PublicInvest maintains neutral on AAX, reduces TP to 23 sen

  • Analyst Reports
  • Wednesday, 24 Oct 2018

KUALA LUMPUR: PublicInvest Research has cut its FY18-20F forecasts for AirAsia X Bhd due to adjustments for lower yield and higher fuel price assumptions.

The research house maintained its neutral recommendation and reduced its target price on the counter to 23 sen from 35 sen previously.

PublicInvest said AAX's strategy going forwards is to strengthen its core markets in North Asia and India after restructuring its routes to move away from countries where it only flies to once city.

It noted that AIRASIA India is expected to operate about 20 aircraft by end-2018 which will allow it to expand to international routes, in line with Indian regulations.

There are also plans for Thai AirAsia X to be listed by October 2019. TAAX, which is expected to receive up to four A330ceo aircraft by end-2018 plans to lease another three aircraft in 2019. The carrier may be looking to go to EUrope via Bangkok by 1H2019.

Meanwhile Indonesia AirAsia X has been suspended with one aircract returning to Malaysia while another will remain in Indonesia for Umrah charter.

Cost per average seat km (CASK) for 1HFY18 incrased 1.2% year-on-year due to higher fuel price and the weakening ringgit agains the US dollar. Excluding fuel, CASK for 1HFY18 fell 6% y-o-y.

PublicInvest noted that the current aircraft lease rate is very attractive due to the excess supply of aircraft in the market with the emergence of inexperienced lessors from China that offer lower rates. 

"AAX will lease the 12-year old A330ceo to support growth through short term leases (average six-year period)," it said, in light of earliest aircraft delivery from Airbus only expected from November to December 2019.

AirAsia is targeting an average seat km (ASK) growth of about 20% in 2019 for the group, mainly from expansions in TAAX. 

"Average base fare is expected to be depressed due to new route introductions.

"However, this will be cushioned by improved ancillary income owing to higher number of passengers carried, with targeted load of 83% Group-wide. 

"Fuel hedging remains low at 18% with an average cost of USD72/bbl in 2018 and 8-9% at an average fuel cost of USD88/89/bbl in 2019," said PublicInvest.
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