We are factoring in lower yield, ASK capacity, and load factor assumptions, hence our FY13-15 forecasts are cut 10-46%. AAX's earnings are very sensitive to small changes in inputs. Our call remains a Neutral, but we lower our target price, still based on the sector average of 11x CY15 P/E. Switch to MAHB. 

AAX hosted their 3Q13 results analyst conference call yesterday, hosted by CEO Azran Osman-Rani and CFO Yvonne Abdullah. The key points are as follows: (1) AAX will build its A330 fleet to 16-strong by end-2013, from nine planes last year. The group fleet will grow by another seven A330s to 23 by end-2014, of which 21 will be operated from Malaysia, and two to be operated by Thai AAX; (2) Thai AAX, 49%-owned by AAX, is expected to start operations by 1Q14. Local Thai partners, including Thai AirAsia CEO Tassapon Bijleveld, hold the remaining 51% stake; (3) The Bali hub will take a bit longer to start, as the application for the Air Operator's Licence is still being considered by the authorities; (4) Routes on which AAX increased capacity such as Perth, Sydney, Melbourne, Chengdu and Taipei saw pressure on yields, while routes with no new flights like Tokyo, Seoul, Shanghai and Beijing saw improved yields; (5) MAS caused "hyper competition" by focusing on Australian capacity expansion, adding a third-daily flight to Sydney and Melbourne. Hence, the Australian region is beginning to underperform North Asia, and AAX estimates that it will need 6-9 months to "wash out" the yield pressures; (6) New flights 4x weekly flights to Nagoya will start from March 2014, while two new routes to China will be launched in mid-2014. Frequency increases are planned for Seoul and Tokyo in 2H14. 

The 3Q13 RASK decline of 2.7% and the 1% pt fall in loads is a trend that will continue into 4Q13, particularly to Australia, due to aggressive capacity injections by MAS and AAX. 

 We think AAX's share price will likely thread water in 2014, as MAS keeps up the pressure, and we expect AAX to book a RM22m loss from its share in the new Thai AAX venture.

Source: CIMB Daybreak - 22 November 2013, Full PDF Report