Capital A Bhd's (Capital A) 3QFY24 headline net profit surged to RM1.6bn, compared to a net loss of RM102.7m in 3QFY23, mainly due to foreign exchange (forex) gains. Adjusted for non-operating items, Capital A will report a cumulative 9MFY24 core net loss however, estimated at RM367.9m. While the results are below our and consensus full year estimates, we see stronger prospects moving forward, supported by a stronger Ringgit, lower jet fuel prices and robust air travel demand. With the Group's restructuring plan outlining a clear pathway to turn around its operations, we believe Capital A is well-positioned to capitalise on the growing travel demand across the region. Therefore, we maintain our earnings estimates and Outperform call on Capital A, with target price of RM1.57 also unchanged.

• 3QFY24 Group revenue increased by 16.6% YoY to RM4.9bn, mainly driven by higher contribution from Aviation, Logistic and Asia Digital Engineering (ADE). Revenue from Aviation rose by 14.9% YoY to RM4.5bn, mainly due to upsurge in domestic and international travel. The Logistic division's revenue increased by 51.8% YoY to RM286.7m, driven mainly by a 31% YoY increase in tonnage as well as a 113% YoY growth in delivery parcels moved. ADE also posted a 12.0% YoY increase to RM184.2m, mainly owing to increasing number of hangar checks and aircraft checks. However, this was partly offset by lower revenue from AirAsia Move, which declined by 25.0% YoY due to pricing challenges and the impact of the Crowdstrike incident.
• 3QFY24 EBITDA improved by 42.8% YoY to RM639.8m, mainly driven by profit contribution from the Aviation Group and Teleport. The Aviation Group's EBITDA increased by 50.0% YoY to RM577.8m in line with increased revenue, supported by a higher number of passengers and average fares. Teleport's EBITDA turned positive this quarter, recording RM21.8m, compared to a loss of RM3.6m. However, this was partly offset by lower contribution from Capital Aviation Services and ADE, which declined YoY by 42.8% and 30.8%, respectively, due to increased headcount to support the expanded capacity.
• Outlook. The Group expects fares and load factors to remain strong in the fourth quarter, driven by festive and seasonal demand. The Aviation Group intends to expand its fleet with the introduction of four new A321neo aircraft in Malaysia and one in Thailand. As the disposal of its aviation business nears completion, the Group is actively reorganizing efforts to broaden relationships with third-party clients to diversify revenue streams and solidify its presence across all sectors.

Source: PublicInvest Research - 29 Nov 2024