INVESTMENT HIGHLIGHTS

• 2QFY18 ASK grew +6.0%yoy

• ASK growth from net frequency addition

• Load factor up +1pptsyoy to 81.0%

• Target price of RM0.47 unchanged

2QFY18 ASK grew +6.0%yoy. During the quarter, AirAsiaX added capacity (ASK) of +6.0%yoy to 8,957m. Accordingly, RPK followed suit at a slightly higher rate of +7.0%yoy to 7,281mm.

ASK grew, supported by net addition of frequencies. ASK continued to grow in 2QFY18 from added frequencies in two routes namely Taipei and Busan, with the same fleet capacity at 22 A330s as of June 2018. While some destinations saw frequency additions, we believe that ASK growth was moderated by frequency reduction to Beijing and withdrawal from Tehran.

Load Factor recorded at 81.0%. In 2QFY18, the company’s load factor inched higher by +1.0ppts yoy from 80.0% in the same period last year. We believe this could be due to better demand in core markets such as Taipei, hence the higher frequency. In terms of overall passenger growth in the quarter, it handled +13.0%yoy higher volumes. In total, +13.2% more passengers in 1HFY18 were carried by the company.

AirAsiaX Thailand riding on strong demand. Meanwhile, AirAsiaX Thailand’s load factor remained healthy at 91.0%, despite being marginally lower by -1ppts yoy from the same period last year. Growth in passengers maintained at a strong pace of +25.0%yoy, coming from the increase in frequencies for certain routes, with fleet size increased to seven. We believe the addition of another aircraft is necessary, given the strong travel demand. Recall that passengers carried in 1HFY18 grew at an average of +22.0%yoy.

Maintain our BUY call. We observed that the 2QFY18 operational fronts have been strong which could signal another strong quarter for AAX. However, we are cognizant that there may be a few headwinds including oil prices which have averaged +25.7% higher since the beginning of the year. Recall that fuel cost accounted for about 35.0% of total opex. Nonetheless, we remain optimistic anchored on its long-term strategic plan of 1) further reduction in CASK following expansion plan; 2) stronger focus in core markets. As such, we maintain our BUY call with an unchanged TP of RM0.47 pegging its EPS to PE of 8.5x.

Source: MIDF Research - 27 Jul 2018