Sunday, November 24, 2013

AirAsia X - 3Q13 Tops Expectations (MKE)

AirAsia X -
Buy (unchanged)
Share price: MYR1.04
Target price: MYR1.30 (unchanged)
3Q13 Tops Expectations

Smooth cruising. AirAsia X’s 9M13 core net profit of MYR35.4m, from a core loss of MYR30.0m in 9M12, was slightly better than our expectations. Management is doing a good job in filling up the aircraft, maintaining decent yields and keeping unit cost under control. It has also successfully shielded itself from the fare war that is plaguing the domestic sector. We keep our earnings forecast, our BUY recommendation and target price of MYR1.30/share unchanged pending an analyst conference call later today. The target price is premised on 15x FY14 PER.

Surprised positively. 3Q13 reported net profit of MYR26.4m is 45.9% lower than 3Q12’s profit of MYR48.9m. However, after filtering for nonrecurring costs such as forex translation losses (MYR24.0m), listing expenses (MYR4.5m), upfront recognition of shareholder incentives (MYR7.6m) and deferred taxation (MYR46.2m), 3Q13 core net profit was MYR16.3m, which is a substantial improvement over last year’s breakeven performance of MYR0.7m. This is much better than our initial expectation of MYR3.5m. The Company continues to surprise us positively with its diligent cost control, with its EBITDAR margin rising further to 17.4% in 3Q13 vs 16.1% in 3Q12.

On track to meet our earnings forecasts. 4Q is a seasonally strong period and the current market demand outlook is healthy based on its forward booking trends. The take-up rates for new routes (Busan and Maldives) are largely within management’s expectations. Fuel price has been on a declining trend since October, which is the case for CASK excluding fuel as well, for the Company has been benefiting from economies of scale. AirAsia X is on track towards delivering 2013 financial results that level up with our and consensus expectations.

Maintain BUY. Overall, AirAsia X’s performance in 2013 YTD has been smooth and consistent with the statements made by the management during its IPO roadshow. We are positive on the developments of the Company as well as the insatiable demand for long haul budget travel. Our earnings and target price are unchanged for now, pending the analyst conference call later today.

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