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This article first appeared in The Edge Financial Daily on April 30, 2018

AirAsia X Bhd
(April 27, 38 sen)
Maintain buy with a target price (TP) of 46 sen:
During the first quarter of financial year 2018 (1QFY18), AirAsia X Bhd (AAX) added capacity (available seat-kilometre [ASK]) of +10% year-on-year (y-o-y). Accordingly, revenue passenger-kilometre (RPK) followed the same trend, but at a slightly slower rate of +9.5%.

 

ASK continued to grow in 1QFY18 from added frequencies to two routes, namely Hangzhou and Taipei, while its fleet size remained at 22 A330s as of March 2018. According to management, continuous frequency additions on Taipei and other Asia routes was in line with the company’s strategy to strengthen its North Asian market. In February this year, the company began flying to the Maldives and Jaipur.  

In 1QFY18, the company maintained its healthy load factor at 84%, attributable to a continued passenger growth of +13% y-o-y. Notably, passenger growth was seen moving faster than the company’s RPK in 1QFY18, with a growth of 9.5%. We opine that this was partly due to the rotation of some capacity from Australia to the emerging market in North Asia. Given that some routes were relatively new, discounted fares may have been placed, putting downward pressure on the average ticket price. However, we believe the move was strategic in attempt to reap a larger market share from the new routes.

While the load factor stayed at 94% in 1QFY18, total passengers carried grew strongly by 19%. We attribute the increase to the addition of more frequencies on certain routes, with the fleet size remained at six. Moving forward, AAX Thailand may potentially expand its fleet to 10 aircraft, which will drive its ASK higher. Accordingly, this is expected to stimulate faster passenger growth, supported by the high-demand markets in Japan and South Korea.

We expect 1QFY18 earnings to be strong based on healthy operating numbers. As such, we maintain our “buy” call, with an unchanged TP of 46 sen, pegging its FY18 earnings per share at a forward price-earnings ratio of 8.5 times. — MIDF Research, April 27

 

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