INVESTMENT HIGHLIGHTS

• ASK and RPK inched higher by more than 1.0% for FY18

• Route rationalisation a strategic approach to optimise current capacity

• Load factor remains resilient above 80.0% in FY18

• Expect 4QFY18 results to be better amidst leverage on spot market towards the end of the quarter

• Maintain NEUTRAL with revised TP of RM0.28 per share

FY18 preliminary ASK and RPK inched higher. In 4QFY18, AirAsia X’s ASK marginally increased by +0.2%yoy while its RPK dipped by -5%yoy as capacity was deployed to shorter routes since the termination of Tehran and Kathmandu during 2018. Nevertheless, FY18 saw an annual increase in ASK and RPK by +3.0%yoy and +2.0%yoy, respectively, supported by the added frequencies to seven routes in total, namely Gold Coast, Sydney, Perth, Sapporo, Osaka, Taipei and Bali during the quarter under review.

Load Factor remains above 80.0% for FY18. In 4QFY18, AAX’s load factor dipped -5ppts yoy to 78%. Factors such as: (i) natural disasters which impacted Japan and Indonesia routes; and (ii) gradual route termination for Kathmandu partially led to the -3%yoy drop in passengers for the quarter amid deployment of additional capacity in core markets for the year-end travelling season. Nonetheless on an annual basis, the load factor still remained resilient at 81% for FY18 as the total passengers flown hit a record of 6.17m for the year amidst continuous rationalisation of routes. The bulk of the passenger growth for FY18 was mainly contributed by 1QFY18 which recorded a 14%yoy increase in seat capacity, accommodating the 13% jump in passengers for the same quarter.

AirAsiaX Thailand remains strong. AirAsiaX Thailand’s load factor remained commendable at 85.0%. We attribute the robust load factor to the introduction of daily flights to Nagoya in October 2018 whereby fleet size increased by one to nine. We believe that this was timely due to the growth in the number of passengers which grew by +19.0%yoy in the quarter, leading to an overall 24%yoy increase in 2018 compared to 2017.

4QFY18 will be better q-o-q. As mentioned in our 3QFY18 results review, we believe that 4QFY18 results will see an improvement on a quarterly basis. The reason being is that AAX hedged approximately 13% to 15% of its fuel requirements at an average of USD78.3/bbl in the said quarter. While Singapore jet kerosene price was at USD94.1/bbl at the beginning of 4QFY18, it slid as much as 28.7% to reach USD67.1/bbl, enabling AAX to leverage on the spot market.

Source: MIDF Research - 29 Jan 2019