AirAsia X’s passenger stats were dented by poor sentiment post the QZ8501 incident, during which marketing campaigns were halted. We maintain our TRADING BUY call but reduce our TP to MYR0.38 (31% upside) on a reduced P/BV (1.5x vs 1.7x previously). On the back of at least a 20% drop in jet fuel prices, we expect EBITDA to be positive by c.MYR30m-40m.

• 1Q15 passenger stats. AirAsia X’s passenger numbers were dented by poor sentiment post the QZ8501 incident, during which marketing campaigns were halted. This led to a 17% YoY drop in passenger revenue per kilometre (RPK). As the drop in RPK outpaced the 3% YoY drop in available seat capacity (ASK), consequently, its load factor declined by 12ppts to 74%. Management guided that recent booking data have shown a positive trend, and could be headed towards a recovery going into 2H15. Its load factor at associate Thai AirAsia X remains healthy at 82%. Meanwhile, although no information on its load factor for its Indonesia operations was disclosed, it could have likely suffered from the delay in the launching of the Bali-Melbourne route. Since early 2015, AirAsia X has cut its flight frequency for certain routes (mainly for China and Australia) and terminated the Adelaide and Nagoya routes – which could help contain its losses. We also understand that efforts are also in place to rationalise its headcount and renegotiate third-party ground-handling contracts to cut costs further.
• In the red in 1Q15. On the back of a minimum expected 20% drop in jet fuel prices, the carrier’s EBITDA may be in positive territory, ie to the tune of c.MYR30m-40m. Average air fares are likely to rise by +5-8% YoY, and yields may tick upwards. Nonetheless, owing to highdepreciation and financing charges (for the latter, AirAsia X could be hit by the weakening of the MYR against the greenback). As such, we believe the carrier could report a core loss of MYR70m-80m in 1Q15.
• Forecasts. Due to our expectation of a weaker 1Q15, we cut our FY15Fload factor to 80% from 83%, and now assume that its ASK will be lower by 1.1% YoY (vs +5.3% YoY previously). Our FY16/FY17 growth assumptions on the above metrics and yield growth (FY15: +2.3% YoY) remain unchanged. Thus, our forecasted core loss widens to MYR114m from MYR5m for 2015.
• TRADING BUY. Maintain TRADING BUY, at a lower TP of MYR0.38(from MYR0.57), premised at a lower 12-month rolling forward P/BV of 1.5x (vs 1.7x previously) coupled with the higher dilution impact from the wider share base from the rights issue, which we advocate investors to subscribe. AirAsia X will announce results on 27 May after market close.