INVESTMENT HIGHLIGHTS

• ASK and RPK declined by more than +3.0%yoy for 1QFY19

• Drop in ASK and RPK to be temporary as termination of noncore routes would lead to expansion in capacity for main markets

• Nevertheless, load factor remains resilient above 80.0% in 1QFY19 due to capacity realignment

• Maintain our forecast pending result to be released mid-May

• Maintain NEUTRAL with unchanged TP of RM0.27 per share

1QFY19 preliminary ASK and RPK took a breather. In 1QFY19, AirAsia X’s ASK declined by -5%yoy while its RPK dipped by -6%yoy as capacity was deployed to shorter routes since the termination of Tehran, Male and Kathmandu in 1QFY18. Other destinations such as Auckland were also terminated in February 2019. Nonetheless, we opine that the decline in ASK and RPK will be short lived as the termination of non-core routes will enable AAX to redeploy capacity into main markets such as Greater China.

Load Factor remains above 80.0% for 1QFY19. In 1QFY19, AAX’s load factor remained healthy at 83%. The strength in load factor was partly attributable to the commencement of the Taipei and Osaka routes in January 2019 combined with direct flights from Kuala Lumpur to Fukuoka. Further support for the load factor came from the realignment of capacity on selected routes such as Taipei, Gold Coast, Perth and Sydney.

AirAsiaX Thailand remains strong. For AAX Thailand, the increase in seat capacity by +38%yoy with 2 more routes in 1QFY19 compared to the year before outpaced the +32%yoy growth in passengers. Nevertheless, load factor remained robust at 90%.

Earnings estimates. Given that the 1QFY19 result is expected to be released in mid-May, we are maintaining our earnings forecast for now.

Maintain NEUTRAL with unchanged TP of RM0.27. While our expected total return constitutes a revision to our call, we are making an exception given that the results release is just around the corner. Nevertheless, we remain encouraged by its prospect which is tied to its long-term strategic plan of 1) further reduction in CASK following expansion plan; and 2) stronger focus in core markets. However, this is tempered by its depleting cash balances. Hence, our NEUTRAL stance. A rerating catalyst for AAX would be the possible equal downward revision of PSCs for klia2 and KLIA Main Terminal without any plans to reverse out any previous charges according to MAVCOM.

Source: MIDF Research - 30 Apr 2019