AirAsia X (AAX) reported a headline net loss of RM11.9m for 2QFY22. As the financial year end of the Group has been changed from 31 Dec 2020 to 30 June 2021, we compare it with 4QFY20 (similar period last year ending Dec 30). Adjusted for non-recurring items, 2QFY22 core net loss of RM11.3m narrowed from a core net loss of RM389.6m and RM136.9m in 4QCY20 and 1QFY22 respectively. While results are below our expectation, we see stronger prospects moving forward with international borders gradually re-opening, strengthened further by its cargo-driven focus model. We like the turnaround story of the Group, though full value is only likely to be attained with shareholders going through the entire corporate exercise (including rights issue). We make no changes to our forecast and reiterate our Outperform call on AAX with unchanged TP of RM1.30 based on ex-all 4x EV/EBITDA of FY23E (after adjusting for Share Consolidation). 4x EV/EBITDA multiple is at the lower end of peer comparison.

• Revenue increase. During the quarter, revenue increased to RM119.3m (YoY: +65.7%, QoQ: 37.4%), mainly due to higher revenue from freight services and charter flights, with minimal contribution from scheduled flights as international air travel and border restrictions remained in force during the quarter. Revenue from freight services increased significantly to RM83.6m (YoY: >100, QoQ: +22.0%), representing 70% of total revenue for the quarter and reflective of its new focus on growing the cargo business, to be combined with the carrying of passengers to ensure all routes operated are profitable.

• Losses narrow. The Group’s core net loss narrowed to RM11.3m. While AAX continues to record losses due to suspension of scheduled flights, losses have narrowed due to higher revenue from freight services and charter flights, as well as lower operating costs. Operating expenses for 2QFY22 reduced by 28% compared to the previous quarter.

• The proposed debt restructuring will take effect upon lodgement of the Sanction Order with the Registrar of Companies of Malaysia, expected to take place in the coming weeks. The lodgement will mean that the scheme takes full legal effect, with the financial impact reflected in next quarter ended 31 March 2022. As a result of the lodgement, all liabilities of AAX that will be forgiven under the scheme will be credited back to the income statement, effectively reversing the impairments and provisions that have been made in the prior periods. The planned fund raising exercise will commence upon completion of the scheme.

• Outlook. The air cargo business has remained resilient even amid the pandemic with cargo demand expected to exceed pre-crisis (2019) levels by 13% this year (2022). Air cargo is now a new growth driver for the Group. AAX operated a total of three aircraft during the quarter and intends to add one plane a month, targeting to have full fleet operational by the end of 3Q CY22. Cargo and charter revenue is expected to continue to grow as more aircraft are progressively brought back into service, supplemented by scheduled flight revenue when international markets re-open.

Source: PublicInvest Research - 17 Feb 2022