KEY INVESTMENT HIGHLIGHTS

• 4QFY19 preliminary ASK and RPK inched higher due to additional frequencies and routes

• Still expecting an overall loss of RM209.1m for FY19 due to MFRS16 impact

• Passengers carried to and from China expected to face temporary headwinds due to the pandemic outbreak

• Adjusting earnings downwards to reflect lower RPK

• Downgrade to Trading SELL with a revised TP of RM0.11 per share

4QFY19 preliminary ASK and RPK inched higher... In 4QFY19, AirAsia X’s preliminary RPK growth of +4.6%yoy outpaced the +0.5%yoy growth of its ASK. As such, the load factor was +3ppts higher at 81.0% in 4QFY19. This was supported by the additional frequencies for six routes, Bali, Taipei, Seoul, Perth, Sydney and Gold Coast to cater for the year-end travel peak season. In addition, AirAsia X Malaysia launched two new routes in November 2019; Kuala Lumpur-Singapore (14 flights per week) and Kuala Lumpur-Tokyo (Narita) commenced on top of Kuala Lumpur-Tokyo (Haneda) services. We believe that the new routes had increased aircraft utilisation rates by roughly more than 0.2 hours from the current 14.4 hours.

…..but still an expecting a loss in 4QFY19. Notwithstanding the year-on-year improvement in operational statistics in 4QFY19, we are expecting AAX to record a marginal normalized loss of around –RM5m to -RM15m in the said quarter compared to the RM19.5m normalised profit after tax in 4QFY18. AAX’s had a prudent hedging ratio of 86% with an average hedge cost of USD73.7pb in 4QFY19. However, jet fuel prices averaged at USD74.2pb in the same period, resulting in minimal hedging benefits. In addition, impact from the MFRS16 accounting treatment was not present a year ago. All in we are still estimating a normalised loss of –RM209.1m for FY19 slightly lesser than FY18, mainly propelled by the 3QFY19 which saw an -76.0%yoy reduction in losses.

Source: MIDF Research - 30 Jan 2020