KUALA LUMPUR (Jan 19): AirAsia X Bhd (fundamental: 0; valuation: 0.3) rose 15 sen or 2.31% to 66.5 sen after CIMB Research expressed confidence that the company’s turnaround plan might succeed.

AirAsia X shares reached a high of 67 sen earlier in the day but eased to 66.5 sen as at 3.50pm, with some 2.1 million units changed hands, giving it a market capitalisation of RM1.59 billion.
 
In a note today, CIMB Research maintained its hold call on the loss-making, long-haul, low-cost carrier and raised its target price to 70 sen based on sector coverage calendar year 2016 (CY16) price-to-earnings ratio of 11 times.

CIMB Research’s aviation analyst Raymond Yap noted that AirAsia X has responded with creative solutions to tackle its issues, including reducing its aircraft fleet additions, and cutting unprofitable flights to Adelaide and Nagoya in Jan-Feb 2015.

AirAsia X has also locked in substantial outward wet leases in 2015 to remove excess capacity during the winter lull in Australia.
 
“In addition, after factoring in a much lower jet fuel price of US$90/barrel, we are now expecting AirAsia X to achieve a small core net loss of RM31 million in 2015 (revised from a RM149 million loss), followed by RM151 million core net profit in 2016 (revised from RM116 million profit),” Yap said.
 
Although the stronger US dollar is negative for AAX’s operating costs and debt burden, its impact would be offset by the huge savings from lower jet fuel prices, even from a cash perspective, he added.
 
“We previously set a two-year forward target price of 78 sen, based on 8 times calendar year 2017 (CY17) price to earnings ratio(PER), because we could not value AAX based on its CY16 earnings, which we had earlier expected to be very small.
 
After today’s earnings per share (EPS) upgrades, we are now reverting back to our usual one-year forward target price, which we set at 70 sen, based on the sector average CY16 PER of 11 times.
 
“We emphasise that although our official target price has been changed from 78 sen  to 70 sen, this is not at all a downgrade, only a change in the time horizon,” he said.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)