AirAsia X Bhd's (AAX) headline net profit YoY surged more than twenty-fold YoY to RM121.6m in 3QFY24, mainly due to foreign exchange (forex) gains resulted from the strengthening of Ringgit Malaysia against the US dollar. Adjusted for non-operating items, the cumulative 9M24 core net profit estimated at RM109.1m. The results were within consensus but above our full year estimates, at 75% and 85% of full year estimates, respectively. The discrepancies were mainly due to the profit-sharing entitled to Class A and Class B creditors, which has yet to be reflected. To recap, the Class A and Class B creditors are entitled to an annual profit-sharing mechanism based on 20% on the excess over RM300m of Earnings before Interest, taxes, depreciation, amortization and lease rentals (EBITDAR) for 4 years, from 2023 to 2026. Therefore, we maintain our earnings estimates. We believe AAX is well-positioned to capitalise on the growing travel demand across the region. As such, we maintain our Outperform call on AAX, with an unchanged target price of RM2.47 based on 7x FY25F EPS.

• 3QFY24 revenue increased by 23% YoY to RM795.0m, driven primarily by higher ticket sales and ancillary revenue. Revenue from scheduled flights and fuel surcharge rose YoY by 16.6% and 39.4%, respectively, mainly due to robust travel demand. AAX's traffic volume increased by 34% YoY to 1.08m passengers, with passenger load factor still solid at 84%, as management ramped up seat capacity through increased flight frequency, additional aircrafts, and continued network expansion. During the quarter, AAX launched flights to Changsha and Medina, while also reintroducing its Taipei-Osaka route. Ancillary revenue per passenger increased 4% YoY to RM247, driven by a rise in number of passengers carried and boosted by fine-tuning of its products, services and user experience.
• 3QFY24 EBITDA declined by 42.3% YoY to RM76.2m despite higher revenue, mainly due to higher maintenance & overhaul expenses and staff costs, in line with the ramp-up of operations. Maintenance & overhaul expenses increased by 52.9% due to a higher number of C-checks and inflated prices of spares, driven by a shortage of aircraft spares in the market. Staff costs increased by 35.4% YoY to RM68.1m, in line with higher flight allowances driven by increased in block hours.
• 4QFY24 likely to end stronger. AAX expects fares and load factors to remain strong going into the fourth quarter, driven by festive and seasonal demand. We understand that the Group's full reactivation of its 18-strong aircraft fleet is nearing completion, with only one plane remaining, which is expected to be completed by first quarter of 2025. The Group expects its dominant position and growth trajectory to sustain, supported by robust travel demand, the strengthening of the ringgit, full activation of its aircraft fleet and continued improvement in its cost structure.

Source: PublicInvest Research - 2 Dec 2024