AAX’s 1HFY13 numbers were well within our – but below consensus – estimates. It posted positive revenue growth in tandem with increased flight  frequencies  and  improved  yields,  as  its  routes  increasingly mature.  We  are  upbeat on AAX’s potential growth  and  maintain  our BUY recommendation with a MYR1.65 FV, pending more updates from the analyst briefing later today. 
 
- Within  expectations.  AAX’s  reported  2Q13  core  net  loss  of  MYR28.4m  was  well  within  our  expectation,  as  2Q  is  typically  the weakest  quarter  for  all  airlines.  Its  cumulative  1H13  net  profit  of MYR15.8m  was  within  our  –  but  below  street’s –  estimates.  With earnings set to pick up momentum in 2H, we believe AAX will be able to meet our full-year forecast of MYR63m.  

- 2Q13  operations  review.  AAX’s revenue  per  available seat  kilometre (RASK)  improved  9.4%  y-o-y,  mainly  due  to  its  route  network consolidation exercise in 2012. The carrier recorded higher air fares (or yields)  from  the  increasing  maturity  of  its  route  network.  Load  factor was constant at 81.9% in 2Q13 (2Q12: 82.3%) despite a 20% growth in capacity,  which  implies  encouraging  take-up  rate  for  AAX  flights.  Cost of  available  seat  kilometre  (CASK)  and  CASK-ex  fuel  climbed  2.6% and 14.0% y-o-y respectively on higher flight frequencies. This, in turn, boosted  fuel  consumption  by  11.7%  y-o-y  although  partly  offset  by  a 4.7% decline in jet fuel prices and lower fuel burn (see Figure 1).

- Outlook  and  risks.  We  continue  to  like  AAX  for  its  strong  growth potential,  arising  from  its  aggressive  business  expansion  that  is  fully backed by AirAsia. Nonetheless, its unproven business model, a highly competitive  operating  environment  and  volatile  cost  items  are  among the key risks for the carrier.

- Maintain  BUY,  FV  unchanged.  All  in,  we  keep  our  BUY recommendation  and  MYR1.65  FV,  pegged  to  8.5x  adjusted  FY14F EV/EBITDAR.  An update will be issued following the analysts’ results conference call later today.

Source: RHB