Losses narrowed YoY – slightly better than we had expected initially –largely on higher revenue from AirAsia X’sprofitable wet leases and the lower jet fuel price. Maintain TRADING BUY and MYR0.38 TP (41%upside, 1.5x P/BV). On a positive note, yields are recovering with forward base fares showing a positive trend while operating cash burn has narrowed QoQ.

• Better than anticipated. AirAsia X posted a MYR54m core net loss (1Q14: MYR57m loss, 4Q14: MYR117m loss), ie lower than our MYR70m-80m losses forecast, on higher revenue from its wet leases(+80% YoY), decent profit margins and lower fuel costs (-32% YoY). We deem this within our expectations but below consensus as the latter have yet to adjust down numbers following the disappointing statisticsreleased earlier. Thai AirAsia X booked a THB90m profit during the quarter. The MYR90m operating cash flow burn narrowed QoQ (4Q14: MYR230m). No change to our earnings estimates.
• Yield recovers. On improved capacity management, where low yielding routes were trimmed earlier (two routes cut), yields inched higher by 10% YoY and 11% QoQ. This was encouraging, considering the lack of marketing efforts after the Flight QZ8501 loss and Malaysian AirlineSystem’s ongoing fare dumping. Significant improvements in yield were attributed from Kathmandu and Jeddah and, to some degree, on the Australia routes. North Asia yields came in lower.
• Briefing highlights. With the seasonally weaker 2Q, compounded bythe QZ8501 incident and its tarnished reputation in Australia on the delayed approval of the Bali-Melbourne flight, we expect 2Q15 to remain in losses. Management sees 1H15 as the consolidation phase , followed by a stronger 2H15. Marketing campaigns have since been reactivated,with new collaborations with Australian online travel agencies. It guided that average base fare were trending higher from July-November at the expense of weaker loads (until August). Hedging position remains unchanged at USD88/barrel with 54% of FY15 fuel requirement covered.Management guided that 2Q fuel average price could likely inch higher(our estimate: +4% QoQ). Hawaii is an upcoming route launch by Malaysia AirAsia X (November). In the meantime, the banned route to Sapporo operated by Thai AirAsia X will be taken over by using Malaysia AirAsia X’s call sign, thus mitigating earlier idled aircraft concerns.
• Maintain TRADING BUY. Our call is premised on a 1.5x 12-month rolling P/BV to derive an unchanged MYR0.38 TP (implying FY16F 11x P/E), in line with the regional low cost carrier peers.