While AirAsia X is expected to see costs go down further on the back of the  oil  price  slump,  we  think  this  is  not  enough  to  turn  the  carrier profitable in  FY15  as  the  yield  recovery may  not  pick  up  too  strongly. Maintain  SELL  with  a  revised  TP  of  MYR0.58  (from  MYR0.57,  15.9% downside) based on 1.5x FY15 P/BV. The carrier is expected to see high depreciation and lease expenses squeezing potential profits. 
 
Oil  slump  boosts  gives  earnings  boost.  The  slump  in  oil  prices  will benefit  the  aviation  sector.  While  we  do  not  see  demand  growing strongly,  sector  earnings  will  be  underpinned  by the  recovery  in  yields, with an additional positive impact from lower jet fuel prices. Given that jet fuel accounts for 39.7% of AirAsia X’s FY15  operating  costs, the  lower jet fuel price assumptions will have a positive impact to bottomline.  

Forecasts  upped. We lower  jet fuel  price  to  USD104.10/barrel  (bbl) in FY15  (from  USD115/bbl)  and  to  USD117/bbl  in  FY16  (from USD123/bbl).  This  consequently  reduces  FY15  losses  by  80%  for AirAsia  X  and,  for  FY16,  we  now  expect  the  carrier  to  book  a  decent profit of MYR89.2m from a loss of MYR53m previously. Its bottomline will be the most sensitive to jet fuel prices and we estimate that a 1USD/bbl change in prices will have an inverse impact on AirAsia X’s bottomline by 37% (FY15) and 15% (FY16), or approximately MYR12.4m-13.5m.

Balance sheet deteriorating as losses mounted this year. AirAsia X’s deteriorating  balance  sheet  raises  concerns  on  how  the  carrier  will  go about  funding  its  future  aircraft  acquisitions.  Yesterday  it  placed  a  firm order  of  55  A330neo  aircraft  from  Airbus  (AIR  FP,  NR),  which  are targeted for delivery beginning 2018. The  A330neo is a new generation aircraft that is understood to be 14% more fuel efficient. AirAsia X’s new order  bumps  up  its  total  order  to  91  aircraft  from  Airbus,  which  will  be progressively delivered in 2016-2026. Some of these new deliveries are expected to replace aging aircraft from 2020 onwards.   

Maintain SELL. Despite the steep upgrade on earnings, where we now forecast  FY15  to  see  a  slight  profit  (from  a  loss  previously),  we nonetheless  maintain  our  SELL  stance  on  AirAsia  X,  citing  its  lofty valuations. Our revised TP is MYR0.58 (from MYR0.57). We continue to peg the stock at a target FY15 P/BV of 1.5x. Our 1.5x target factors in its leased aircraft as assets (at 20% equity funded) into its balance sheet.

Financial Exhibits

Financial Exhibits

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

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Source: RHB