This article first appeared in The Edge Financial Daily on May 2, 2018

KUALA LUMPUR: Analysts said net profit and revenue growth at Asia’s largest budget carrier is likely to pick up this year, after booking a 16.4% year-on-year (y-o-y) growth in passenger volume across its Malaysia, Indonesia and the Philippines operations to 10.65 million in the first quarter of this year (1Q18).

“We maintain our forecasts on AirAsia Group Bhd for now, but sustained growth provides potential upside to our earnings forecasts if cost is kept under control,” Affin Hwang Capital Research senior associate director Loong Chee Wei told The Edge Financial Daily.

Loong is forecasting AirAsia’s core net profit to come in at RM1.45 billion for the financial year ending Dec 31, 2018 (FY18), up 17.8% from RM1.23 billion in FY17. Revenue, however, is expected to be 10.5% lower at RM8.7 billion in FY18 from RM9.71 billion in the previous year.

“Our full-year forecast for AirAsia’s net profit in FY18 is actually a conservative expectation,” he added.

Loong pointed out that rising oil prices recently could pose a challenge for AirAsia to manage its cost. However, he believes this could be mitigated by a strengthening ringgit.

He also commended AirAsia’s move to sell its aircraft leasing operations under wholly-owned subsidiary Asia Aviation Capital Ltd to San Francisco-based BBAM Ltd Partnership for US$1.18 billion (RM4.64 billion).

“The sale of the leasing operation will realise a one-off gain of about RM976.1 million that will help bump up its profit this year. Moving to a more asset-light model will also benefit AirAsia in the long term,” Loong added. Last Friday, AirAsia announced that its available seat kilometres (ASK) increased 18% y-o-y, while revenue passenger kilometres (RPK) grew 15% y-o-y in 1Q18. AirAsia’s 1QFY18 financial results are expected to be released on May 24.

“The growth achieved in 1Q18, especially [that of] RPK, is tracking above our forecasts. The first quarter is traditionally strong due to the Chinese New Year festive period. The addition of new routes in Indonesia and the Philippines, and frequencies on 13 routes in Malaysia also spurred the increase in ASK and RPK,” Loong said, adding that he is projecting the airline’s ASK and RPK to increase 17% and 12% y-o-y in FY18.

MIDF Research also expects AirAsia’s core net profit to rise 29% to RM1.6 billion in FY18 from RM1.24 billion in FY17, while revenue is likely to only grow a marginal 0.8% y-o-y to RM9.78 billion.

Its aviation analyst Danial Razak noted AirAsia’s 1Q18 operational results were robust, setting an encouraging sign throughout the year.

“The growth of ASK in 1Q18 was above our expectations of 10% y-o-y. We expect ASK to pick up further in FY18 as AirAsia plans to add about nine more aircraft to its [Malaysia, Indonesia and the Philippines operations] in 2018,” he added.

Danial said he remains “positive” on AirAsia’s earnings prospect predicated on stable demand growth with continuous ASK expansion and new areas of growth in AirAsia India and AirAsia Japan.

PublicInvest Research aviation analyst Nur Farah Syifaa’ Mohamad Fu’ad is also upbeat on the outlook for AirAsia, expecting its core net profit to increase 66.2% to RM2.62 billion in FY18 compared with RM1.58 billion in FY17, while revenue will rise 6.5% y-o-y to RM10.34 billion in FY18.

She added that AirAsia’s 1Q18 operating statistics came in within the research firm’s expectations.

Nur Farah is maintaining an “outperform” call on AirAsia with a target price of RM5.03 pegged on a higher 13 times forward FY19 earnings per share.

According to Bloomberg data, of 16 analysts covering the stock, there are 11 “buy” calls, four calling for “hold” and one with an “underweight” rating.

AirAsia shares closed down 12 sen or 3.02% at RM3.85 on Monday, with a market capitalisation of RM12.87 billion. The stock has risen 14% over the past year.