AirAsia X (AAX) reported a headline net loss of RM149.2m for 1QFY22. As the financial year end of the Group has been changed from 31 Dec 2020 to 30 June 2021, we compare it with 3QFY21 (similar period last year ending Sept 30). Adjusted for non-recurring items, 1QFY22 core net loss of RM136.9m narrowed from a core net loss of RM498.5m in 3QCY20, and broadly in line with core net loss of RM109.2m in the immediate preceding quarter. While results are below our expectation, we see stronger prospects going forward with the pandemic under better control and international borders gradually re-opening, and strengthened by its turnaround plan. We expect the financials of the Group to be on significantly stronger footing. We make no changes to our forecast and maintain our Outperform call on AAX with unchanged TP of RM0.13 based on 4x EV/EBITDA of FY23E.

• Revenue increase. During the quarter, revenue increase to RM99.3m (YoY: +65.7%, QoQ: 37.4%), mainly due to higher revenue from freight services, with minimal contribution from schedule and charter flight as international air travel and border restrictions remained in force during the quarter. Revenue from freight services increased materially to RM68.5m (YoY: >100, QoQ: +68.4%), representing 69% of total revenue for the quarter.

• Losses narrowed. The Group’s core net loss narrowed to RM136.9m. While AAX continues to record losses due to suspension of scheduled flight, losses have narrowed due to higher revenue from freight services, as well as lower operating costs. Operating expenses for 1QFY22 reduced by 40% compared to 3QCY20 (comparative period, calendar quarter ending Sept 30). The air cargo business has remained resilient amid the pandemic, as is now a new growth driver for the Group. Peer comparisons are highlighted in Table 1, evidence of the mitigating effects on the pandemic by the air cargo business.

• Outlook. The International Air Transport Association’s (IATA) latest outlook for the airline industry points toward global demand (measured in RPK) recovering steadily. While international demand is the slowest to recover owing to continuing restrictions on international borders, quarantine measures and traveller uncertainties, air cargo demand remains strong. International demand of the former is only expected to reach 44% of pre-crisis (2019) levels while cargo demand is expected to exceed pre-crisis (2019) levels by 13% in 2022. Robust air cargo demand continues to provide welcome support to airline revenue and bodes well for AAX.

Source: PublicInvest Research - 24 Nov 2021