AAX’s Thai, Indonesian associates likely to face greater challenges(September 07, 2018)

Downgrade to hold with lower target price (TP) of 36 sen: AirAsia X Bhd’s (AAX) second quarter of financial year 2018 (2QFY18) core net loss was RM73.8 million (+5.2 times year-on-year) after adjusting for non-cash items. This was well below our and consensus expectations as yields and associate contribution disappointed. We cut our FY18 to FY20 earnings forecasts by 40%, 25% and 4% respectively to factor in the weak 2QFY18 and the weaker yield outlook. We roll over valuation base year to 2019 and peg at a nine times price-earnings ratio (PER), a 20% discount to peer average (previously 10% discount to peers), to derive a new TP of 36 sen (-11 sen).

亚航净利飆1.5倍　亚航X次季盈转亏（2018年8月31日）

亚航X（AAX，5238，主板贸服股）也公布次季业绩，净亏5746万令吉，去年同期则净赚4744万令吉；营业额则按年微升1.67%至10亿5360万令吉。

上半年而言，亚航X也由盈转亏，亏损1596万令吉，前期净赚5777万令吉；营业额按年涨4.60%，至23亿1895万令吉。

KUALA LUMPUR (Feb 21): AirAsia X Bhd (AAX), whose co-founder Tan Sri Tony Fernandes expects 2019 to be its best-ever year, posted a net loss of RM99.27 million or 2.4 sen per share for the fourth quarter ended Dec 31, 2018 (4QFY18), a contrast to net profit of RM84.42 million or two sen per share in the previous corresponding quarter.

Quarterly revenue dropped 5.93% to RM1.15 billion from RM1.22 billion in 4QFY17, according to its filing with Bursa Malaysia today.

The low-cost long-haul carrier attributed the loss-making quarter to lower operating profit as a result of increase in average fuel price of US$89 per barrel in 4QFY18 compared with US$69 per barrel in 4QFY17.

FY18 performance remains in the red. AAX recorded net loss in FY18 to the tune of –RM312.7m. Excluding exceptional items, the normalised net loss of -RM219.2m, missed ours and consensus’ expectations by a variance of more than 10%. The negative variance was due to the increase in overall opex, as a result of the +28.0%yoy rise fuel expenses in FY18 and the provision for an impairment amount due from the joint venture.

Flattish growth in revenue. Revenue in FY18 was little changed, declining only by -0.4%yoy. Revenue from ticket sales, ancillary and lease income also showed flattish trend except for freight services which jumped +7.0%yoy. The freight services segment was supported by the introduction of Redbox logistics, its new logistics arm but contribution to overall revenue remains low at <10%.

Load factor maintained at the expense of lower fares. Although the +2.8%yoy growth in ASK outstripped the +1.9%yoy growth in RPK due to the introduction of four new routes, the average load factor was maintained above 80%. Load factor remained resilient despite the increase in frequencies to Honolulu, Hangzhou, Sapporo, Busan and Taipei. The strength in load factor was supported by passengers carried growing to a record of 6.2m in light of average fares which were lower by -5.3%yoy at RM477. A load active strategy stands well in handling competition but only positive in routes that reached over capacity.

Fuel price was the major culprit for losses. With average fuel prices rising by +34.7%yoy in FY18, fuel expenses climbed +27.9% higher. As a result, fuel costs made up 40% of total operating costs in FY18, +7ppts more compared to the year before. Consequently, the annual average RASK-CASK spread turned negative for the first time in three years. Looking ahead, AAX has embarked on more conservative hedging policy; increasing its average hedge ratio to ~50% in FY19 compared to ~14% in FY19.

AAX reported a headline net loss of RM99.3m in 4QFY18. Excluding a forex gain of RM12.7m, deferred tax charge of RM117.3m, other one-off loss of RM14.1m and impairment on amount due from IAAX of RM24m, the Group would have reported a core net profit of RM43m for 4QFY18. For full year FY18, AAX recorded a core net loss of RM57m, which was slightly below our loss estimates of RM63m but above consensus loss estimates of RM49m. We maintain our earnings forecasts and reiterate our Neutral call on AAX with target price of RM0.23, based on 10x FY19 EPS.

4QFY18 revenue declined 6% YoY to RM1.1bn, bringing its FY18 revenue to RM4.5bn for a flattish YoY growth. This is mainly due to a drop in average base fare to RM490 (-6% YoY) on the back of promotional fares for new routes as well as termination of longer haul routes e.g. Kathmandu and Tehran. Meanwhile, ancillary revenue per passenger also weakened by 3% YoY to RM171, in-line with lower passengers carried during the quarter (-3% YoY) and lower baggage and onboard meals sold per passenger

Lower EBITDAR amid lower revenue and higher fuel costs. AAX reported lower cost per average seat km excluding fuel (CASK ex-fuel) for 4QFY18 to 6.94 sen (-16% YoY) amid lower maintenance, overhaul and user charge costs (-18% YoY) due to lower ground handling cost at foreign stations. Other operating expenses also declined by 39% YoY as it cut its marketing expenses during the quarter. Total fuel cost during the quarter increased 27% YoY to RM488.2m due to average fuel price increasing 29% YoY to USD89/bbl (vs USD69/bbl in 4Q17). During the quarter, it also recognised an impairment on amount due from Indonesia (IAAX) amounting to RM23.5m, bringing its full year provision to RM161.7m.

Associates’ performance. Thailand (TAAX) reported a net loss of USD7m for 4QFY18 mainly due to higher fuel costs. During the quarter, TAAX average base fare was down 5% YoY to USD138. This was mainly to stimulate demand for its new route to Nagoya launched in October 2018, though softer demand from Chinese tourists also weighed on fares. Meanwhile for IAAX, management plans to operate on a non-scheduled commercial basis. Currently, the aircraft remain grounded as it still finalising the lessor for the wet lease option.

Outlook for 2019. AAX will be adding up to 5 aircraft in 2019, with all allocated to TAAX. The Group expects operational CASK ex-fuel to be lower in the coming quarters due to cost saving initiatives mainly driven by lower aircraft lease rates and ground handling cost at some foreign stations. AAX targets to save on aircraft lease rates by c.USD19m per annum from March 2019 onwards. To-date, AAX has hedged about 51%-53% of fuel cost (i.e. Brent) at USD61-67/bbl for 2019 (Table 4).

AAX has never made any quarterly profit since day one, allways making lossess

If you look at the chats and comments, you will realize that most are short term traders. So there are few fundamental investors. Well short term traders buy based on market sentiments. I guess you can see that with the Hamas and Ukraine conflicts, travel is not going to have a bright future.