9MFY20 Core Net Loss (CNL) came in at RM2,656m compared to our/consensus net loss estimates of RM1,957m/RM2,389m for the full-year. The results came in below our expectation on lower-thanexpected passengers carried amidst sharply reduced capacity. This, in addition to larger-than-expected CASK led us to widen our loss forecast from RM1,957m to RM3,038m for FY20. No changes to our FY21E earnings. However, we maintain our TP of RM0.38 based on 1.07x FY21E BVPS. Reiterate UP.

YoY, 3QFY20 revenue contracted 87% amid the unprecedented worldwide travel restrictions due to the Covid-19 pandemic. 3QFY20 group consolidated AOCs (Malaysia, Indonesia and Philippines) reported 18ppt decline in load factor to 66% on the back of a sharply reduced capacity of 81% to just 2.8m seats. This was also reflected in an 86% decline in ASK. For 3QFY20, the number of passengers carried was down 85% YoY. The average load factor was at a reasonable 66%, with Malaysia hitting a load factor of 70% in September while operating only 30% of the fleet. Average fare was higher as more charter flights were flown, which generally generates higher average fare per passenger. AirAsia Malaysia operated 52% of its domestic capacity in September, in comparison to 40% in July 2020 as travel demand has been on an upward trajectory since 2Q with the easing of restrictions on interstate travel. While capacity has been again reduced in October 2020 given the conditional movement control order, AirAsia Malaysia is striving to recover to 60% of its pre-pandemic domestic capacity by 4Q. AirAsia Indonesia posted a load factor of 49% for 3Q2020, down by 36ppt YoY and has gradually picked up since the resumption of services on 19 June but remained below pre-pandemic level. While AirAsia Indonesia carried only 4% of passengers in 3QFY20. AirAsia Thailand demonstrated a strong rebound in operations in tandem with solid domestic demand. In September, AirAsia Thailand operated at 96% of pre-pandemic domestic capacity, as compared to 59% in July 2020. In 3QFY20, AirAsia Thailand carried more than 1.8m passengers, recording a solid load factor of 65%. AirAsia Thailand is aiming to operate at more than pre-pandemic domestic capacity in 4Q. Group CASK (+>200%) rose faster than RASK (+2%) due to fuel hedging losses. This brings 3QFY20 core net loss to RM846m. 9MFY20 revenue fell 70%, in tandem with lower passenger growth (-70%). Coupled with higher CASK due to fuel hedge losses as prices fell on the back of lower demand of oil, higher maintenance and depreciation and lease liabilities interest as a higher number of aircraft was on operating lease, this brings 9MFY20 CNL to RM2,656m compared to a core net profit of RM381m in 9MFY19.

Cut our FY20E assumptions and hence forecast a net loss of RM3,038m instead of RM1,957m. We reduced FY20E passenger capacity by 60%.

Outlook. Over the medium term, we expect AirAsia to face tough a operating environment already derailed by widespread travel disruptions due to COVID-19, and hits from lower load factor. The group have applied for bank loans in their respective operating countries to shore up liquidity to help fund working capital and repayment of lease liabilities, which stand at RM12.2b as at 30 June 2020. In addition, works are underway to raise capital via borrowings and rights issue.

Reiterate UP. However, we maintain our TP of RM0.38 based on 1.07x (previously 0.56x) FY21E BVPS. Reiterate UP.

Risks include higher-than-expected RASK, lower-than-expected CASK and better-than-expected load factor.

Source: Kenanga Research - 25 Nov 2020