AirAsia X Bhd
Price (20 August 2013) RM1.19
Target Price RM1.70
Shrinking losses in a traditionally weak quarter
Lower 2Q13 core net losses of -RM28.4 as compared to –RM52m in 2Q13 due to higher traffic and improving yield base.
Maintain BUY stance with unchanged TP of RM1.70, derived from FY14–PER of 12x which is the average of the global peers.
2Q13 losses reduced in quantum. AirAsia X (AAX) registered a narrower core loss of –RM28.4m in 2Q13 as compared to –RM52m in 2Q12. The improvement in earnings was contributed by the surge in traffic and improving yield base. 1H13 accumulated net profit was RM31.4m and only comprised 18.5% of our FY13 forecasts. We are not concerned with the lackluster figures as the second quarter is traditionally a weak season for the long-haul travel demand, while the fourth quarter is the strongest and contributes circa 60% of full year earnings.
Double boost in topline. For 2Q13, AAX took delivery two A330 aircrafts to seek its capacity expansion. The demand matched the additional seat slots and saw RPK traffic increased by +13.5%yoy while the load factor remained unchanged at 81.8%. In early FY12, network consolidation slashed unprofitable routes such as Europe, India and New Zealand. As a result, unit revenue as measured in RASK improved significantly by +10%yoy to 11.6sen. All these positive factors translated into an increase in 2Q13 revenue by +21.2% to RM491m.
Another driver from ancillary income. AAX continued to roll out the new ancillary products such as portable power rentals. In addition, its “Fly-Thru” connecting transfer service and AirAsia Insure services received the higher take-up rates. The 2Q13 ancillary revenue surged by +31.6%yoy to RM97.8m in tandem with the increase in traffic and the higher ancillary per pax at RM142 against RM129 in 2Q12.
Five more A330s to be delivered in 2H13. AAX will deploy its new fleet in the expansion on Australia routes particularly for the KL flights to Melbourne, Sydney and Perth. It has already signed the extended air services agreement with the Australian regulator which allows AAX to double these route capacities to 2 times daily. Adelaide will be added to its fifth Australian route portfolio and is expected to start service by this October.
Maintain BUY with unchanged TP of RM1.70. The LCC penetration in the long haul segment still remains at very low level and this represents more growth opportunities in the future. With the robust traffic growth and enhanced yield base, we expect AAX’s aggressive expansion drive to be as successful as its short haul affiliate. Hence, we are reiterating our BUY recommendation on AAX. Our TP of RM1.70 is based on FY14 - PER of 12.0x, which is the average of AAX’s global LCC peers.
Publish date: 22/08/13