Review

• Capital A reported net profits of RM1.6bn for 3Q24 and RM1.1bn for 9M24. These profits contained a whopping RM2.3bn forex gain. Excluding this gain (adjusted MI to exclude the gain belonged to minority shareholders of foreign subsidiaries) and other exceptional items, the 3Q24 core profit would turn to a loss of RM33.4mn.

• On 9M24 basis, the core profit was RM180.4mn accounted for 35.2% of our full-year forecast and 85% of consensus estimates. However, we consider this as within expectation as we look forward to a seasonally strong 4Q24.

• Despite a seasonally slow 3Q24, Capital A register a sequential growth in demand (RPK) for three quarters in a row, alongside commendable load factor. This was due to sustained demand recovery in Malaysia, where Malaysia AirAsia (MAA) reported 8.2% QoQ increase in both RPK and capacity (ASK). We attribute the surge to company’s efforts in putting out the idle aircrafts to meet the overwhelming demand. On a YoY basis, all operating airline units reported growth in RPK except Indonesia AirAsia and Philippines AirAsia.

• In terms of yield, 3Q24 CASK (cost/ASK) slipped 1.2% YoY to 5.0 cent while RASK (Revenue/ASK) jumped 10.1% YoY to 4.8 cent, which narrowed the negative spread to 0.2cent in 3Q24 vs 0.69 cent in 3Q23. The plunge in CASK was due to decline in jet fuel price (-9.9% to USD109/bbl), alongside ringgit appreciation in 3Q24.

• The non-aviation segment reported a strong quarter with revenue and EBITDA jumped 18.6% and 53.9% YoY respective, driven by higher contribution from Teleport (logistics) and AirAsia Move (SuperApp).

Impact

• We maintain FY24-26 earnings projections.

Outlook

• Capital A’s restructuring process is pending court’s approval for the reduction in share capital, which can be expected in Dec-24. The aviation unit is expected to operate as a separate unit in 1Q25 and the merger with AAX would take place thereafter.

• With regards to the PN17 status, the company is ready to submit the regularisation plan to Bursa Malaysia by end-24. Management is still hopeful to lift the status by 1H25.

• Capital A is expected to put all 205 aircrafts to work by 1Q25. To do this, there would be further increase in MRO costs in 4Q24. However, underpinning the strong demand and increase in fare, the additional seat capacity is expected to fuel 4Q24 and FY25 earnings growth. Management expects the average load factor to be strong at 90% for 2025.

• The company would revisit its fuel hedging policy in 2025 as the jet fuel price is expected to drop further on the back of higher shale production in US next year. Management reiterates that the hedging policy, if implemented, would be based on lock-in forward sales. 

Valuation

• We revise the target price to RM1.22/share (from RM0.87 previously) by reducing the valuation discount to 30% (from 50% previously) of its fair value of RM1.74, based on 8x CY25 EPS, as the risk of trading suspension has dissipated. However, we believe the substantive discount is still applicable due to poor earnings visibility after the disposing of the core airline business to AAX. Maintain Hold

Source: TA Research - 29 Nov 2024