AirAsia X on the right track as net profit jumps

0

KUCHING: Analysts laud AirAsia X Bhd (AirAsia X) as being on the right track as its net profit for the first quarter of its financial year 2018 (1QFY18) recorded strong growth exceeding 100 per cent year on year (y-o-y) at RM41.5 million.

Stripping out exceptional items, the core net profit of RM61.8 million made up 27.6 and 34.8 per cent of MIDF Amanah Investment Bank Bhd (MIDF Research) and consensus’ expectations, respectively.

Healthy load factors, improving costs per average seat per kilometre (CASK) and strong associates’ performance led to positive variance of 1QFY18 earnings results.

“Growth in revenue by 7.2 per cent y-o-y was mostly driven by ticket sales (8.4 per cent y-o-y), ancillary (7.2 per cent y-o-y) and freight services (31.4 per cent y-o-y),” MIDF Research said.

“Notably, 1QFY18 revenue came in highest since inception at RM1.27 billion visà-vis 13.3 per cent growth of passengers carried.”

Ancillary income per pax — including freight services — eased by two per cent y-o-y to RM169. However, MIDF Research opined that this performance as decent considering the bulky average sear per kilometre (ASK) expansion.

Meanwhile, Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw an improvement in AirAsia X’s cost efficiency as its CASK decreased two per cent y-o-y.

“CASK decreased two per cent y-o-y due to improved cost efficiency on the back of higher aircraft utilisation. This was despite higher fuel price in 1Q18,” AffinHwang Capital said in a separate note.

“CASK ex-fuel cost was reduced by 10 per cent y-o-y. Operating profit increased 42 per cent y-o-y to RM58 million in 1Q18.”

Its associate, AirAsia X Thailand, saw the strongest performance since inception, which contributed to share of associates of RM16 million in 1Q18. However, unrealised forex and exceptional losses of RM19 million offset the associate profits.

MIDF Research saw that AirAsia X’s management kept its strategy intact, focusing on high growth market in North Asia.

This was seen through the addition of flight frequencies in Hangzhou (from four times to six times weekly) and Taipei (from 18 times to 19 weekly).

Aside from increased frequencies, two new routes were introduced namely Jaipur and Jeju. The commencement of new route was partly a result of capacity realignment from loss-making route such as Tehran.

“Given the infancy status of these two new routes, management are aware of the challenges to improve yield. Accordingly, revenue per average seat per kilometre (RASK) declined in 1QFY18 by two per cent y-o-y to 13.88sen.

“Despite the drop, we believe RASK will rebound in due course underpinned by stronger demand considering that AAX is the only low cost carrier to offer direct route from Kuala Lumpur to the Jaipur city.”

Thus, MIDF Research kept its buy call on the group, expecting full year earnings to be strong given its solid start for the year.

“We believe the company is able to sustain this momentum on the premise of robust travel demand, efficient capacity management and cost discipline practice. While we are aware that rising fuel price is a downside risk to the company’s earnings, we believe that demand for air travel will still be intact and be a compensating factor. “Notably, international flight fare could go higher especially for full-service airline, following the increase in fuel price.

“Accordingly, we believe the situation will drive more passengers to opt for a more affordable option to travel. This will place AirAsia X to benefit given its robust route network and better capacity internationally.”

Also, AffinHwang Capital reaffirmed its sell call with an unchanged 12-month target price of RM0.32, adding that competition remains stiff in the airline industry.