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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 6 Dec 2019, 9:18 AM

 

Airasia X Berhad - Irrational Competition To Continue

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AirAsia X (AAX) reported a net loss of RM230m in 3QFY19. This was mainly dragged by a one-off loss on disposal of sale and leaseback involving two aircraft amounting to RM18m, unrealized forex loss of RM81m, as well as deferred tax of RM72m. Sequentially, core net loss has narrowed to RM52.7m from RM114.1m reported in 2QFY19. However, for 9MFY19, core net loss widened to RM197m, above our and consensus’ expectations of a full-year net loss of RM182m. We are expecting better 4Q on healthier average base fare due to seasonally peak holiday period, hence we maintain our forecast for now. Nevertheless, we believe challenging operating environment of irrational competition in the local aviation industry would continue going forward, which could affect its yield. Thus, we maintain our Underperform call on AAX, with unchanged target price of RM0.14 (based on 1.4x P/BV of FY20F).

  • Lower YoY revenue due to capacity cut. Revenue fell 6.4% YoY to RM1.01bn in 3Q19 due to capacity realignment which saw a 3% YoY drop in seat capacity as it terminates single-route markets e.g. Kathmandu and Auckland. Passengers’ load stood at 81% (3Q18: 80%). Its unit passenger revenue in 3Q19 declined 2.5% YoY to RM624 (3Q18: RM640), but improved QoQ by 3.5% (2Q19: RM603). We understand that average base fare is trending higher YoY in 4Q19, supported by seasonally peak holiday period. For 9MFY19, revenue dropped 6.4% YoY to RM3.2bn due to lower passengers carried (-4.6%) and unit passenger revenue (-0.3%).
  • Improved cost efficiencies mainly due to lower fuel cost. For 3Q19, cost per average seat km (CASK) declined 17% YoY to 12.11 sen was mainly driven by lower average fuel price. Average fuel cost stood at USD73 per barrel (-20% YoY) in 3Q19, compared to USD91/bbl in 3Q18. This also was in the absence of one-off provision for doubtful debts for Indonesian associate in 3Q18 of RM138m, following its suspension of operations. Other cost savings initiatives are through digitalization across AirAsia Group network, renegotiation of foreign stations ground handling contracts and aircraft lease rates. We understand that at least 11 aircraft are under negotiation for lease rates reduction.
  • Fleet growth. For FY19, Malaysia (MAAX) remains with 24 aircraft. Meanwhile, Thailand (TAAX) is expecting two additional A330ceo aircraft through operating leases in December 2019, with current fleet size stood 12. Both MAAX and TAAX are scheduled to add two aircraft A330neo each in FY20, but expecting a delay from manufacturers to at least until 4QFY20.
  • Outlook. We believe yield will continue to be under pressure due to weaker Ringgit against USD, irrational competition in the local aviation industry and challenging macroeconomic environment. This however will partially off-set by its continuous cost savings efforts, better revenue management (through digitalization) and improve corporation with AirAsia Group e.g. expanding capacity using wide-body aircraft on AAGB routes that have airport slot constraints.

Source: PublicInvest Research - 14 Nov 2019

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