil prices, route cuts and capacity reductions by AAX, and a better competitive environment after MAS cut capacity to Taipei, Shanghai, and Australia from Aug 2015.
“Despite this, AAX still lost more than RM100mil in 3Q15 and 4Q15 at the core level, so it is not yet out of the woods,” it said.
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