CIMB Equities Research has lowered AirAsia X’s target price from 75 sen to 72 sen which is 12.2% below the last traded price of 82 sen after wider-than-expected losses and the recent run-up in its share price.
It said on Wednesday AAX’s Q2, 2016 results were below expectations, with H1, 2014 core net loss of RM225mil already exceeding its previous full-year loss estimate due to weaker-than-expected yields.
“As such, we more than double our loss forecasts for FY14-15 and reduce our target price, based on its average P/BV since IPO of 1.75 times (from 1.5 times previously).
“We believe that Malaysia Airlines (MAS) will be forced to cut back capacity deployments in 2015 and AAX’s FY15 losses should be reduced. With the share price already up 19% from its recent low, however, we downgrade the stock from Hold to Reduce.
“De-rating catalysts include likely continuing annual losses in Malaysia until FY16 and at least two years of start-up losses from new associates in Thailand and Indonesia. Switch to AirAsia,” it said.
AAX’s revenue per ASK capacity (RASK) fell 19% on-year during 2Q14, continuing from 1Q’s 18% on-year decline and 4Q13’s 17% drop, due to excessive capacity expansion since 3Q13.
Australia’s RASK fell 23% on-year in the quarter, a slight improvement from 1Q’s 30% fall, but North Asia’s RASK decline worsened from a 5.2% on-year fall during 1Q to a 6.6% on-year decline during 2Q14 as Nagoya was launched in mid-March.
The 49%-owned associates, Thai AAX and Indonesia AAX, reported combined start-up losses of RM14mil as TAAX began operations in April and started flying to Seoul in June. Malaysia losses to narrow in 2H14 and FY15
“The 2Q is AAX’s seasonally-weakest quarter and the 2H14 should see a natural seasonal uplift,” said the research house.
CIMB Research also pointed out as much of FY14’s capacity expansion was put in place in 2H13, the on-year RASK declines should narrow over the next half year as demand picks up to fill the available capacity.
It forecast losses should narrow further in FY15 as AAX is only adding two to three planes to the Malaysia fleet next year, with the remaining five to six deliveries allocated to TAAX and IAAX. This is less than half the pace of the 11 plane additions to AAX’s Malaysia fleet over 2013-14.
“Potential MAS capacity cutbacks will also directly benefit AAX. But associate losses will pick up. TAAX will record losses when new Tokyo Narita and Osaka flights start in September, as will IAAX when it starts flights in 4Q14. These are necessary long-term investments and investors will need to be patient in the near term,” it said.
