KUALA LUMPUR: AirAsia X
’s core net loss for the nine months ended Sept 30, 2017 was narrower than expected, says CIMB Equities Research but it still retained its Reduce call for the long-haul low-cost carrier.
It said on Friday this was due to stronger-than-forecast yields, but underperformed consensus’s full-year profit forecast of RM153mil.
As the seasonally-strong 4Q17F alone could single-handedly deliver more than RM100ilm in core profits, it raised its FY17F core net profit forecast to RM105mil.
“We raise our target price to 28 sen, still based on one-time price-to-book value (P/BV), but rolling forward to end CY18.
“We maintain Reduce as AAX’s valuations remain unattractive, in our view. With a low single-digit core airline net profit margin, earnings risks remain high,” it said.
AAX delivered a core net profit of RM19.5mil in 3Q17, better than 3Q16’s RM5.7mil profit, as a result of a turnaround to profits at Indonesia AAX, partially offset by lower earnings at Malaysia AAX and Thailand AAX.
For 9M17, AAX’s core net loss was RM3mil, against RM80mil profits for 9M16, as MAAX fell into losses as a result of higher costs and the weaker ringgit, which more than offset higher revenue.
AAX’s reported net loss of RM43mil in 3Q17 was due to a RM50mil exceptional doubtful debts provision on previous wet-lease revenues.
MAAX’s 3Q17 yields were higher on-year, reversing the on-year declines seen during 1H17, as inbound China traffic has somewhat recovered.
This is on top of higher on-year loads and ASK capacity growth, allowing MAAX to deliver strong revenue growth.
Despite this, MAAX’s core profits have been weaker as a result of higher oil prices, the weaker ringgit, and higher staff and maintenance costs.
MAAX’s maintenance costs jumped in 3Q17 due to several incidents involving its engines, but this may be recoverable from Rolls-Royce.
TAAX’s earnings performance has been much the same compared to last year, as higher passenger traffic and yields have been offset by higher marketing costs.
But IAAX did considerably better after it introduced the Bali-KL-Mumbai and Bali-Narita flights in May, and after cancelling previous loss-making flights from Bali to Australia.
Despite not taking delivery of any aircraft in 2017F, AAX has been able to grow ASK capacity by maximising the utilisation of its planes.
“In 2018F, AAX is planning to take delivery of up to nine A330ceo operating leases (three for MAAX, four for TAAX, and up to two for IAAX) to drive more capacity growth.
“This will increase MAAX’s fleet from 22 to 25, TAAX from six to 10, and IAAX from two to a maximum of four. In 2019F, AAX may receive up to seven A330neo deliveries from Airbus.
“MAAX is planning to fly to Jeju 4x weekly from Dec 2017, and to Jaipur and Zhengzhou 4x weekly each from Feb 2018. One or two more new routes may be introduced, and MAAX is also taking back Male from AirAsia
. MAAX’s forward bookings and yields in 1Q18F look stronger on-year.
“Meanwhile, TAAX is planning capacity expansion to Japan, South Korea and China, to take advantage of the lifting of Thailand’s safety ratings.
“Fleet growth will help the AAX group to capitalise on opportunities to grow its market share, but this may require upfront investment that may prevent AAX from raising yields to cover potentially higher fuel costs.
“We are assuming an average jet fuel price of US$70/bbl in FY18F, vs. US$63.60/bbl in FY17F.
“While AAX hedged almost 80% of its jet fuel needs in FY17F, FY18F hedging is quite light at less than 10%. On balance, we expect AAX to deliver marginally weaker core earnings in FY18F on a mix of positives and negatives,” it said.