Target Price: MYR1.65
A Smooth Take-Off
AAX’s 1HFY13 numbers were well within our – but below consensus – estimates. It posted positive revenue growth in tandem with increased flight frequencies and improved yields, as its routes increasingly mature. We are upbeat on AAX’s potential growth and maintain our BUY recommendation with a MYR1.65 FV, pending more updates from the analyst briefing later today.
• Within expectations. AAX’s reported 2Q13 core net loss of MYR28.4m was well within our expectation, as 2Q is typically the weakest quarter for all airlines. Its cumulative 1H13 net profit of MYR15.8m was within our – but below street’s – estimates. With earnings set to pick up momentum in 2H, we believe AAX will be able to meet our full-year forecast of MYR63m.
• 2Q13 operations review. AAX’s revenue per available seat kilometre (RASK) improved 9.4% y-o-y, mainly due to its route network consolidation exercise in 2012. The carrier recorded higher air fares (or yields) from the increasing maturity of its route network. Load factor was constant at 81.9% in 2Q13 (2Q12: 82.3%) despite a 20% growth in capacity, which implies encouraging take-up rate for AAX flights. Cost of available seat kilometre (CASK) and CASK-ex fuel climbed 2.6% and 14.0% y-o-y respectively on higher flight frequencies. This, in turn, boosted fuel consumption by 11.7% y-o-y although partly offset by a 4.7% decline in jet fuel prices and lower fuel burn (see Figure 1).
• Outlook and risks. We continue to like AAX for its strong growth potential, arising from its aggressive business expansion that is fully backed by AirAsia. Nonetheless, its unproven business model, a highly competitive operating environment and volatile cost items are among the key risks for the carrier.
• Maintain BUY, FV unchanged. All in, we keep our BUY recommendation and MYR1.65 FV, pegged to 8.5x adjusted FY14F EV/EBITDAR. An update will be issued following the analysts’ results conference call later today.
Publish date: 22/08/13