31 January 2020
AirAsia X Bhd
(Jan 30, 13.5 sen)
Downgrade to trading sell with a lower target price of 11 sen: For the fourth quarter of financial year 2019 (4QFY19), AirAsia X Bhd’s (AAX) preliminary revenue passenger kilometre (RPK) growth of 4.6% year-on-year (y-o-y) outpaced the 0.5% y-o-y growth of its average seat per kilometre. As such, the load factor was three percentage points higher at 81.0% for 4QFY19.
This was supported by the additional frequencies for six routes, Bali, Taipei, Seoul, Perth, Sydney and Gold Coast to cater for the year-end travel peak season. In addition, AAX launched two new routes in November 2019; Kuala Lumpur-Singapore (14 flights per week) and Kuala Lumpur-Tokyo (Narita) commenced on top of Kuala Lumpur-Tokyo (Haneda) services. We believe that the new routes increased aircraft utilisation rates by roughly more than 0.2 hours from the current 14.4 hours.
Notwithstanding the y-o-y improvement in operational statistics for 4QFY19, we are expecting AAX to record a marginal normalised loss of around RM5 million to RM15 million in the said quarter compared to the RM19.5 million normalised profit after tax for 4QFY18.
AAX had a prudent hedging ratio of 86% with an average hedge cost of US$73.70 (RM301.43) per barrel for 4QFY19. However, jet fuel prices averaged at US$74.20 per barrel in the same period, resulting in minimal hedging benefits. All in we are still estimating a normalised loss of RM209.1 million for FY19 slightly less than FY18, mainly propelled by the 3QFY19 which saw a 76.0% y-o-y reduction in losses.
According to past figures during the 2003 severe acute respiratory syndrome outbreak, Malaysia Airports Holdings Bhd’s (MAHB) passenger traffic growth in Malaysia took a breather that year to fall 1.5% y-o-y to 33.5 million. Total international passengers at Kuala Lumpur International Airport (KLIA) main terminal travelling to and from China declined by 10.7% y-o-y during the same period.
We understand passengers flying to or from destinations in mainland China are given an option for a credit account or full refund. Assuming a worst case scenario where all affected passengers opted for a full refund, we estimate that RPK could decline by nearly as much as 20% to 30%.
This in turn will reduce AAX’s profit after tax by 27.0%. Nevertheless, it was noteworthy that the passenger traffic at MAHB’s Malaysian airports rebounded 17.8% y-o-y in 2004. Similarly, international passengers from China at KLIA main terminal recorded a whopping 75.8% y-o-y growth in 2004. — MIDF Research, Jan 30