Gas Malaysia 'hold', AirAsia X 'sell'


  • Business,Analyst Reports,Stocks Analysis,Stocks,Earnings
  • Wednesday, 19 Jul 2017

Gas Malaysia Bhd

By Maybank IB Research

Hold (maintained)

Target price: RM3.20

THE upcoming base tariff hike for natural gas in the second half of this year (2H17) is expected to help Gas Malaysia Bhd to recover the gas costs it incurred in the second quarter of 2017.

Last week, Gas Malaysia revised up the natural gas tariff for Peninsular Malaysia’s non-power sector to an average base tariff of RM28.05 per one million British thermal units (MMBtu).

This was following the approval from the Energy Commission, to effect the revision for the six-month period.

Despite the 5% increase in average base tariff for 2H17, a government subsidy will lead to lower effective tariff rates for all tariff categories for the period from July 1 to Dec 31, 2017, compared with the existing rates.

Maybank IB Research said that the confirmation of the scheduled 2H17 base tariff hike again reflected a functional tariff framework.

“While the average base tariff has been increased by 5%, Gas Malaysia also announced a tariff rebate of RM1.59 per mmBTU for 2H17. Only RM0.40 per mmBTU was offered as rebate in the first half of this year.

“This means the average net tariff of RM26.46 per mmBTU for 2H17 represents a mere 0.57% increase,” said the research house in a note.

Maybank IB Research noted that Gas Malaysia had accumulated RM98mil of buffer (in the form of gas-cost over-recoveries) as at end-2016.

AirAsia X Bhd

By Affin Hwang Capital Research

Sell (downgraded)

Target price: RM0.27

AFFIN Hwang Capital Research has taken a cautious stance on AirAsia X Bhd’s expected earnings in the second half of 2017 (2H17), amid the low-fare airline’s positive take on its performance.

The research house has also reduced its earnings forecasts for AirAsia X significantly by 32% to 66% for the financial years of 2017 to 2019 (FY17-19), primarily attributed to higher jet fuel prices, heightened competition, higher operating expenses and weaker ringgit.

“AirAsia X remains positive on the group’s earnings performance in 2H17. But we are more cautious due to its disappointing first quarter results.

In line with AirAsia X’s pursuit to increase its capacity on core existing routes, average base fare has been reduced by 4% on a year-on-year (y-o-y) comparison, from RM566 in the first quarter of 2016 to RM544 in the first quarter of this year.

In addition, the low cost airline is also planning to add new routes to China and Korea by the end of this year, following the healthy response to its newly-launched KL-Osaka-Honolulu route.

“While we expect revenue to grow by 11.6% y-o-y in 2017 and 9.1% y-o-y in 2018, we have lowered our net profit forecasts for 2017 and 2018 by 65.6% and 56.4% respectively due to higher operating expenses,” said the research unit.

AirAsia X has also experienced a larger cost base in recent times, following the raise of its employees’ wages. The airline’s staff cost increased significantly by 40.3% y-o-y in the first quarter of 2017, as the company moves to retain its talent amid the current shortage of pilots.

“Aircraft fuel expenses and aircraft operating lease expenses were also up 55.4% and 17.7% y-o-y respectively in the first quarter, resulting in an increase of 29.4% in overall operating expenses in the first quarter of 2017,” said Affin Hwang Capital Research.


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