• Fuel  price  and  USDMYR  assumptions  revised;  positive  for earnings.
• AAX  will  now  breakeven  in  4Q14,  turnaround  in  2015,  but capital raising risk still looms, in our view .
• Maintain  SELL,  despite  a  higher  target  price  of  MYR0.60 (from MYR0.57) after our positive earnings revision.

What’s New

Our house view for average jet fuel price and USD/MYR in 2015 has been  revised  to  USD100/bbl  (from  USD115/bbl)  and  3.50  (from 3.32). The net impact is highly favourable to AAX.  

What’s Our View

The lower operating cost environment will help AAX to turnaround; we  now  think  it  will  breakeven  in  4Q14. AAX  is  the  most  sensitive airline  to  fuel  price  changes  in  our  airline  universe  due  to  its longest average  stage  length.  Furthermore, AAX  plans  to  sell  some aircraft  and  the  current  strong  USD  will  enable  it  to  realise attractive  values  in  MYR  term.  We  raise  our  FY14/FY15/FY16 earnings forecasts by +3.5% / +160.4% / +4.0%.

Despite  the  favourable  cost  parameters,  we  still  think  that  the business  risk  is  too  high  with  complex  execution  challenges.  We also  estimate  that AAX  will  have  to  raise  capital  via  a  rights  issue or  a  private  placement  within the  short  term.  We  raise  our target price to MYR0.60  (from MYR0.57)  on  positive earnings  revision  and base  it  on an  unchanged  FY16  P/Book of 1.0x. Take opportunity of the current share price strength and SELL.

Source: Maybank Research - 15 Dec 2014