We revise our  yield assumptions for AirAsia X (AAX)  as we anticipate the  pickup  in  yields  from  mature  routes  to  be  capped  by  new  route launches.  Accordingly,  we  trim  our  FY13/14  earnings  by  24/30% respectively.    Maintain  BUY,  with  a lower  MYR1.31  FV  (from MYR1.60), premised on unadjusted FY14 EV/EBITDAR of 8.5x.

• On the prudent side.  After the analysts’ teleconference  call with  AAX’s management  yesterday,  we  decide  to  remain  conservative  and  toned down  our  yield  assumptions.  While  competition  is  less  severe  in  the long-haul space, we foresee AAX’s new route launches at promotional fares could cap upside  for  overall  yields. Our yield growth  forecasts  for FY13/14 have been trimmed by 1.0/1.5 sen to 9.5/10.0 sen respectively.
• Briefing takeaways.  AAX will continue to  increase  flight  frequencies  to retain  its  market  leadership  position.  With  respect  to  its  new  hubs, management  guided  that  Thai  AirAsia  X  (TAAX)  is  expected  to commence operation by 1QFY14 and will subsequently start another hub in  Bali  by  year-end.  Management  hinted  at  the  likelihood  of  TAAX incurring  start-up losses of MYR20-30m in FY14-15F.  On its investment allowance, management guided AAX will receive MYR98m annually for FY13-14F,  which  we  are  now  factoring  into  our  earnings  forecasts. Further cost savings are  expected to be realised once KLIA2 becomes operational next year.
• Forecasts. We incorporate lower yields and slash our FY13/14  earnings by  24%/30%  respectively.  We  are  also  factoring  in  TAAX’s  potential startup  losses,  as  we  had  earlier  only  conservatively  projected  that  its Bangkok  hub  would commence operation in mid-2014 as opposed  to  its 1Q14 target. We have not factored in TAAX’s Bali hub into our estimatespending  regulatory  approval.  However,  we  suspect  its  Bali  operation could see  more modest  losses compared to Bangkok  given the former’s cheaper cost base.  
• Maintain  BUY.  Following  our  earnings  revision,  we  reduce  our  FV  for AAX  to  MYR1.31  (from  MYR1.65),  pegged  to  8.5x  FY14F  adjusted EV/EBITDAR.  However,  we  now  switch  our  Top  Pick  to  AirAsia  (AIRA MK,  BUY,  FV:  MYR3.70),  following  its  better-than-expected  9MFY13 earnings. 

Financial Exhibits

• As AAX qualifies  for tax incentives on certain expenditure,  we  incorporate  that  into  our model
• We  also  factored  in  the  potential  start-up losses  of  MYR25.0m  (AAX  portion)  for  its Thai  AirAsia  X  operation,  which  is  expected to kick off in 1QFY14

SWOT Analysis

Company Profile
AirAsia X is the long-haul low-cost carrier of the AirAsia Group. The  airline flies to 16 destinations to/from cities in Australia, Japan, Korea, Taiwan and China. It also flies to Kathmandu, Nepal and Jeddah, Saudi Arabia.

Recommendation Chart

Source: RHB