AirAsia X (AAX) reported its biggest quarterly headline net loss of RM24.6bn for 6QFY21 on provision of RM23.7bn for the amount payable to creditors. Stripping out the provision, core net loss narrowed to RM109.2m against RM307.5m in the previous quarter. To recap, AAX has changed its financial year end from 31 Dec 2020 to 30 June 2021. Cumulative 18MFY21 core net loss of RM1.84bn was ahead of estimates, making up 93.4% and 94.4% of our and consensus 18- month net loss estimates respectively. The Group is still in the midst of its debt restructuring process and is looking to raise new equity funding to provide sufficient capital to restart its operations when international borders reopen. We keep estimates unchanged at this juncture pending completion of its restructuring exercise and retain our Underperform call on AAX with a target price of 1sen.

• Scheduled flights remain grounded – limited cargo and charter flights. AAX recorded 88% higher revenue of RM72.2m (+88% QoQ) for 6QFY21 as compared to RM38.4m in 5QFY21. The higher revenue is due to better contribution (of RM40.7m) from freight and cargo services, compared to RM13.2m in the previous quarter. While helpful to an extent, grounding of the Group’s scheduled flight operations due to international air travel and border restrictions continues to weigh heavily.
• Losses narrowed in 6QFY21. During the quarter, the Group posted headline net loss of RM24.6bn for 6QFY21 mainly due to provision of RM23.7bn made for the contractual liabilities to aircraft manufacturers and engine maintenance providers. Minus the provision, core net loss narrowed to RM109.2m (5QFY21: RM307.5m), aided by higher revenue, lower staff costs and reversal on the over-accruals of fuel hedging losses.
• Outlook. AAX continues to face severe liquidity constraints and all hopes are on a successful debt restructuring and new equity funding exercise from existing and new investors to provide sufficient capital to restart operations when international borders reopen. While the company’s shareholders have approved all the proposals at the recent EGM on 1 Jun 2021, the implementation of the fund raising exercise can only be undertaken upon successful completion of the proposed debt restructuring exercise. Final negotiations with lessors and creditors are still ongoing and the company hopes to hold the creditors’ meeting by end of Oct 21.

Source: PublicInvest Research - 28 Sept 2021