INVESTMENT HIGHLIGHTS

• 1QFY18 ASK grew +10.0%yoy

• ASK growth from increased frequency

• Load factor maintained at 84.0%

• Target price of RM0.46 unchanged

1QFY18 ASK grew +10.0%yoy. During the quarter, AirAsiaX added capacity (ASK) of +10.0%yoy. Accordingly, RPK followed the same trend, but at a slightly slower rate of +9.5%.

Increased frequency led to ASK growth. ASK continued to grow in 1QFY18 from added frequencies to two routes namely Hangzhou and Taipei, while fleet size remained at 22 A330s as of March 2018. According to the management, continuous frequency addition in Taipei and other Asia routes was in line with the company’s strategy to strengthen its North Asian market. Starting February this year, the company began flying to Maldives and Jaipur.

Load Factor recorded at 84.0%. In 1QFY18, the company maintained its healthy load factor at 84%, attributable to continued passenger growth of +13%yoy. Notably, the passenger growth was seen moving faster than the company’s RPK in 1QFY18, with growth of +9.5%. We opine this was partly due to the rotation of some capacity from Australia to emerging market in North Asia. Given that some routes were relatively new, discounted fares may have been placed, putting downward pressure to the average ticket price. However, we believe the move was strategic in attempt to reap larger market share in the new routes.

AirAsiaX Thailand continued to improve. While load factors stayed at 94.0% in 1QFY18, total passengers carried grew strongly by +19.0%. We attribute the increase to the addition of more frequencies in certain routes, with fleet size remained at six. Moving forward, AAX Thailand may potentially expand its fleet to ten aircrafts which will drive its ASK higher. Accordingly, this is expected to stimulate faster passenger growth, supported by the high demand market in Japan and Korea.

Maintain our BUY call. We expect that 1QFY18 earnings will be strong based on the healthy operating numbers. As such, we maintain our BUY call with an unchanged TP of RM0.46 pegging its FY18 EPS to a forward PER of 8.5x.

Source: MIDF Research - 27 Apr 2018