KUCHING: Analysts expect AirAsia Group Bhd (AirAsia) to remain resilient for the first half of its financial year 2018 (1HFY18) in spite of its net profit coming in lower by 10.5 per cent year on year (y-o-y) due to impact of fuel price increase.
DF Amanah Investment Bank Bhd (MIDF Research) saw that in addition, AirAsia’s operating margin was double-digit with significant 10.3 per cent y-o-y increase in revenue.
“The growth was encouraging due to the continuous expansion in capacity. However, we to recogniSe the potential earnings slowdown due to the hike in fuel price,” it said in a report yesterday.
Meanwhile, fuel price on average came in 33.7 per cent y-o-y higher from US$54.6 per barrel since December 2017.
This was largely attributable to the anticipated US sanctions on Iranian oil exports, shale bottlenecks and Venezuelan turmoil.
“Given the disruptions, we are expecting fuel price to remain volatile,” it added. “Accordingly, downside risk of fuel is more visible to airlines, as it continues to account a large percentage of operating expenditure.”
Fuel represented the bulk of opex for any airlines, and for AirAsia, the group’s fuel consumption accounted 42 to 45 per cent of total opex.
“Based on our sensitivity analysis, every one per cent rise in fuel price, will impact the net operating profit and net core profit by minus 1.7 per cent and minus 3.5 per cent respectively,” it added.
“The year-to-date fuel price is well above our earlier forecast of US$79.3 per cent barrel. At this juncture, we are revising up our assumption on jet fuel price to US$85 per barrel.”
Subsequent to MIDF Research’s revision, core net profit forecasts for FY18 and FY19 are revised lower by 18.9 and 19.4 per cents respectively.
“We adjust our target price lower to RM3.62 per share for AirAsia,” it said.
“Despite the impact from the fuel price increase, we are maintaining our buy call due to the group’s compelling growth story, stable operations with added capacity and continuous improvement to derive higher values per km flown.
“In addition, we believe its integrated efforts to monetise its assets, via digitalization is strategic, as it takes advantage of its passengers’ database to enhance customer experience and improve ancillary incomes.
“Notably, the group’s recent announcement on collaboration with Google Cloud is planned to bring the group closer to forming a travel technology company.”