INVESTMENT HIGHLIGHTS

• ASK and RPK declined in 3QFY18

• Route rationalisation a strategic approach to optimise current capacity

• Load factor up +1ppts yoy to 80.0% yoy

• Maintain NEUTRAL with unchanged TP of RM0.26 per share

ASK and RPK declined in 3QFY18. During the quarter, AirAsiaX’s ASK and RPK dropped by -4.0%yoy and -3%yoy to 8,806m and 7,005m respectively. In comparison to last year’s third quarter, the ASK and RPK both advanced by more than 15% on a yearly basis. We attribute the slowdown to the volatility in fuel prices which may have hampered its expansion plans. Looking ahead, we believe further expansion is likely to be challenging if external factors remain unfavourable. At this juncture, we view that the rationalisation of routes is a strategic approach to optimise its current capacity, hence the termination of certain routes such as Tehran and Maldives.

Load Factor recorded at 80.0%. Nonetheless, load factor in 3QFY18 rose higher by +1.0ppts yoy from 79.0% in the same period last year. This comes amidst the occurrence of public holidays, during the quarter especially the four-day weekend during the Yang di-Pertuan Agong’s birthday and Awal Muharram that encouraged Malaysians to take extended leave and travel to further destinations. In addition, the Australian term holiday in July was a seasonal factor which moderated the impact of the typhoon season in August/September period.

AirAsiaX Thailand riding on strong demand. Likewise, AirAsiaX Thailand’s load factor remained commendable at 87.0%, higher by +1ppts yoy from the same period last year. We attribute the increase to the addition of more frequencies in certain routes, with fleet size increased to eight. We believe that this was timely due to the growth in the number of passengers which grew by +36.0%yoy.

Maintain NEUTRAL with unchanged TP of RM0.26 per share. We were not surprised by the slight drop in ASK and RSK in 3QFY18 considering the volatile fuel price environment which may hamper its expansion plans. Despite the cloudy outlook for the rest of FY18, we are expecting AAX to return to profits in FY19. This will be coming from further cost cutting initiatives, better capacity utilization and stabilising fuel environment. Although we maintain our NEUTRAL stance on the stock due to short term headwinds, we remain encouraged by AAX’s long-term prospect that is tied to the strategic plan of 1) further reduction in CASK; 2) stronger focus in core markets.

Source: MIDF Research - 25 Oct 2018